Humber/Ontario Real Estate Course 3 Exam Practice

A buyer purchases a home through a co-operating brokerage and gives the brokerage $5,000 as a deposit, which is placed in the listing brokerage's trust account. The listing brokerage becomes insolvent and misappropriates the deposit. What recourse does the buyer have?

1. The buyer can make a claim under the RECO Insurance Program, as applicable coverage is found in the consumer deposit component of the policy

2. The buyer would lose the deposit, as the RECO Insurance Program does not provide consumer coverage relating to misappropriation of funds

3. The buyer can make a claim under the errors and omissions coverage within the RECO Insurance Program

4. The buyer can make a claim under the RECO insurance coverage, but it would be subject to a $2,500 deductible

The correct answer is: The buyer can make a claim under the RECO Insurance Program, as applicable coverage is found in the consumer deposit component of the policy

The correct answer is that the buyer can make a claim under the RECO Insurance Program, as applicable coverage is found in the consumer deposit component of the policy. This is accurate because the Real Estate Council of Ontario (RECO) provides a consumer deposit insurance program that is specifically designed to protect buyers in situations where their deposit is misappropriated by a brokerage or its representatives. In this scenario, since the listing brokerage became insolvent and misappropriated the deposit, the buyer would be entitled to seek compensation from this insurance program. The RECO Insurance Program aims to provide consumer protection against financial loss in these types of situations, ensuring that buyers have recourse available to recover their lost deposits. The other options do not reflect the coverage provided by the RECO Insurance Program appropriately. The option suggesting that the buyer would lose the deposit outright does not account for the protection afforded by this insurance. Similarly, mentioning errors and omissions coverage is misleading in this context, as that coverage typically addresses professional negligence rather than the misappropriation of client funds. Lastly, while some insurance policies may include deductibles, the essential aspect here is that the buyer has protection available, which is why the first choice is the most accurate and relevant to the situation.