Legal Question in Real Estate Law in California

Re: Release of buyer's deposit to seller

Your damages doubtless well exceed the deposit, so you should perhaps sue for more. I'd look to see if there is a liquidated damages clause that gives you more than the amount deposited; maybe there is one, maybe not.

You should also look to see if there is an attorney fee clause. If there is, you could get your attorney fees reimbursed if you win a suit in which you've used a lawyer.

The checking of the mediation or arbitration boxes obliges you to pursue those remedies before filing suit, even in small claims (mediation and arbitration are NOT the same, and if both are to take place, mediation comes first). If the buyer raises a mediation or arbitration requirement as a defense in any court, the suit should be dismissed by the judge. However, if the defendants show up and litigate without raising mediation or arbitration as a prerequisite, that would be a waiver of their right to insist upon mediation or arbitration under the contract.

The attorney fee clause (if there is one) and the mediation and arbitration clauses may be the major decisional factors here in deciding whether to go after $2K in small claims or much more in Superior Court.

If this happened to a client of mine, there were no facts supporting the buyer's position, and especially if there were an attorney fee clause, I'd recommend going for every penny of damages including going through mediation and arbitration if necessary.

Re: Release of buyer's deposit to seller

Mr. Whipple gives another great answer, but I think you might also have a big problem with the liquidated damages clause. That is supposed to represent the amount both sides are willing to accept as being damages if a breach occurs, because they can not reasonably calculate what the damages would be. I personally think the damages from a breach could be estimated as well as any general damages [compensation for non-out of pocket injuries] so the clause is phony, but it is in all real estate sales contracts.

If you were represented by a realator, find out how the courts treat these clauses in your geographical area. It might actually have been better to sue the buyer to force him to perform the contract instead of declaring a breach. Your own broker, if you had one, is somewhat at fault for not insisting that the deposit be increased once the offer was accepted. You need to go to a real estate litigation attorney to find out what your chances are and how much you might recover.