Legal Question in Real Estate Law in California
Liquidated damages in CA residential purchase agreement
We, the buyers, entered into a purchase agreement (RPA-CA 10/02) to purchase a condo in California. We did not remove our loan contingency and need to cancel because we cannot meet the conditions of our loan (the sale of our condo was cancelled by buyer). Although we are cancelling after the agreed upon 21 days to remove the contingency, we did not receive any Notices to Perform from the seller nor did we remove the contingency in writing. The seller now wants to keep the deposit and it citing the Liquidated Damages clause in our contract. However, the original contract, which is signed and dated by all parties, does not have the sellers' initials next to this item in the contract, although it has ours. Their initials were added at the request of our escrow company without any written approval or consent from us at a latter date.
My questions are these:
a) Can we cancel this agreement based on our loan contingency with a return of deposit?
b) Can a contract be modified (such as the addition of the sellers' initials) after it has been signed and dated by both parties?
3 Answers from Attorneys
Re: Liquidated damages in CA residential purchase agreement
The original contract is binding. However, if the sellers gave authority to have their initials placed on the document and you failed to object, then, this could be construed as a valid modification of the agreement. Unfortunately, to completely answer your question, and attorney would have to review all documents regarding this transaction for a clear answer. Please consult a local attorney to assist you. Good luck and thanks for inquiring.
Re: Liquidated damages in CA residential purchase agreement
With regards to your first question, I would need to review your contract to be certain, but your failure to seek an extension of the loan contingency period may be a problem.
With regards to your second question, written contracts usually cannot be modified without the consent of all parties. That being said, however, you did sign the liquidated damages clause and depending on the language of your contract, this act may be sufficient for it to be used against you. You also may encounter a situation where the sellers claim that they 'forgot' to sign the clause, or deposited the wrong version in escrow. These arguments could then make the liquidated damages issue a factual dispute to be resolved by the court.
It sounds like this problem is heading toward litigation. You should find a litigation attorney in your area who has experience with these matters to help you.
Re: Liquidated damages in CA residential purchase agreement
One purpose of a contingency in favor of the buyer, such as "contingent upon loan approval" or "contingent upon sale of buyer's other home" is to allow the would-be buyer to recover his deposit if the contingency fails to occur.
The buyer, on the other hand, has an obligation to make good-faith efforts to bring about the occurrence of the condition. At the end of the time for removal of the contingency, if the condition has not occurred despite the buyer's good faith, the buyer may elect to waive the contingency or to cancel the contract and obtain a refund.
If you are being denied refund of your deposit, it may be for one of two reasons: (1) the seller is claiming that you failed to make the required good-faith efforts; or (2) your contract required you to take some affirmative step upon expiration of the contingency-removal period, such as to notify the seller in writing of non-occurrence of the condition and your election not to waive the contingency.
Otherwise, I think you should expect a refund, or at least a darn good explanation. I assume you were not represented by a broker; if you were, I would say your broker should be assisting you or giving you the explanation.
The maximum deposit forfeiture in California is ordinarily 3% of the purchase price.
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