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A planned Urbancorp development at 2425 and 2427 Bayview Avenue is pictured on May 5 2016. A judge ruled that hone buyers must pay their own legal fees in the fight against the Toronto company.

Fred Lum/The Globe and Mail

A group of home buyers left in limbo after the collapse of Toronto developer Urbancorp received another setback after a judge ruled they would have to swallow the cost of their legal bills in the homebuilder's' insolvency proceedings.

Law firm Dickinson Wright went to court last week on behalf of 40 people who put deposits on homes to be built in four of Urbancorp's developments asking for the firm to be recognized as buyers' representative. Court recognition would give these people a voice in Urbancorp's restructuring, and the opportunity to negotiate with any developers who were interested in purchasing the projects.

It would also require their $150,000 in legal bills be paid by Urbancorp, not the buyers themselves, putting buyers on an equal footing with the developer's major lenders, including Canadian banks and Urbancorp's bondholders in Israel, whose legal costs are being funded by Urbancorp's estate.

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Lawyers for Urbancorp and the company's court-appointed trustee, KSV Advisory, opposed the buyers' request. KSV's attorney, Robin Schwill, told court that the buyers' request could harm efforts to sell Urbancorp's properties at the highest price. "It could start to derail some very big pieces of real estate," he said.

On Monday, Ontario Superior Court Justice Frank Newbould agreed to allow the law firm to represent home buyers, but ordered buyers to pay the costs themselves out of any money they get back as part of the court process. "Estate funds should be spent for the benefit of the estate as a whole, not for the benefit of one group whose interests are contrary to the interests of the estate as a whole," he wrote.

In total, home buyers paid Urbancorp $15-million in deposits for units in the four projects, money the buyers' lawyer, Lisa Corne, told the court has since "evaporated."

KSV has said it expects enough money will be left over from the sale of Urbancorp's coveted development lots to repay home buyers' deposits. Many of the buyers, however, told Dickinson Wright they hoped to persuade the successful bidder for Urbancorp's development sites to honour their original purchase agreements and build their homes.

"It's very, very disappointing," said Loraine Adal-Salmon, who made a deposit to buy a home in one of Urbancorp's developments. "It doesn't make any sense to me why there is so much opposition toward us."

Ms. Adal-Salmon said she was not sure she and her husband could afford to pay for continuing legal bills, given that they do not know how much of their $80,000 deposit will ever be returned.

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