Legal Question in Real Estate Law in California

The basic answer is no, the seller cannot cancel the contract, but before being 100% sure of that, I'd need to review the contract (how the blanks were completed), hear the seller's side of the story, and generally satisfy myself that the seller has no defenses and no rights of rescission at this time. As a general rule, if you were ready, willing and able to close, you would have a right to sue for specific performance, i.e., to compel the seller to sell to you on the terms of the contract. Any contingencies in the agreement might affect your rights and remedies, as might any facts showing you might be unable to carry out the purchase.

Note that if the agreement shows the parties elected arbitration, your recourse in the event of a default would be to arbitrate rather than go to court with a lawsuit, but arbitrators can also award specific performance when appropriate.

Also, the parties should note that if the agreement contains an attorney-fee provision, it is kind of a double-or-nothing situation because the loser will be paying for the winner's attorney. This makes it extra important to be of firm ground before getting a deal into litigation.

It takes both party's agreement and signatures to cancel the contract. If you've already opened an escrow, they will demand that before releasing any funds they hold. Your issue is whether you're willing to pay to file and pursue a lawsuit for specific performance. With home prices continuing to decline for the foreseeable future, you might consider canceling and buying a different house, unless this was the bargain of the century and your absolute dream home. If you're serious about suing, feel free to contact me.