Legal Question in Real Estate Law in California

We have put down escrow towards a single family home in Los Angeles two weeks ago. The sale was going through a bank, however, we have had a change of heart and wish to withdraw the offer and would like to recover our escrow money.

Can you offer suggestions?


Asked on 8/30/11, 1:31 pm

3 Answers from Attorneys

You need to be talking to your agent. If you don't have one, you need to speak to a lawyer directly. There are way too many facts and too much information needed about the transaction and the current status to give you an answer over the internet.

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Answered on 8/30/11, 1:37 pm
David Gibbs The Gibbs Law Firm, APC

I agree with Mr. McCormick; however, to provide you with a little more information, please consider the following:

When you sign an agreement to buy real estate, there is no waiting period, or "cooling off period" as there are with certain other types of contracts. Once you sign the purchase agreement, and the Seller accepts that offer, you are now legally bound to purchase the property, or pay the Seller damages for failing to purchase the property unless you are "legally excused" from doing so. Legally Excused, in the context of buying real estate, generally means that you reserved to yourself certain contingencies in the contract. The best example of a contingency is financing. Most purchase agreements (though, Mr. McCormick is correct - you MUST review the specific contract you signed with your agent or an attorney) contain a financing contingency. The financing contingency would allow you to cancel the purchase contract without penalty if you were, through no fault of your own, unable to obtain financing to purchase the property.

Mr. McCormick is right - without reviewing the purchase agreement you signed, nobody can tell if, or how you might cancel the agreement and avoid losing your earnest money deposit. One last provision in most real estate purchase contracts you need to be aware of is a liquidated damages clause which provides that in the event you are not lawfully excused from buying the property, the Seller will keep your deposit as damages for your breach of the agreement.

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Answered on 8/30/11, 2:32 pm
Mark Saltzman, MBA, JD Law Offices of Mark E. Saltzman

Rather than simply saying that there are too few facts to respond (why not just not respond?), I will make a suggestion to you. Go over your purchase agreement with your agent and/or attorney. There will likely be several contingencies in the agreement. Such contingencies could relate to the condition of the property, financing, inspections, repairs, disclosures, escrow, and many other things. It is possible that you can find a something that the seller did not do or something unsatisfactory with the home. For example, you might discover an easement on the property that you did not know about or a problem with the neighborhood.

As for Mr. Gibbb' that the seller will keep your deposit as damages for your breach, he is referring to the "Liquidated Damages" clause that appears in most of the commonly used real estate forms. You and the seller would have needed to separately initial that clause for it to be in effect. Check to see if that clause is initialed. As a general rule, I advise my buyer clients to never sign the liquidated damages clause. If your attorney or agent agrees, you may not have initialed it. Then, you would not automatically lose your deposit. The Seller would need to bring a lawsuit to collect damages, and you could assert your defenses.

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Answered on 8/31/11, 10:32 am


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