Humber/Ontario Real Estate Course 4 Exam Practice

A buyer gives a deposit of $5,000 to a brokerage, which is placed in the listing brokerage's trust account. The listing brokerage then becomes insolvent and all trust monies are misappropriated. What can the buyer do?

1. Claim under the errors and omissions coverage within the insurance program.

2. Claim under the insurance program's consumer deposit coverage.

3. Claim under the RECO Insurance Program for misappropriation of funds.

4. File a lawsuit against the listing brokerage.

5. Seek reimbursement from the co-operating brokerage.

6. The buyer's deposit would be lost, as misappropriation does not fall under the insurance program’s coverage.

The correct answer is: Claim under the insurance program's consumer deposit coverage.

The choice that a buyer can make in this situation involves claiming under the insurance program's consumer deposit coverage. This option is valid because insurance programs that protect consumer deposits are specifically designed to safeguard buyers against situations where trust funds are misappropriated or lost due to the insolvency of a brokerage. These programs serve as a financial safety net for buyers who have placed deposits for property transactions, ensuring they can recover their funds when such unfortunate events occur. Consumer deposit coverage is essential in real estate transactions as it helps build trust between buyers and the brokerage system, providing a sense of security. Thus, in cases where a listing brokerage misappropriates trust funds and becomes insolvent, the appropriate recourse for a buyer is to utilize the consumer deposit coverage offered within insurance programs specifically tailored for these circumstances. This option aligns with the risk management strategies in the real estate sector designed to protect consumers. In contrast, other options do not specifically address the unique situation of deposit misappropriation. For example, claiming under errors and omissions coverage typically pertains to claims related to professional negligence or mistakes made by the brokerage, rather than financial misappropriation. Filing a lawsuit against the listing brokerage may be challenging given their insolvency, and reimbursement from the co-operating brokerage is