Legal Question in Real Estate Law in California

Re: offer to buy a home

Did you use the C.A.R. form purchase agreement?

If so, was any of the contingency language modified?

If you did use the C.A.R. contract, and did not modify the contingency language, then you probably have a 17 day investigation contingency which allows you 17 days to investigate all matters concerning the property, and allows you to cancel the contract if you so desire.

Realtors commonly refer to this contingency as a 17 day "free look" for a Buyer because when you cancel pursuant to the investigation contingency, the contract states that you receive your deposit back.

Although this contingency, on a practical level, seems to work as a 17 day window during which a Buyer can just walk away, it is, legally, an investigation contingency.

Therefore, it should be used as such, and a Buyer cancelling on this contingency should be able to point to something revealed during their property investigation which justifies their cancellation.

It would be very dangerous to simply state, "I changed my mind and am cancelling." If I were a seller, I may be inclined to fight such a cancellation and return of deposit, arguing that the cancellation was not an exercise of rights under the investigation contingency, but a simple breach of contract.

Feel free to call with any questions.

Re: offer to buy a home

Are you using a buyer's agent? If so, my first suggestion is to rely upon your agent to point out any feature or contingency of the contract you signed that gives you a right to cancel without penalty. Whether you have an agent or not, you should at once familiarize yourself with all the pertinent terms of your contract. Your losses are probably limited to any deposit you've already made, or 3% of the price, whichever is less.

As information, most pre-printed residential deposit receipt and purchase contracts call for a due diligence period in which the buyer has a right to make inspections, and a certain power to cancel if the inspections are unsatisfactory, but reliance on this is very risky, as the property may check out perfectly and you'd lose not only your deposit but also the cost of inspections. You may also have written in a financing contingency, and if your financial circumstances truly make it impossible to get a loan on reasonable terms, this may provide an "out," but again you can't assert such a failed contingency in bad faith and you must have at least made an effort unless your circumstances are so rotten that even applying for a loan would be an utter waste of time.

If your deposit is huge (say close to 3%), you should consider consulting with a lawyer, but if not, maybe your best bet is to notify the seller's agent that you cannot handle the deal and ask for a written cancellation to be prepared for your signatures. The sooner you do this the more likely you will get some sympathy and possibly get your deposit back.

There is a statutory three-day right of rescission in certain loan deals, but not for most home purchase contracts. See Civil Code section 3307 for the statutory limit on the seller's possible damages, and sections 1675 to 1680 regarding liquidated damages and other provisions relateing to a buyer's default on a real-property purchase contract.