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The Seller Demand to Release Deposit Can Shake Up California Escrows
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.
An Approach to Sacramento Home Buyer’s Earnest Money Deposit
Attitudes toward buyers’ earnest money deposits in California have changed over the years. It’s no secret that the purchase contract in California is tilted a bit more in the buyer’s favor than the seller’s but that’s probably because the party most likely to call a lawyer is the buyer. After the escrow closes, generally the sellers have their money — which can make almost anybody, except Donald Trump, a satisfied party. The buyers, on the other hand, are stuck with this monstrosity and screwed 12 ways from Sunday.
But in the beginning, in the dawn of mankind and womankind, when the sun is barely breaking over the horizon, is the earnest money deposit: the money the buyer puts into escrow to show good faith. That money is at risk, and buyer’s worry mostly about losing it. They want to protect their earnest money deposit and get it back if the transaction goes south. They ask what happens if the offer is not accepted or what happens if they can’t get a loan. Pre-approvals are pretty much worthless, btw.
Buyer’s agents, in an attempt to help protect their buyers, will typically include a handful of contingencies in the purchase contract. A contingency means the buyer has the right to demand the deposit back and cancel. Until those contingencies are released, the buyer typically can cancel the contract, depending on the type of contingency.
With the new C.A.R. forms of November 2014, the buyer’s contingency period for the loan has been extended from a default period of 17 days to 21 days. If the buyer releases the loan contingency and cannot close, that puts the buyer’s earnest money deposit at risk — it lets the seller try to claim it as damages. And therein lies the difficult situation.
Sellers might read the purchase contract and conclude that they are automatically entitled to the earnest money deposit in the event of the buyer’s default. But in the real world, if the buyer refuses to release it, they are at a standstill. If there is no mutual agreement regarding the release, the seller might need to seek satisfaction through a Small Claim’s Court action. Plus, the seller is not really free to sell the home to anybody else until this situation is resolved. In many cases, it’s just not worth the expense and effort to pursue the earnest money deposit.
There is also hope now with the Seller Demand to Release Deposit, that came out in November of 2014. If the escrow company agrees, and the seller is entitled to the deposit, the seller can sign this form, which allows the escrow company to disperse the funds on deposit, subject to certain terms.
Disclaimer: All parties should obtain legal advice regarding disputes over the earnest money deposit.
Sacramento Home Sellers’ Warning
You might be tempted to believe that all real estate transactions are win-win, even the phrase win-win makes me cringe, but a win-win real estate transaction is not necessarily always the case. The win-win misperception was misappropriated many years ago by long-dead real estate gurus. Much of the time, it’s just not true. In real estate, one party typically makes out better than the other party, not much different than some divorce cases. Although you might say, hey, in the end they are both divorced now, one party is often a little bit better divorced than the other.
I know there are buyers and sellers who want to be good friends with each other. After all, they have something in common — the house! I’m all for enjoying friendships with the people who are buying or selling your home, just don’t try to cultivate that relationship during the transaction. Bad, bad idea. Sellers belong on one side of the fence and buyers on the other. You can kick the fence over after escrow closes.
Let’s say your home was built, for example, during the geological time known as the Asbestos Era, which is sometime during the Cenozoic period, in the Quarternary. Perhaps the buyer suddenly became worried that your home might contain asbestos, but the buyer’s inspection period had expired. On top of that, say the buyers had removed all of their contingencies. As a seller, you might feel it is OK to let the buyer complete an asbestos test, even though you’ve already paid for such a test and the results were negative.
You might believe that since the home is sold AS IS, the buyer has no claims against you. You might also believe that if the buyer finds asbestos, the buyer will have to give you the earnest money deposit if they were to cancel because that’s what the contract says. But you haven’t met the buyer’s lawyer who might argue the contingency period is reopened after the discovery of new information. The lawyer might further argue that somehow the seller possessed knowledge of this defect but failed to disclose it. Little is black-and-white in the law.
The fact is once a buyer’s investigations are completed, the inspections are over. If you are a seller, don’t be a buddy and let the buyers continue investigating. The friendship a seller may have forged with the buyer (or vice versa) could come back to haunt. For maximum protection, expect your Sacramento real estate agent to handle such discussions and arrangements.
When Buyers in Sacramento Refuse to Close Escrow
Keeping up the spirits when buyers refuse to close escrow is an art form in itself. Not only do I need to keep myself pumped and ecstatic to move forward, but my primary focus as a real estate agent is to help my sellers move past the disappointment and crushed feelings. Sellers aren’t just unhappy when a buyer cancels, they are often furious. They would like to stomp on the heads of those buyers and drop the assholes into the river in cement shoes.
Me? I just lost a commission and money is replaceable. Another buyer will eventually show up. But the seller has lost a lot more. Sellers lose hope. Whatever plans a seller has had in the works for after the closing are put on hold or, worse, permanently canceled after a buyer walks out the door. It can be a life-changing event.
During escrow, it’s common for sellers to put their emotional attachments and any unwelcome baggage associated with the home into the past, but when a buyer cancels it all comes rushing back at them. It’s as though they failed in their mission. It’s heartbreaking, and buyer’s agents don’t ever see this side of the business. They skip merrily on their way to buy another home with their buyers and don’t look back.
After the feelings settle down a little bit, the sellers often want to sue the buyer. I understand that sentiment. Unfortunately, buyers in Sacramento have 15 ways from Sunday to cancel a contract while in the contingency contract period. If they cancel during that time period, they get their earnest money back.
Isn’t there some way to get that good faith deposit when buyers refuse to close? Not really. Not if there are contingencies in force. Unfortunately, no matter how well a seller qualifies a buyer, there is never an assurance that a buyer won’t refuse to close escrow. In squirrelly markets, cancellations can happen more often than not. Rely on your Sacramento real estate agent to help guide and navigate. I am here for my clients, especially if it gets rough.
Why Did the Seller Reject Your Offer to Buy a Home?
If you’re looking for the secret about why the seller might reject your offer, you might be sorely disappointed in my answer. That’s because in just about every situation you can name in the Sacramento real estate market, it is the seller who chooses the buyer, not the agent. As such, the seller can have a bazillion different reasons why the seller prefers one offer over another. Yes, at this point you’re probably thinking: what about the listing agent’s input? Doesn’t the listing agent influence a seller’s decision? I believe that it is the listing agent’s job to guide, not to decide.
One way a purchase offer can gain traction is to be written correctly. This may sound overly simplified and you might wonder how anybody could write an offer incorrectly, but that’s obviously because you are not a listing agent in the greater Sacramento region. If you were a listing agent, you would know how offers can be written incorrectly.
Write the offer without mistakes is the number one rule.
It’s difficult to write a purchase contract without any mistakes. It means an agent needs to re-read MLS to make sure all of the directions were followed. Sometimes, listing agents insert tips or requirements into MLS, so it’s a good idea to review the confidential agent remarks and look for attachments in MLS. Veteran agents know that we live in strange times. It also means checking the correct boxes, making certain the buyer’s name is spelled correctly and matches the preapproval letter, double-checking the math and terms, using the right property address, including required documents, and so forth. Dot I’s. Cross T’s. Don’t give the seller a reason to reject your offer.
I can’t tell you how many offers the Elizabeth Weintraub Team gets accepted in Sacramento simply because the offer is written correctly. No other reason. It’s not our ranking or the fact that other agents respect us, it’s that our offers generally do not contain any mistakes. Because what is there for a seller to base a decision upon apart from price / net proceeds? In a short sale situation, for example, the seller isn’t even receiving any of the profits so price, while important, is really not a primary consideration. Commitment to the transaction is paramount, as is the ability to close escrow. In a short sale, you’ve gotta be willing to wait for short sale approval and be able to close without delays or hiccups.
A while back an agent changed the amount of the earnest money deposit in a purchase contract that I received. The amount was cut in half. It was simply crossed out and rewritten, without an initial. I did not know whether the agent changed the earnest money deposit or if the buyer had altered the contract, but in any case it was enough for me to question the buyer’s agent. I felt this was an issue the seller might want to know and she may raise the question herself. Why did the buyer lower the amount of the earnest money deposit on this short sale?
The buyer’s agent explained that the buyer did not want her money tied up for a period of possibly 3 months. Probably because she would be losing out on that whopping .5% interest rate paid by local banks — that 60 cents paid over 90 days.
The seller was looking for a committed buyer. A buyer who really wanted the home. A buyer who was willing for 3 months. This is a seller’s market in Sacramento. Many sellers receive multiple offers. Sometimes, a seller can receive a dozen purchase offers or more within 24 hours. In a short sale, many sellers are not looking for a reason to accept a purchase contract — they are looking for a reason to reject it so they can focus on the few offers that fit the sellers’ criteria. Try not to give the seller any reason to reject your offer.
