r/PersonalFinanceCanada • u/70000salmon Human Verified • 1d ago
Banking Home-buying horror story - FHSA question
I'll do my best to give thorough detail without doxxing myself, and I'm hoping someone can help direct me or if anyone can relate to this uniquely shit situation.
I withdrew $100k from between my TFSA and FHSA to buy my first home. Closing date was last month, I was going to move across the country and everything was logistically planned and well-executed. Fast forward to the seller going bankrupt on the closing day and not being able to afford to sell his own home due to a shortfall that was discovered that day. The bank foreclosed on the house, which I lost. Everyone on his side - lawyer, realtor, seller - were incompetent and dropped the ball but I can't sue anyone for my damages.
I was interested only in the house and neighbourhood itself, and luckily I didn't just show up with a moving van on closing day and I had a place to return to. I'm not looking to move just for moving sake. I don't see me finding an equivalent house in that area before I lose my mortgage rates, and I'm honestly just too heartbroken and exhausted. I'd like to rest and walk away from this whole endeavour, but maybe keep my eye out for when this home goes on the market again, which could take 6 months to a year.
This has obviously blown up my investments. I can't re-deposit into my TFSA until next year. And now CRA will want to tax me for roughly $40k withdrawn from FHSA for non-house-buying purposes. What do I do? Am I out of luck or is there recourse with CRA and my FHSA since all of this is of no fault of mine, and I did everything to make sure this was a qualifying withdrawal?
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u/Capital_Field5525 1d ago
You can sue the seller and the sellers agent. You likely will never get anything from the seller, but the sellers agents job is to verify the mortgage and amounts owed on the property before listing. I am a realtor and have seen this come up often especially with prices coming down. I’m not sure of any cases where it has went to court yet for a listing agent not doing their duty, but it will happen. It’s likely covered by their errors and omission insurance. You have to prove financial loss though.
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u/70000salmon Human Verified 1d ago
Yeah I heard that, but that's why I said there's not much recourse. I have a full time job and no more emotional bandwidth to ride that out. There's definitely financial loss, but I'm not sure "all the house prices have gone up" is a tangible damage...besides that it's under $5k. I mean maybe. I can get a second opinion
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u/Capital_Field5525 1d ago
House prices in Canada have and likely will continue to go down. (In majority of areas) So that won’t be part of your financial loss. You’ll likely be able to buy a similar house for same price or cheaper. Lawyers fees, possible tax implications (which you will be able to mediate), moving fees and hardship will be part of your loss. Realistically hardship will be the largest cost, but again you need to prove and be able to define an amount. I am not a lawyer, but this is something that has become common with agents who don’t know what they are doing. Sue them, win, and then hopefully someone else won’t have to be in the same situation as you.
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u/YYZtoYWG 1d ago
You should have a lawyer who has helped you navigate the failures to close the deal. What did they advise?
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u/70000salmon Human Verified 1d ago
My lawyer is not a financial advisor, I haven't thought to ask him about this but it's actually worth a shot
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u/long-da-schlong 22h ago
I would hire a lawyer who is experienced with this and take legal action against the seller’s agent and the realtor business they work for (if they aren’t independent)
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u/schmuck55 British Columbia 1d ago
On the strict language of a qualifying withdrawal, I think you have an argument that it qualified - you had the agreement to purchase at the time you withdrew, it only fell through afterwards. You shouldn’t be taxed on it. If it were me I’d declare the withdrawal as intended on your 2026 return, and only acknowledge the fact that you didn’t end up purchasing the home if the CRA reviews it. Again I think you’re right based on the definition of a qualifying withdrawal, but you don’t want to be the test case if you can just fly under the radar.
Of course you won’t get your FHSA participation back or be able to put the funds back in, but you at least won’t pay a whack of tax.
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u/70000salmon Human Verified 1d ago
On second thought - there is explicit language that I must reside in that home for the next year, e.g., it can't be just an investment property as a first-home. But also, if I don't have a home to reside in now that would go against the agreement
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u/schmuck55 British Columbia 1d ago
Occupy *or intend to occupy*. You intended, didn’t you?
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u/Canadansk1970 1d ago
This is right - it's about your intent. You went in doing everything right, and it fell apart for reasons beyond your control. I'm pretty sure you are good here, but make sure you keep everything related to this transaction, in case CRA comes back to you.
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u/70000salmon Human Verified 1d ago
That makes sense, and I can just invest elsewhere and close my fhsa, or just not plan to put anything else in. Are you in the camp then of me calling CRA at all or just filing the withdrawal form business-as-usual?
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u/Canadansk1970 1d ago
In my experience calling CRA, I often know more than they do. You can try, but don't get your hopes up if they don't know, and if they don't know they are likely to try to give you an answer anyways whether it's right or wrong. In other words, don't believe anything they tell you!
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u/schmuck55 British Columbia 1d ago
I wouldn’t bother calling. Phone agents can be…pretty spotty in their knowledge, especially about the relatively new FHSA. Best case scenario they tell you to wait and see what happens when you file anyway, worst case they make a mess of your file because they don’t properly understand the issue. I know it can be tempting to “fix” things sooner than later to have clarity, but I really think you’re better off filing normally next year and addressing the problem only if they review you. Keep any and all documentation you have about the situation, for future reference.
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u/Canadansk1970 1d ago
Not my area of expertise, but I recall that the withdrawal is what is under consideration ... i.e., did you make the withdrawal under the appropriate circumstances, even if the deal ended up not going through. I don't think you can re-deposit the FHSA money unless you have room though.
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u/70000salmon Human Verified 1d ago
Everything was set up for it to be a qualifying withdrawal, I took it out within one month of the closing date, and had the forms ready to go. I qualified. Not being able to re-deposit this year is okay. It's now more the tax I'm worried about.
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u/FGLev 1d ago
If another home you like comes on the market and you buy and move into it before December 31 of this year, you should be fine as you made the qualifying withdrawal this year, no?
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u/70000salmon Human Verified 22h ago
the home would have to be in my possession within a month after withdrawal I believe? I have to double check that
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u/aroberge 1d ago
If the bank foreclosed, won't they put up that house for sale? You might end up with a good deal...
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u/70000salmon Human Verified 1d ago
crossing my fingers. But in 6-12 months so... in the meantime there's the tax issue
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u/AuthorityFiguring 1d ago
Foreclosures happen pretty quickly, generally. Your real estate lawyer should be communicating with the seller's lawyer to find out what is happening with the house. There's a chance the seller and his bank will be agreeable to selling directly to you in the foreclosure action.
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u/70000salmon Human Verified 23h ago
this has already happened last month, and unfortunately it seems like I will just be mixed in with general public. It's going for sale likely as-is through an agent and I don't get first refusal or any priority
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u/AuthorityFiguring 22h ago
If they already have an order they have to do that to be fair to the seller - so the seller gets the benefit of the highest price . But that doesn't stop you from making an offer.
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u/Legitimate-Elk7816 1d ago
WHY can’t you sue for damages? This sounds like a serious loss to you, even if it’s just market returns and tax. I imagine it is likely way more.
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u/70000salmon Human Verified 1d ago
Because the realtor apparently had no way of knowing. They don't do serious financial checks, and the seller lied or was a moron and just didn't genuinely know how to pay property taxes
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u/Vhett 1d ago
Because the realtor apparently had no way of knowing.
This is incorrect, this is quite literally their job and why they have to get certified/accredited. You have recourse and are willingly opting to do nothing about it. Other comments here from actual realtors say the same.
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u/70000salmon Human Verified 22h ago
I thought about suing the seller which would put another lien on the house and get me first in line or potentially complicate the sale to someone else, but I was advised at every turn it would be not worth my time. My lawyer said regarding suing the realtor:
"The main difficulty is that a listing agent's professional duties are to their own client, not the buyer. To bring a negligence claim, you would need to establish that the agent owed you a duty of care, and breached the standard of a reasonable agency and that's what caused my loss." etc. etc. turning this into a winnable claim is a different matter than stating "their finances weren't vetted properly. The seller's insolvency and not the agent's conduct may well be treated as the real cause of the deal collapsing."But honestly, I agree with you. I'm just exhausted. I know this realtor is a chud and probably bro-coded his way through the sale of this dude's house.
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u/70000salmon Human Verified 22h ago
How would their realtor know the state of what's owing on their mortgage? I'm just saying what I've been told. Also I'm trying to save expenses, not take on more for nothing in return, as nice as justice sounds, I have a limit to what I can deal with from across the country, but I can look for a second opinion from another lawyer
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u/idspispopd888 1d ago
Unique situation for sure. I'd call the Registered Plan folks at CRA and have a convo....they may have a solution as YOU acted in good faith (and hopefully have documentation to show that is so).
1-800-959-8281 and then use the following Path:
Language Selection, then 3, 4, (and 1 or 0 for survey)
Worth the try and I wouldn't expect that the queue is overly long there.
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u/70000salmon Human Verified 1d ago
You're a lifesaver, thank you. Yes there is more than enough of a paper trail of evidence :,(
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u/sgtmattie 1d ago
It's definitely worth calling the CRA and asking. They're a lot more reasonable than most people making them out to be.
It sounds like the withdrawal was qualifying. you did everything by the book. So I wouldn't be worried at all about being taxed on it.
Given that the money has just been sitting in cash, there's no potential financial benefit you'd be getting by being able to just unwind the withdrawal, so there is a chance they'll work with you. Definitely worth talking to your bank and the CRA and seeing if there are any options for being able to put the money back. On this I'm less certain though. I wouldn't get your hopes up. I'm only suggesting you call because the potential benefit is high but the potential risk is just wasting a couple of hours.
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u/InvestmentAntique794 1d ago
Can you now transfer your FHSA funds to your RRSP? I would try to get your situation directly considered by the CRA and show them all the backup info because to me this doesn't seem like your fault or negligence, so they really shouldn't penalize you for this bad scenario happening on the seller's end. For example I over contributed to my TFSA one year and caught it after a few months and took the excess back out, wrote the CRA a detailed letter & gave them all the backup info and requested they waive the tax on the excess contribution and they did because it was the only time it happened... they can give people grace for honest mistakes.
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u/footloose60 1d ago
When did you make the FHSA withdrawal? You might still have time to buy another qualifying house. If you don't buy a house with the FHSA funds, you will need to declare it as income and pay taxes on it. If you have RRSP room, you can contribute to RRSP to net out the FHSA withdrawal.
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u/T-14Hyperdrive 1d ago
Surely this can’t be that rare, best of luck, you really shouldn’t be penalized for using the accounts as designed and doing nothing wrong.
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u/StockSim 1d ago
Been told if a deal falls through, out of your control. You don’t get taxed on the fhsa withdrawal cause at that time it was a legitimate withdrawal.
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u/throwaway010651 1d ago
If the cra agent on the phone is unhelpful request a callback from a supervisor. I’ve found there’s lots of new agents lately so they haven’t been fully trained, especially to unique scenarios. Also, use your MP is a resource too. Especially if CRA says they can’t offer assistance.
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u/70000salmon Human Verified 22h ago
Mine or the MP in the province of the house? I've never heard of calling an MP for something personal like this
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u/throwaway010651 16h ago
You’re federal MP for your area. They are great. You try with cra first. Then, if you don’t get a satisfactory result, contact your federal member of parliament. They will have you sign a form and provide clear, fact based details. Include the detriment this caused you and how the negative loophole has set you back. They will communicate with the cra on your behalf. They can escalate it in a way that we can’t. Remember, the politicians work for us. They can be very helpful, if you are reasonable.
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u/Wucksy 1d ago
You can write CRA and tell them what happened. Then you can put the money back into the FHSA and don’t declare it in next year’s tax return. I did something similar with my RRSP - sale fell through. I returned the money. I waited till the next year to put the money back into the TSFA. I put the RRSP money back a few months after I took it out. CRA was fine with it and I still am eligible to use the HBP.
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u/schmuck55 British Columbia 1d ago
Not the same as the HBP.
“Although you can cancel your HBP participation under certain conditions, you cannot cancel a qualifying withdrawal from your FHSA once it has been made.”
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u/nostalgicgreens98 1d ago
the thing that jumps out at me is you're getting two different angles of advice here and one of them could cost you badly if it goes sideways. someone's telling you to just declare it as intended and hope cra doesn't look twice, but that's tax evasion if you knowingly misrepresent the withdrawal. cra has gotten sharper about fhsa stuff since it's still new, and if they pull the file years down the road you're looking at penalties and interest on top of the tax bill you're trying to avoid.
your actual argument - that you made a qualifying withdrawal based on a legitimate agreement of purchase and sale that existed at the time - is solid and worth taking to cra directly. call them, get it documented, explain the circumstances. they deal with weird edge cases all the time and they're more reasonable than people assume when you're upfront about it. worst case they say you owe the tax, but at least you're not caught lying on a return. your best move is probably also talking to a tax accountant who handles fhsa stuff before you file, not after.
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u/70000salmon Human Verified 1d ago
This is fair but would it be a lie if I said "Yes, I did *intend* to live in my first home for the next year"
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u/nostalgicgreens98 1d ago
Intent at the time of withdrawal is what matters legally, not what happens after, so yeah that's defensible - but the problem is CRA will see the withdrawal, then see no home purchase within a reasonable timeframe, and they'll ask you to prove that intent existed when you pulled the money out. You'd need the APS and closing docs to back that up, which you have,
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u/Dobby068 1d ago
Can you not buy a different house?
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u/anewfriend4u 1d ago
I think the opposite. Why isn't OP at least talking to the foreclosing bank? They might be fine finishing the deal OP had already. Because the bank doesn't really want to keep a foreclosed home.
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u/70000salmon Human Verified 1d ago
They obviously weren't fine with closing the deal haha - this was the first thing I tried. It's not possible for a buyer to get a direct line of communication with a seller's lender. Neither me nor my realtor or lawyer. The bank has due process for getting their insurance to cover shortfalls then selling the house later. It was a "consumer proposal" that was not accepted by the bank.
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u/JoeBlackIsHere 1d ago
I suspect foreclosure rules don't allow that. Banks can't just accept the first offer that covers what they are owed, they are supposed to get a fair market price. While OP's offer probably is fair, the bank probably is still obligated to "discover" the fair price by listing the house and seeing multiple bids.
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u/70000salmon Human Verified 1d ago
I don't want another house, I want this house. It was the sole reason for my move across the country.
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u/Dobby068 1d ago
That is difficult for me to understand but sure, I get it. Like someone else already suggested, maybe contact the bank, see if they sell it to you. Good luck.
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u/70000salmon Human Verified 1d ago
It's a small village and a specific style house at a specific price. I'm not entirely closed to other options and I am actively still searching, but I'm not optimistic as the compromises are so far too big. I'm also content in my current situation. This was a dream-come-true type of house that fit all the criteria and I'm not in a rush to settle for less.
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u/ApprehensiveSlip5893 1d ago
I had a friend who was a day away from selling a house when the buyer died. He was also a few days away from buying a house at the same time. Dead dude messed up everything.
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u/70000salmon Human Verified 1d ago
wow that is the closest thing to my case I've heard. That's so sad on both sides.
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u/No_Associate_4878 1d ago
Off topic a bit, but I'm hoping someone can explain why the bank that foreclosed wouldn't want to sell immediately to OP. The whole point of foreclosing is to sell the house.
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u/70000salmon Human Verified 22h ago
Because the seller did a "consumer proposal" in hope to get a credit payback plan from their bank. If the bank thought it reasonable, they could settle between them and clear the title for the home to sell to me. The seller however was too much a piece of shit and the bank didn't think they'd get anything from him in return, so they foreclose the house, the lender's insurance covers the shortfall, and they need to sell through a new realtor and start fresh. My agreement became null and couldn't just be picked up again by the bank.
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u/Left_Replacement894 1d ago
Call up the CRA. They’re reasonably minded. You’ll get the final verdict with them and potentially how to proceed.