By Andy MacDonald | July 3, 2025
I was recently hired to write an expert witness report for a case that perfectly illustrates the domino effects of the real estate correction that started in 2022.
As you may recall, the Bank of Canada began to raise interest rates in the spring of 2022, signalling the beginning of the end of the real estate party that had been going on since the start of the pandemic. From March to October 2022, the Bank of Canada raised interest rates by 3.50%. The days of cheap money and real estate hysteria were over. Left in its wake were otherwise responsible people who could no longer live up to the contractual obligations of their real estate transactions.
At the peak of the hysteria, much to my chagrin, it was common practice for purchasers to commit on a property before selling their current home. This always terrified me, but when the market was humming along, there were seldom any issues.
Fast forward to 2022, when the defendants in the case in which I was hired agreed to purchase the plaintiffs’ home. The defendants had not sold their current home before entering into the agreement, and due to the sudden change in the real estate market, they were unable to sell their home prior to closing. As the defendants were relying on the sale of their principal residence to fund the purchase, they were unable to close.
Meanwhile, relying on the “firm” sale of their home, the plaintiffs had purchased another property. With the aborted sale of their current home, the plaintiffs decided not to close on the purchase of their new home. The vendor sued them.
The plaintiffs sued the defendants not only for the losses incurred from the eventual sale of their home but also for the domino effect losses that they were sued for on the home that they had failed to close on.
I was hired to offer my expert opinion on whether the plaintiffs should have been able to close on the purchase of their new home even after the sale of their current home aborted.
The plaintiffs had significant equity in their current home, solid jobs, verifiable income, and very little debt. Since they were downsizing on the new purchase, they would have been mortgage-free if the sale of their principal residence had closed. My job was to opine on whether the plaintiffs could have arranged financing to close the purchase of their new home.
After reviewing the numbers, it was clear that several lenders would have stepped up with financing. But at what cost? Would the plaintiffs have to use a mortgage investment company (MIC) or a private lender, or would they be able to find institutional financing through a bank or credit union? Although the plaintiffs claimed that their bank had declined their request for financing, my view was that any competent mortgage broker could have arranged financing for them. The only question was how to structure the financing to minimize costs.
This sort of financing is more of an art form than a science, so there would have been several ways to structure the mortgages required. My report offered up three plausible scenarios with different cost structures. With limited financial information on the plaintiffs, it was impossible to say with certainty that they would qualify for financing via a low-cost provider like a bank, but it was clear that a MIC or private lender would have provided financing, albeit at a higher cost.
If this goes to court, a judge will have to determine whether the plaintiffs acted reasonably in failing to close their purchase after their bank declined their financing application. Should they have explored alternate financing options? Could they have mitigated their losses? Either way, the original failure to close by the defendants led to a domino effect that impacted several other transactions and innocent parties. What a mess!
Andy MacDonald is a licensed mortgage broker, financial advisor, expert witness and songwriter with 35 years’ experience in the real estate industry.
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