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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.
How a Home Buyer Can Kiss Her Earnest Money Deposit Goodbye
We had a banner day in Sacramento short sales on Monday. While last week was one of those rare oddities in which it seemed that every time I turned around I was stepping into a big ol’ pile of stinky dog poop, this week is definitely back on track. I am back to a relatively smooth running real estate business with little bumps in the road along the way but no major potholes. I received 4 short sale approval letters yesterday and 2 extensions.
One approval was for a pool home in Carmichael. Another was for a Bank of America Cooperative short sale in Sacramento; there was an approval for a short sale in Galt, and an all new approval for a popular Carmichael short sale. I received a much needed short sale extension for a short sale that could not close in Rosemont and another in Sacramento, both of which were caused by excessive (buyer) lender delays.
Receiving short sale approval letters is a good thing. Finding out a buyer is canceling a short sale is not a good thing. It’s doubly NOT a good thing when the buyer cancels after short sale approval. I hate it when that happens. Especially if my sellers have moved out and now have to move back.
As a Sacramento real estate agent, I take precautions on behalf of sellers. It’s my job. For example, I routinely ask the buyer to sign a contingency release by the termination date for contingencies. Many listing agents don’t demand a contingency release from buyers because they don’t want to rock the boat or they don’t think of it. What a contingency release does, providing all of the contingencies are released, is put the buyer’s earnest money deposit at risk. It basically says if the buyer later elects to cancel, the earnest money deposit belongs to the seller.
Of course, if the buyer wants to contest the release, the money is not automatically released. Escrow requires mutual consent. In that case, the seller can take the buyer to small claims court and fight for the deposit there. Either way, once contingencies are released, the seller is generally entitled to the earnest money deposit.
Now, a $1,000 deposit makes a very small dent in the expenses a seller might incur when a buyer selectively cancels. If I was a seller who had to go to small claims court to demand a deposit that I believed to be rightfully mine, I might also ask for other damages that either meet the limit for liquidated damages in the purchase contract (3% of the purchase price) or small claims court monetary limits. The California small claims court dollar-limit maximum was raised this year to $10,000.
Guess I’ll polish the back of my high heels and trudge on stepping over dog poop. I’ve got another short sale in Lincoln to sell for a second time.
