Legal Question in Real Estate Law in California

I have a kind of checklist for things like this, more or less as follows:

1. Do you have a licensed professional (broker or agent) representing you? If so, be sure to consult with him/her at every step. It is your agent's professional responsibility to do everything reasonably possible to close deals for the client without delay or litigation.

2. Consider whether you (and the buyer) have initialed the mediation, arbitration and attorney fee clauses (if any) in the contract documents. If you have selected mediation or arbitration, you may be obliged to use these remedies. An attorney-fee provision may have a kind of "double-or-nothing" impact on the results of any litigation in which the other party retains a lawyer and incurs legal expenses.

3. Look for a clause in your contract dealing with liquidated damages, forfeiture of deposit, or like provisions. There is a statute in California generally limiting liquidated damages for breach of a real-estate purchase contract to 3% of the contract amount. See Civil Code sections 1675 through about 1678. $50,000 is 3% of about $1,666,667. If the contract price was greater than this, you are more likely entitled to keep the deposit; if the contract price is lower, your liquidated damages clause is probably invalid. The Civil Code provisions are a bit too lengthy to explain in detail here, but I suggest looking them up and applying them to the specifics of your deal.

If you don't have an excess-of-3% problem, I think you would more likely than not prevail in a suit over the $50,000 because you seem to have met the conditions for closing and the buyer's health issue does not seem to be a sufficient excuse for failure to carry out the contract provisions.