What are our legal right to retain the 5K holding deposit on our mom's house? Buyer canceled escrow 3 days prior to closing due to allergy

Asked by Ljpaul, Valencia, CA Sat Jun 18, 2011

A hypochondriac opened escrow on our mother's house, paying asking price (cash). House is only four years old, only few minor blemishes which we rectified. We extended the contingency period for her. Three days prior to closing she canceled, under recommendation of her allergists. What are our right as a seller to retain her 5K holding deposit. We have incurred monetary and time losses. Not to mention the loss of the sale to the other interested party that was biding against her. We chose to go with crazy lady (unknown to us at the time) because she was an all cash offer.

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Steven Ornel…, Agent, Fremont, CA
Sat Jun 18, 2011

Any time you have a RE question about "legal rights" it's best to consult a RE Lawyer.

This said, and assuming you used the most recent CAR Residential Purchase Agreement, Para 14F, "Effect Of Cancellation On Deposits" states: "If Buyer or Seller gives written notice of cancellation ….A Buyer or Seller may be subject to a civil penalty of up to $1,000 for refusal to sign such instructions if no good faith dispute exists as to who is entitled to the deposited funds (Civil Code §1057.3)."

Also, the CAR Residential Purchase Agreement has a "mitigation of legal risk" protection via Para 26C1. While Para 26 (Dispute Resolution) speaks to the arbitration and mediation of disputes, Para 26C(1) allows one to bypass Arbitration/Mediation if damages are with Small Claims Court jurisdiction, $5K or $7.5K depending on whether you are suing a corporation or individual.

If you want to read up on Arbitration/Mediation I would suggest you review Kenny Tan’s blog post on the subject as it’s somewhat rare to have a lawyer’s perspective here on Trulia. The direct link is: http://www.kennytanlawblog.com/tp-100724063949/post-10122114…

Best, Steve
2 votes
Evan Lois, Home Buyer, Los Angeles, CA
Wed Jun 29, 2011
If I was in your shoes, I'd say too bad, so sad BUT offer her $1000 of the $5k just because you are nice. Tell her take it or leave it. If she says, no, remind her that $1000 buys a lot of Claritin.
1 vote
Michelle Car…, Agent, Coppertino, AL
Mon Jun 20, 2011
You received good answers here. To sum up:

Read your contract and especially the contingency times. If a CAR or PRDS contract and property contingency was removed, it would seem you have potential grounds for keeping some/all of deposit.

If buyer still had contingencies in place, you are out of luck.
1 vote
Bill Hooper, Agent, Los Angeles, CA
Sat Jun 18, 2011
Please refer to your Residential Purchase Agreement (RPA), page 7, item 25. Did both parties agree to "Liquidated Damages?" If so, you may be entitled to keep the deposit. This can be resolved through mediation or neutral, binding arbitration.

Bill Hooper
RE/MAX Westside Properties
1 vote
Nia Mayers, Agent, Carson, CA
Sat Jun 18, 2011
Hello. It would be a good idea to contact a Real estate Attorney so that he can review your Residential Purchase Agreement with you. He/she at that time should be able to advise you on how to proceed.

Nia Mayers, Realtor
1 vote
Andy, , California
Thu Aug 11, 2011
Hi Ljpaul,

I am not sure if Valencian go with PRDS. Anyway, "what does the contract say?" is a famous point in contract disputes. Also LA court and judges' custom is another main factor.

You provide a lot info here. That is good but not enough. We always can see that the info we ignored, are useful in lawyers' mind. That is why they can charge your that much.

When did the buyer request extension of the contingency period and how long did she request and what was the reason? How many times did she come into the allergy areas in the property before cancellation? Did she feel uncomfortable and when or just get the recommendation from the doctor? Did the doctor go to your property and when? Did she provide the doctor's letter first or after you asked her? What date was it on the letter? How long can a doctor to determine yes or no with/without on field checking? Did she look at other listings during the contingency period? Did her current house have the same allergy issue?

Was the purchase price $166,667? If it was higher than this, why was there only $5,000 deposit? Did the selling agent (buyer's agent) have obvious back-out records? Is there any listing similar to yours but cheaper or any listing same price but better? How was the market in May and Jun?

If Liq-Dmg clause is the 25th item, does that mean we have a long way to fight before we touch the 25th?

Sorry, I would not give you any legal or real estate advice

0 votes
David Cooper, Agent, Los Angeles, CA
Mon Jun 20, 2011
When she presented you the "all cash" offer, did she show you the bank statement showing the cash was sitting at the bank waiting for the escrow instructions? Since you are in Valencia, I must assume we are talking about $200,000+++ in cash. Why do I have a feeling you didn't see the money when you accepted her offer.
Take her to small claims court tomoorow. You have all the facts on your side.

DAVID COOPER Foreclosure Specialist with 35 Years Experience. For your FREE
list of bargain homes see http://www.lasvegaswinner.org or Call +1-7024997037
0 votes
Ryan Ole Hass, Agent, Santa Monica, CA
Mon Jun 20, 2011
Good Afternoon Ljpaul.

Wow! A "hypochondriac" huh?!

Your Realtor should have the answer to this based on the point in the closing process you had reached when the Buyer chose to withdrawl from the escrow. If there was a contingency removal executed it certainly makes your claim stronger.

Kathleen brings up the most important point regarding Liquidated Damages. If this was a standard C.A.R. RPA (Residential Purchase Agreement) both Buyer & Seller (all parties) must initial paragraph 25 that commits the Buyer to Liquidated Damages. Of course you have to prove damages. In the case of a Probate, I don't believe the Liquidated Damages clause exists.

Sounds like you need a good real estate attorney. Hopefully your realtor will have one for you.

Good Luck,
Ryan Ole Hass | Realtor, MBA

The Red Door Group L.A. | Keller Williams Realty Larchmont
M: 323.893.7253
O: 323.762.2575
DRE Lic# 01417826
0 votes
Kathleen Bec…, Agent, Santa Monica, CA
Sun Jun 19, 2011

You have to revert back to your purchase contract. Did she remove all of her contingencies in writing? Did she sign the liquidated damages clause in the contract? These are two key issues to look at.

You may have a good case if she did both above. Contact a real estate attorney for legal advice.

Good luck.

All the best.

Kat Becker, Agent
Prudential California Realty
0 votes
Lori Donahoo, , Los Angeles, CA
Sat Jun 18, 2011
Ljpaul, I am not sure if there is a computer glitch or you may have resubmitted the question again, which I thoght several agenys including myself answered.
I can certainly appreciate the stress you are feeling and possibly not receiving comforting information from your agent.
In my earlier response I recommended you talk to your realtor, their broker & company attorney. Depending if the buyer removed all contingencies (if they
Had contingencies)and other terms of the purchase contract, it appears you may be entitled to the $5000.00. However, without seeing the contract, this is the best any of us will be able to assist. What did your agent say? Assuming you are working with an agent. If you are not, this situation underscores the reason it is so important you always work with an experienced agent.
All the best,
Lori Donahoo
REMAX Westside Properties
0 votes
John Wilson, Agent, Fontana, CA
Sat Jun 18, 2011
You said that you extended the contingency period for her, which contingency? It is always best to work these disputes out among the parties without law suits if possible. Anyone giving advice without seeing your contract is only guessing. It may be harder than you think to show damages as you still own the home and can still sell it. Chances are if you had a bidding war before you will again, I would advise you to cancel the escrow and release the buyer's deposit minus any cancellation fees and extra carrying cost you may have. Move on to the next buyer and get it sold while the selling season is still here.
0 votes
Gerard Carney, Agent, Spring Hill, FL
Sat Jun 18, 2011
Your contract holds the answer to this, You gave her time to inspect, and all was well, I assume she did not live in the place before closing so how can she even say the house is causing allergies. You are within you rights to demand the holding deposit since she did not go for financing so there was no cancellation due to not getting finance. She would have to produce a letter from a doctor stating that the house itself was causing allergies. Do read you contract to see if your Broker gets any part of this money also in such a cancellation. They may have added that to the contract, but as far as cancellation and reason for it, it is not a legal reason for cancelling.
0 votes
Deborah Brem…, Agent, Los Angeles, CA
Sat Jun 18, 2011
Hi LJ;
First of all, Brett's answer is wrong. Once you give the buyer a "notice to perform", you can cancel the escrow without refunding the deposit, and have escrow hold the deposit pending dispute resolution. Then, you CAN in fact sell the house while you wait to mediate, arbitrate, or litigate. (The path depends on which clauses are part of your contract.) The buyer simply cannot refuse to close escrow AND at the same time keep you from selling to another.
For your information, small claims court litigates issues up to $7500.00. It is inexpensive to file, and you DO NOT need an attorney.
Walk through the contract with your Realtor, to see what path you should take. This may not be the instance to spend money on an attorney.
Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885, ABR, CDPE, eAgent, CSP, SFR, HRC, CRE
(O) 310-571-1364 DIRECT
(D) 818.564.6591
(C) 310-422-4288
Accredited Buyer Representative|Certified Distressed Property Expert |Pre-Foreclosure Specialist Certified
I want you to know that I appreciate any referrals from friends and associates who may be in the market to buy or sell real estate. You can count on me giving them the same high-quality service I provide to all of my clients.
0 votes
Lori Donahoo, , Los Angeles, CA
Sat Jun 18, 2011
The best person to consult is a real estate attorney. Although, your realtor, their broker and company attorney should also be in your "court" to advise you based on the purchase contract. Your realtor should also have names of real estate attorneys if you wish to consult with one. Many real estate attorneys offer a courtesy consultation to understand the merits of the dispute.

Best of Luck,
Lori Donahoo
REMAX Westside Properties
0 votes
Angie Simpson, Agent, Studio City, CA
Sat Jun 18, 2011
Brett is right. Try to work this out, because the costs in time and money going through legal channels may not be worth it. Also, go back to the other buyer and find out if they are still interested in buying the house.

I hope it all works out for you.

Angie Simpson
0 votes
Keith Sorem, Agent, Glendale, CA
Sat Jun 18, 2011
The only person that can really advise you should be your Realtor or their broker. They have access to the paperwork and can help you determine the next appropriate steps.
0 votes
Brett Ehart, , Phillips Ranch, CA
Sat Jun 18, 2011
By the time you pay attorneys, mediators, and arbitrators, there won't be much left of the $5k (probably none). Besides, you aren't supposed to open another escrow until this one is canceled. So while you are wrangling over $5k for a few months, you won't be able to sell the house to another buyer.

Be realistic, try to negotiate for any monetary damages you have incurred, and get this over with. You will be way ahead by putting this behind you. You are upset right now, but you need to approach this as a business problem and resolve it.
0 votes
Janey Bishop, Agent, Calabasas, CA
Sat Jun 18, 2011
This is where having a good realtor on your side is so valuable. You may spend more on attorneys than the amount of the earnest money so might try to work it out. How long did the buyer tie up the property? Is the other buyer still available? You might be better served to work out a reasonable solution.
0 votes
Dallas Texas, Agent, Dallas, TN
Sat Jun 18, 2011
You need to confer executed sales agreement which governs how any money may or may not be returned.

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
0 votes
Shanna Rogers, Agent, Murrieta, CA
Sat Jun 18, 2011
Hi Ljpaul,

You need to read your Residential Purchase Agreement. This will tell you under what circumstance you can retain the ernest money deposit. Were all contingencies removed (in writing)? You might want to consult a Real Estate Attorney for clarification.

Shanna Rogers
SR Realty
0 votes
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