What Happens If Mortgage Financing Falls Through Before Closing in Alberta?

What a financing condition does, and what happens when it fails

A financing condition is a clause in an Alberta purchase contract that lets a buyer walk away if their mortgage doesn’t come through by a set deadline. It’s the buyer’s main protection against being locked into a purchase they can’t actually pay for. When that deadline arrives and the condition hasn’t been satisfied or waived, neither party remains bound to continue with the deal, regardless of whether the unmet condition was financing, a property inspection, or a buyer’s home-sale condition. The contract simply ends on its own terms; no one has to formally cancel it.

That “neither party is bound” outcome is automatic. The contract doesn’t stay open in some pending state waiting for the buyer to sort out a new lender or the seller to decide whether to grant more time. Once the deadline passes without the condition being met or waived, the deal is over as a matter of contract, and Alberta’s real estate regulator treats the contract as null and void at that point, meaning it legally no longer exists.

Why financing falls through even when a condition is in place

Buyers sometimes assume a financing condition is just a formality once they’ve been pre-approved. It isn’t. Financing can still fail for reasons outside the buyer’s control even with a condition properly in the contract. One documented example in Alberta’s market: a property sells above asking price, but the lender’s appraisal later comes in below the agreed purchase price. Because most lenders will not loan more than a property’s appraised value, that gap can be enough to sink the financing even though nothing went wrong with the buyer’s credit or income.

This is one reason the financing condition deadline matters so much: it exists precisely because approval isn’t guaranteed until the lender has confirmed the numbers, and appraisal shortfalls, along with other lender-side issues, can surface only after an offer is accepted.

The special risk of a condition-free offer

Buyers in competitive markets sometimes submit offers with no financing condition at all, to make the offer more attractive to a seller. That choice carries its own risk. Making an offer without financing already in place substantially increases the chance the deal will collapse, because there’s no built-in exit if the mortgage doesn’t materialize.

The financial consequence is also different from a standard conditional deal. If a buyer waives the financing condition and then can’t complete the purchase, they may forfeit their deposit, with the exact outcome depending on the wording of that specific contract. That’s a materially different position from a buyer whose financing condition simply expires unmet: in that case the contract ends and neither party is bound, whereas a condition-free buyer who can’t close has already given up that protection.

What happens next if the deal falls apart

Once a financing condition deadline passes unmet, there’s no way to patch the existing contract. A void contract can’t be amended, because there’s nothing left to amend. If the buyer and seller both still want the sale to happen, perhaps because the buyer has since lined up different financing, the only path forward is a new purchase contract that the seller has to accept fresh; the old terms don’t carry over automatically.

Even where both sides agree the deal is dead and have no interest in restarting it, it’s worth having something in writing that confirms that. Alberta’s real estate regulator recommends that the parties sign a mutual release once a financing condition fails, specifically because it is tempting to try to informally patch a deal that has already ended, when the contract is legally void the moment the condition date passes. A signed mutual release gives both sides a clear record that the purchase contract is over and neither party has ongoing obligations under it.

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