Cbabygirl35, Home Seller in Huntington Beach, CA

Buyer refuses to sign cancellation instructions

Asked by Cbabygirl35, Huntington Beach, CA Mon Aug 3, 2009

I had a buyer who failed to get the loan funding on time. We agreed to cancel escrow . Escrow agent drew up the cancellation instructions on the day that we were supposed to close. The buyer gets their earnest money back ($10,000) but they have to pay $600 in escrow fees. They refuse to sign the cancellation, because they feel that escrow is charging them way too much. She's contesting it, and planning to take this matter to court.

I have relisted my house and I'm about to accept an offer. I have a new listing agent, so we will be using a different escrow company.

My question is, will I be able to close my new escrow legally without the first one being closed? Since I have already done my part by signing the cancellation instructions and releasing the earnest money back to the buyer.

Help the community by answering this question:


Refer to page 7 of your CAR purchase agreement, paragraphs 25, 26A, B & C. These are your Liquidated Damages and Dispute Resolution clauses, check to make certain that all parties signed these paragraphs. If these paragraphs are signed then arbitration and mediation are your dispute resolutions; if not then all parties will need to engage an attorney. I'm assuming that either the buyer had not removed their contingencies or you decided to waive your right to withhold liquidated damages.

If the contingencies have not been removed then the buyer is indeed entitled to full refund of their deposit.

Traditionally escrow companies have waived their fees in these cases, this is the first case I have heard of an escrow company getting in the way of freeing up a seller to sell. Have you or your agent called the escrow company and asked them to waive their fee? Technically the buyer owes the fees to escrow.

Has the escrow company refunded the balance of the deposit, less their fees, to the buyer? Has the buyer cashed the check? If so, you have released the deposit and their problem is essentially with the escrow company. However, that escrow needs to be closed.

Did the buyer state that they were shopping for another loan and wanted to continue in escrow? If the contract is still in effect and you close escrow you could indeed have a problem. Does the MLS and the current purchase contract with the new buyer have a clause in it that reads to the effect "subject to the close of existing escrow" ? Because your new sale IS subject to closing that escrow.

Many buyers threaten to sue over liquidated damages but rarely do. Once they realize the time commitment, and the cost of mediation and arbitration and that there is one shot with no guarantee of a win they usually weigh that out against what they have to gain and sign. The buyer should also be made aware that if they pursue this and are not contractually in the right they could be sanctioned with a hefty financial penalty which could be higher than the current $600.

This is not a large amount of money, if all else fails you could call the offending escrow company and offer to split the fee with them in order to close your new escrow. While offensive it will allow you to move on.

Quite frankly I am surprised that you didn't name the escrow company who is refusing to waive the fees. It seems to me that waiving the $600 is a much smarter business move than the potential bad publicity and ill will generated by an escrow company getting in the way of a seller selling.

Name them, talk about it here and on Twitter and Facebook. Send them links to it. Make sure all the local real estate professionals know that this particular escrow company is standing in the way of your sale. See how fast they back down. Few real estate professionals would recommend an escrow company to their clients if they knew they could be faced with this.

Have you consulted an attorney yet? You should. A letter from the attorney to the buyer could have a powerful effect.

Your listing agent should be able to explain these clauses and their repercussions to you.

I hope you found this information helpful.
0 votes Thank Flag Link Sun Aug 15, 2010
Wow where do I start on this one.

First of all it sounds like the buyer made an honest effort to buy your home.

1. Until recently no escrow companies charged these fees. While many wrote them in their contracts they never enforced it.

2. I am assuming the buyer showed up with a prequalification letter, why is the lender backing out of doing the loan?

3. A little pressure from the first listing agent would have gotten the $600 fee waved.

4. If the offer was a FHA or VA offer it is illegal to keep any part of the deposit.

5. Did the escrow company make proper disclosure of the $600 fee?

It may be that the buyer is wanting to back out and the lender is a scapegoat. I would verify if that is the case by calling the lender. If the lender is backing out ask them to pay the $600 or you will take them to court. If the buyer is using the lender as a scapegoat then go for keeping the whole $10,000.
0 votes Thank Flag Link Tue Sep 29, 2009
Keith, that's interesting. I've never thought about that one (at least from the seller's side).
0 votes Thank Flag Link Tue Aug 4, 2009
I am concerned that you do not mention the Realtors' roles in this transcation.
Echoing the previous answer, I'd get advice from the REaltor's broker first. That first buyer may cause you some issues. This is not legal advice, but something like "Subject to cancellation of previous escrow" should be in the MLS and also part of the acceptance.

Good luck.
0 votes Thank Flag Link Tue Aug 4, 2009
Keith Sorem, Real Estate Pro in Glendale, CA

This is tricky and I hear this every so often. My recommendation is to talk to a real estate attorney and get their opinion immediately. This issue needs to be resolved asap.

When you say we "agreed" to cancel escrow, who was it? The agents, you and the seller, who actually agreed? This is just one portion of what may need to be answered. Hopefully, this can all come to a peaceful solution and cool, calm minds will prevail.

Best wishes!

Matt McClain
Axiom Real Estate / Axiom Lending Group
0 votes Thank Flag Link Mon Aug 3, 2009
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