Legal Question in Real Estate Law in California
We are a buyer and placed a 12K /escrow deposit when we made an offer. We failed to get a loan after the 17 days had passed. We did not in writing nor verbally remove the loan contingency and the seller did not write us to stop the process after 17 days.
Originally, we had a good expected cash flow from a business that was going to help us qualify for a loan (the bank wanted us to pay down some debt in order to qualify - we already had enough for a 30% down payment which was verified by the bank). But, we eventually lost the project and could not qualify for the loan (this was ~40 days after our offer). The seller's agent was in contact with us asking about our loan situation the whole time, and through out, we told them that we are working on it and "looked good", which truly was the case until we lost the project. Now that we asked to close the escrow due to inability to qualify for a loan, the seller wants to keep the $10K in escrow. They say that it is based on the way transaction progressed and it kept them from showing the house, and the amount of money they spent on the house ($3.5K on termite reports and some repairs on the house based on our inspection report that we told them to do b/c of hazards).
Our contract is based on CAR which should protect the buyer since we never removed the loan and other contingency. We also spent money on getting the loan docs, property appraisal and property inspection.
Do you think the seller has a good case against us? In general, in arbitration, which party is the "judgement for"?
Thanks.
2 Answers from Attorneys
Your comment that the CAR agreement protects the buyer is incorrect; it protects the two realtors. The standard CAR's Purchase Contract states that you have 17 days after the offer is accepted to secure the loan or tell the other side that you are backing out of the deal because yo could not get the loan. It does not mean, as you appear to think, that if you do not verify within 17 days that you have the loan the offer remains open unless the seller cancels the Agreement.It seems that you took more than 17 days to tell them that you could not get the loan, so you are technically stuck with the deal. The liquidated damages clause provides that the seller can keep the amount actually deposited [you are unclear if that was $12,000 or $10,000] to cover the estimated damages. The actual damages seem to be $3,500 plus the mortgage and interest they had t pay while the property was off the market until you told them the deal would not go through, which is perhaps a month so might be another $3,000-4,000, and they might have other costs. So $10,000 might be fairly close to what their actual lost was.
Unless there were other facts you have not mentioned, the other side seems to have a solid case against you for the $10,000 or $12,000. You could try to get them to settle for a lower amount by offering cash instead of their having to get a judgment and go after your assets and wait several years.
not proof read
Mr. Shers apparently is unfamiliar with the way the CAR contingencies work, or it seems contingent contracts of any kind. If a contingency fails to occur, a contingent contract is cancelled, and in the case of CAR purchase agreements any deposit is refunded. A contingent contract does not become unconditional just because the deadline for removing a contingency passes. The opposite is true. The failure to remove a contingency in the time allowed gives the seller the right to issue a demand for performance (CAR has a form for this) and if performance is not thereafter tendered by removal of the contingency, the seller can cancel the contract. If the seller does so, however, the deposit must be refunded. Alternatively the seller can ignore the deadline and wait. The only purpose of the deadline is to prevent the seller from revoking the contract before the deadline.
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