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Linda Zimmer…, Home Buyer in Verdugo Mountains, G...

No money, no contract?

Asked by Linda Zimmerman, Verdugo Mountains, Glendale, CA Wed Jun 20, 2012

I'm a seller in California. My buyers signed a Residential Agreement but failed to deposit any funds. They verbally instructed their realtor to end the escrow, as they can't come up with any money. They failed to sign formal cancellation paperwork, although we have done so. The three day period is elapsed, and I want to accept another offer. Can I do that without their formal signature on the cancellation of escrow? Thanks....

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Dennis Hartley’s answer
Hi Linda:
Welcome to my world! Every agent has many stories about buyers who don't do what they say they will, it happens too often.

Your purchase contract probably called for the buyer to place their deposit into escrow within three days of you accepting their offer. I presume three days have passed. Your agent should issue a "Notice to Perform" instructing the buyers that if they do not place their money in escrow you will cancel the deal. The purchase contract specifies how long the buyers have to perform once you have given them this notice, it is probably 48 hours. Once the time frame passes, you are free to accept another offer.

You probably won't have any problems with the first buyers changing their mind and suddenly wanting to buy your home but just to be sure you should follow the steps outlined above. Good luck with your next set of buyers...
1 vote Thank Flag Link Wed Jun 20, 2012
Linda, follow the guidance of your realtor. You didn’t mention that you have one, if that is the source of this problem don’t repeat the process. Hire someone to help.

Jim Simms
NMLS # 6395
JSimms@cmcloans.com
Financing Kentucky One Home at a Time
0 votes Thank Flag Link Thu Jun 21, 2012
The seller didn't have an escrow to cancel since no deposit was made and escrow instructions were not signed by both parties, so the escrow company has no power or responsibility in the transaction.
The documentation of reasonable effort is the issuance of the Notice to Perform and subsequently the Notice of Cancellation documenting the reason for the cancellation.
0 votes Thank Flag Link Thu Jun 21, 2012
Clearly you can' force the buyer sign anything, but I suppose I am less of a risk taker than you Maureen. I would document a reasonable effort to obtain a signed cancellation either way. Lawyers have a way of playing with words and I would hate for my client's deal to be stymied over a situation that could have been avoided.
0 votes Thank Flag Link Thu Jun 21, 2012
The Standard contract in California ("RPA-CA") states in Paragraph 14 C (3) that if the Buyer does not make the required deposit, after the Seller has submitted to the Buyer a Notice to Perform, and the period of performance under the notice to perform has expired, that the Seller may cancel the contract in writing to the Buyer.

The only real purpose of the Cancellation of Contract, Release of Deposit, and Joint Escrow Instructions as described in paragraph 14. E Titled "Effect of Cancellation on Deposits" is to give the escrow company instructions as to the release of the deposit made into escrow and to cancel the escrow. If the buyer never made a deposit, there is really no need to have the buyer sign the Cancellation of Contract, Release of Deposit, and Joint Escrow Instructions form. The contract is cancelled as soon as the seller provides written notice of cancellation to the seller.

It is correct that it would be a good idea to try and get the buyer to acknowledge in writing the cancellation of the contract and escrow, but it really is not required to cancel the contract.
0 votes Thank Flag Link Thu Jun 21, 2012
Despite their alleged verbal instruction, you still have a contract with them. Technically, escrows cannot be cancelled unilaterally by one of the parties to the contract. I would have concern that the contract is still in place without a signed contract cancellation on the buyer's part. The issue isn't escrow, its the contract - and the form you need signed is called Cancellation of Contract, Release of Deposit, and Joint Escrow Instructions. Escrow can't cancel contracts either.

Can you entertain another offer? Sure...but without the contract cancellation signed by the first buyer, there maybe a risk you run and counsel of a trusted attorney maybe in order here just to make sure you don't end up in a mess.

Just because the buyer breaches the contract and for that matter fails to perform doesn't mean the seller is free of their obligations to the buyer under the contract. Do everything you can to get the signatures....there are people out there that create situations like this simply to extort money out of innocent home sellers. What can happen is you go into escrow with another party and then these buyers show back up in the picture with their contract and stall you new deal until you pay them to go away so you can sell to the new buyers. That might not be the case here, but it isn't worth taking the chance.

I don't agree with Dennis' statement that once 48 hours has passed on the Notice to Perform, you are free to accept another offer. Once the 48 hours has passed, you present them with the cancellation of contract - but the contract is not officially cancelled until they sign the cancellation form. Verbal doesn't cut it.

Good Luck.

BeachBrokerBill
CA DRE 01775528
0 votes Thank Flag Link Wed Jun 20, 2012
Dennis' reply below is right on. There is really no need for the the buyers to sign the cancellation instructions because the buyer never paid their deposit into escrow. The cancellation instructions are needed by the escrow company where there is a deposit on hand and need instructions on how to disburse the deposit to either the seller or back to the buyer. For additional information about buying or selling your home, check out my website at http://www.maureenmegowan.com
0 votes Thank Flag Link Wed Jun 20, 2012
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