Legal Question in Real Estate Law in California

Re: Property

In general, it is the seller's responsibility until title passes. Title typically passes at the close of escrow. Until then, the seller generally has an obligation to maintain adequate insurance coverage on the property to cover such a situation.

Re: Property

This situation is pretty well covered by statute in California, which has adopted a version of the Uniform Vendor and Purchaser Risk Act, codified at Section 1662 of the Civil Code. It basically says that if the seller was still in possession, the seller assumes the risk if the property is damaged or destroyed without fault of the buyer; but if the buyer has been placed in possession, then the buyer assumes the risk of losses where the seller is not at fault.

In the former situation, the seller cannot enforce the contract and the buyer is entitled to refund of his deposit. In the latter situation, the buyer is not relieved of her obligation to pay the purchase price and is not entitled to any refund.

Note that the law does not contain any provision for reducing the contract price to account for the reducd value of the property. In some cases where the damage is minor, and the responsibility is the seller's, the practical solution is to negotiate a reduced price. This is however entirely voluntary and cannot be forced on an unwilling party.

Re: Property

At common law, there was a doctrine known as the doctrine of equitable conversion. Under this doctrine, once the contract is signed, equity regards the buyer as the owner of the real property, and the seller's interest as to the proceeds as personal property. When the property is destroyed before the date set for closing, the majority rule is that since the buyer is deemed the owner of the property, the risk of loss is on the buyer.

California, however, has adopted the Uniform Vendor and Purchaser Risk Act. This is codified at Civil Code section 1662. This provides that if the contract does not state otherwise, the seller cannot enforce the contract through specific performance if the property is damaged through no fault of the seller or buyer. The Buyer is entitled to recover any portion of the price that he has paid.

This section provides that once title passes, usually when escrow closes, the risk of loss is passed to the purchaser, and the seller can sue for specific performance for the balance of the purchase price. (Civ. Code sec. 1662 subd. (b).)

You do not mention whether or not your contract includes provisions to the contrary, and your contract is not in front of me, so I would be unable to tell you which one bears the loss.

Very truly yours,