Homebuyers set to lose unprotected deposits of up to $150K after GTA developer refused licences

Hasmukh Patel and his wife thought a brand new townhouse in Richmond Hill, Ont.,would be the perfect place for them to retire in a few years.

But within a year of signing a pre-construction purchase agreement, the Etobicoke couple's plan, which included borrowing $250,000 through a line of credit to pay for their deposit,has turned into a nightmare.

The 72-townhouse project Boss Luxury Towns from Ideal Developmentswas cancelled last fall after the developer was charged by Ontario's Home Construction Regulatory Authority for operating without a licence and was later refused a licence by the provincial oversight body.

Since then, the secured lenders for the project have started a receivership proceeding to sell the development land near Yonge Street and Bond Crescent to recoup their loans. If the sale is approved by the court Tuesday, Patel and otherfreehold townhouse purchasers were told there likely won't be any money left over to pay back their deposits.

"I'm basically killed, because what will I do now?" said Patel. "All of my life with my pension money, with my wife's pension money, everything will be going to the bank."

Millions in deposits not protected

The 61-year-old is one of 29 purchasers who CBC News has confirmed put down a combined $5.7 million in deposits across two cancelled townhouse projects fromIdeal Developmentswhere construction never started. Their individual deposits range from $120,000to $250,000.

The group of buyers stands to collectively lose $2.8 million because Ontario's home warranty program only protects a maximum of $100,000 for freehold home deposits and unlike with condos, the developer isn't required to hold deposits in trust.

For Patel, that could mean losing $150,000 and delaying his retirement indefinitely.

"My wife can't work.I have to do something," Patel told CBC News. "Every month, I'm paying $700 interest for the money I borrowed from the bank."

In an email, Ideal Developments'founder Shajiraj Nadarajalingam told CBC News the developer couldn't comment for this story because matters relating to the properties are before the courts.

"I will say that we will continue to do whatever we can reasonably do to assist the purchasers with respect to their interests in the subject properties," said Nadarajalingam.

It used to be uncommon for pre-construction projects to collapse, but it's happening more and more often because the Greater Toronto Area's red-hot real estate market has enticed new developers into the field, says a veteran Toronto real estate lawyer.

"There's so much money to be made," said John Zinati. "That's when you have a greater likelihood of these types of situations where a builder maybe doesn't have the experience to handle the financing and build the project properly."

CBC News previously reported on Ideal Developments in March 2021, when pre-construction buyers from a different project in Richmond Hill found out that the developer had transferred the land to another company that wasn't planning to honour their agreements of purchase and sale. But in that case, the agreements were for condo units where the deposits were protected.

Developer charged with alleged illegal vending

In August 2021, the subsidiary company behind Patel's project Ideal (BC) Developments Inc. was the first builder to be charged by the Home Construction Regulatory Authority (HCRA) since the oversight body began operations in February 2021.

The developer is facing 10 counts of alleged illegal vending for entering into agreements of purchase and sale without a licence for freehold townhouses in the Boss Luxury Towns project and without being registered with Ontario's home warranty program through Tarion Warranty Corporation.

None of the charges has been tested in court.

A month later, the HCRA refused to grant Ideal (BC) Developments a licence, refused to renew the licences of two other subsidiaries, and renewed Ideal Developments Inc.'slicence with the stipulation that it only use the licence to complete the building of a luxury custom home in Markham.

Ideal Developments and its subsidiaries areappealing the HCRA's licensing decisions to the Licence Appeal Tribunal, which has yet to schedule a hearing for the case.

Deal on closing with big deposit buyers say

Patel agreed to put down a $250,000 deposit for his townhouse in May 2021because he said if he did, the developer promised to give him a $200,000 discount on the purchase price at closing.

The offer is an "extreme example" of why Zinati says prospective buyers should get their agreements of purchase and sale reviewed by a lawyer before signing the dotted line.

"The lawyer would have said or should have said 'Look, there's something wrong here,'" Zinati told CBC News. "You're getting incentivized to produce a large deposit, which is not secured, on the idea that you're getting a discount."

Patel isn't the only one who sayshe was sold onhis townhouse based on the $200,000 deal.

Yen-Hui Fa put a $250,000 deposit down in March 2020 for a unit in Ideal's Richmond Towns development because he saidhe was promised the same discount.

But like Patel's project, the Richmond Towns development at Major Mackenzie Drive and Lennox Avenue was cancelled in October of last year after the developer's licences weren't renewed.

No construction, but deposit gone

"They should be held accountable," said Fa, a first-time homebuyer. "There has been no sort of construction and yet they're not willing to return my deposit."

After months of trying to contact the developer to get his deposit back without success, Fa sued the developer and Nadarajalingam in Ontario Superior Court in February to recoup his $250,000 deposit plus $300,000 in damages connected to alleged negligence leading to the developer losing its licences.

"There's a lot of uncertainty," Fa told CBC News. "I have a girlfriend, we want to get married and also start a family, but now everything is on pause due to the fact that we're down $250,000."

In its statement of defence, Ideal Developments' subsidiary for the projectand Nadarajalingam said there was no requirement to hold Fa's deposit money in trust. After Ideal's licence wasn't renewed, the court filing says the developer's mortgage on the property went into default and the mortgagee listed the property for sale.

"Deposit monies were used for development costs (which included consultant fees, marketing and sales costs) and carrying costs of the land (such as mortgage payments and property taxes). Therefore, Ideal MM is not in a position to return the plaintiff's deposit," reads the statement of defence.

Once secured creditors start trying to sell off the development land to recover what they're owed, unit purchasers are left in a tough spot, saidinsolvency lawyer Matthew R. Harris.

Not much recourse for purchasers: lawyer

"There's no easy answer," said Harris. "Individuals can look at taking actions against a particular company or individual, but usually it's unlikely that there's anyone to pursue at that point."

He told CBC News that while it might seem unfair to purchasers who've put down large deposits, if big lenders didn't have security through mortgages on the development property they wouldn't lend the money and there wouldn't be financing for these kinds of projects in the first place.

To protect yourself, Zinati said make sure your deposit is secured, have a lawyer review the agreement for red flagsand do your homework on the builder.

"We actually tell clients to go and knock on some doors and ask people who bought from this builder before how their experience was," he said.

"You want to know who they are before you enter into such a big contract."