As has been pointed out below, the primary issue upon cancellation of a contract is the buyerâ€™s deposit and who actually gets it or portions of it at the end of a failed transaction. There actually IS a time limit, but it is not in the contract per se. Itâ€™s in the California Civil Code, Section 1057.3, upon which the contract is based. This section of the civil code includes the following dialogue:
(a) â€œIt shall be the obligation of a buyer and seller who enter into a contract to purchase and sell real property to ensure that all funds deposited into an escrow account are returned to the person who deposited the funds or who is otherwise entitled to the funds under the contract, if the purchase of the property is not completed by the date set forth in the contract for the close of escrow or any duly executed extension thereof.
(b) Any buyer or seller who fails to execute any document required by the escrow holder to release funds on deposit in an escrow account as provided in subdivision (a) within 30 days following a written demand for the return of funds deposited in escrow by the other party shall be liable to the person making the deposit for all of the following:
(1) The amount of the funds deposited in escrow not held in good faith to resolve a good faith dispute.
(2) Damages of treble the amount of the funds deposited in escrow not held to resolve a good faith dispute, but liability under this paragraph shall not be less than one hundred dollars ($100) or more than one thousand dollars ($1,000).
(3) Reasonable attorney's fees incurred in any action to enforce this section.â€
Since I am not an attorney I cannot provide an interpretation of this section, however, it could be reasonably argued that â€œwritten demandâ€ could, in fact, be the Cancellation of Contract, Release of Deposit and Joint Escrow Instructions (C.A.R. Form CC) submitted by a buyer when cancelling a contract. This form states, â€œRelease of funds â€¦ requires mutually Signed release instructions from Buyer and Seller, judicial decision or arbitration award. A party may be subject to a civil of up to $1,000 for refusal to sign such instructions if no good faith dispute exists as to who is entitled to the deposit.â€
If there is no disagreement as to the disposition of the buyerâ€™s good faith deposit, then the above dialogue applies. If, however, there IS disagreement about who gets the deposit, then it could be quite a while before the details are worked out and, in fact, a judicial decision or arbitration award could be involved.
If a disagreement exists, a seller would not be compelled to sign the Release of Funds until Mutual Agreement has been reached. HOWEVER, a seller cannot enter another escrow until this agreement has been reached because the two parties are technically still in contract until the Cancellation for has been sign by all parties concerned.
Lastly, each title company is now required by California law to limit the amount of time they can hold funds in escrow. They are required to notify all parties that the funds need to be released: if agreement cannot be reached by the deadline as to the disposition of funds, then the funds could eventually be released to the state.