The Seller Demand to Release Deposit Can Shake Up California Escrows

A seller can take the buyers earnest money deposit

Seller Demand for Release of Deposit is new form

Many of the disputes and disagreements in an escrow seem to center around the buyer’s earnest money deposit and its release. Whenever a buyer cannot close for some reason — and there seems to be more and more of “those reasons” lately — the sellers tend to immediately eyeball the earnest money deposit and they expect to get it. If the seller has a right to the earnest money deposit, there is a new form generated late in 2014 by C.A.R. that can be delivered to the buyer called a C.A.R. Form SDRD, 11/14: Seller Demand to Release Deposit.

The Seller Demand to Release Deposit allows an escrow company, at the escrow company’s discretion, to release the deposit within 10 days to the sellers without the buyer’s cooperation or agreement.

The Seller Demand to Release Deposit illustrates and points to paragraph 14G of the residential purchase contract, which also states a party who refuses to cooperate can be fined a $1,000 penalty, according to Civil Code. I suppose this means if the buyer has no right to keep the deposit, but refuses to sign the release, not only can the escrow company release the money to the seller but the seller could sue the buyer in Small Claims Court for an additional $1,000. This is a pretty huge change over previous years because much of the purchase contract, up to this point, seems to favor the buyer in California, except for this portion.

Of course, the buyer’s deposit is generally only at risk if the buyer has released all of the contingencies and cannot perform or has been given a Notice to Buyer to Perform and fails to act. Let’s say a purchase contract expires because the buyer can’t close on time for some reason. The buyer can issue an Extension of Time Addendum but a seller does not have to agree. If the seller, say, refuses to sign an extension, the seller could most likely cancel the contract, after issuing a Demand to Close escrow, and then demand the deposit, providing it does not exceed Liquidated Damages.

In our limited inventory Sacramento real estate market, prices can rise and sellers might get a better price for the home if they put a home they sold in, say, a slow month like November, back on the market in February. This should be a wakeup call to buyer’s agents and their buyers when lenders can’t close on time and in accordance with the contract.

And of course, all parties should obtain legal advice and not rely on this Sacramento REALTOR’s observation because this REALTOR is not licensed to practice law.

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