Legal Question in Real Estate Law in California

The deposit by the other party is being held by someone. If escrow has been opened, then the escrow company has it and must be told in writing to turn it over to the potential buyers and that you are requested escrow to be closed without the transfer of property to occur. If actual escrow has not yet opened,you still need to give written instructions to whom is actually holding the deposit to return it because you have decided not to go through with the short sale. You need to find someone who can explain to you what is going on.

The simple answer to your question would be that canceling an escrow requires signing of papers, because escrow companies need written instructions for everything, but that a lawyer couldn't tell you whether a particular paper was OK to sign without reading it, and perhaps not without understanding the entire transaction.

However, it seems to me there is a deeper issue here.

First if you are in escrow, you are also "in contract" with a buyer. If the lender approves the short sale but you don't go through with the deal, you're probably in breach of your contract with the buyer. The buyer may ask for money damages or to have the contract of sale enforced. Have you discussed your plan to back out of the sale with the buyer, either directly or through your agent? Perhaps the buyer is willing to let you back out without any problems, but the buyer may be upset and could sue.

Next, even if you don't have an issue with the buyer, you have to remember that you also have a contract with your agent. The agent works in expectation of receiving a commission. The commission is payable when the agent has done her work, which is different than "when the house sells and the seller gets paid by the buyer." Generally, agents become entitled to their commissions when there is an offer and acceptance, and actually receive them at close of escrow. It may work differently in a short sale - check your listing agreement.

So, please consider these possible consequences when thinking about backing out of a signed contract.

If you have questions about particular documents related to the escrow process, you should perhaps see a local real-estate lawyer, who can actually see the paper, but an alternative would be to make an appointment to go in and speak with the escrow officer who is assigned to your escrow. Another possibility is to have a conference with the real estate broker to whom your agent reports. All agents must work under and be supervised by a licensed real estate broker.