With any investment, there is always risk. Developers normally use the deposit money of the purchasers to help build their projects so the question is, is your money safe and insured if they do? When purchasers buy a new construction condo, the deposits that they provide are insured by Tarion (a non-profit organization that governs the actions of developers) and insures up to $20,000 of purchasers deposits. Because this $20,000 deposit amount is a lot lower than what developers want to use (and what your deposits are), there is supplemental insurance that a developer can purchase to ensure a purchaser’s deposits and allow them access to use it to build.
It is a lot cheaper for a developer to purchase excess deposit insurance coverage and use your deposit money to build, than to get a loan. But to use the deposit money in excess of what is covered by Tarion, they have to provide this insurance on the off chance that they go bankrupt or don’t complete the project.
We encourage our clients to ask their lawyer if there is this standard clause in their agreement to protect their deposits if they buy into a new construction project.