Fact Pattern: In last week’s legal tip, you said that, if a buyer fails to submit an initial deposit into escrow within 3 business days, the seller must first issue a 2-day Notice to Buyer to Perform (NBP) before cancelling. Let’s say that we are the listing agent in that situation. We serve the NBP and the buyer still does not submit the deposit into escrow within that 2-day timeframe. Our seller then signs and delivers to the buyer’s agent the C.A.R. Cancellation of Contract (CC).

Multiple Choice Question: Are we, as the listing agent, required to get the buyer’s signature on the CC? Pick the best answer:

A. Yes, the buyer must agree for the cancellation to be valid.
B. No, the seller can unilaterally cancel the contract.
C. No, the seller can use a Backup Offer Addendum (BUO) for the next buyer.
D. No, but the buyer’s signature gives the seller an assurance that this transaction has ended.

Answer: Answer A is wrong. As the listing agent, we should try our best to get the buyer’s signature on the CC, but we are not legally required to obtain the buyer’s signature. After all, we have no control over what a buyer does. The buyer may refuse to sign the CC, which is a common occurrence when a buyer has no deposit in escrow (no skin in the game), but is trying to keep the deal going.

Answer B is also wrong. The validity of the seller’s unilateral cancellation is a legal determination. It would be great if sellers were to make that legal determination themselves, or consult with their own attorney, and tell us how they want to proceed. But that rarely happens. In a typical situation, the seller will rely on us to determine whether a cancellation is valid. Yet, we do not make legal determinations on the seller’s behalf, or give legal advice to sellers. Nor do we have a crystal ball that tells us that the seller will necessarily prevail on this issue if it goes to court or arbitration. The buyer may try to argue all sorts of things, such as the listing agent didn’t count the timeframes correctly; the buyer didn’t understand; the buyer’s agent did not tell the buyer about the deposit or the NBP; or escrow refused to accept the buyer’s personal check. Alternatively, the buyer may have no argument at all. We have had situations where the buyer has no leg to stand on as far as I can tell, but the buyer nevertheless files a lawsuit to place a lis pendens against the property.

Because sellers won’t make the legal determination themselves, and we won’t do it for them, we circumvent the entire legal issue by simply obtaining the buyer’s signature on the Cancellation of Contract.

Answer C is a true statement. If a buyer refuses to sign a cancellation, we should always, as a matter of prudence, use a Backup Offer Addendum (BUO) for any backup buyer. But Answer C is not the best answer, because eventually the backup buyer will be ready to close escrow, and the first buyer may still refuse to sign the cancellation. At that point, we may have no choice but to inform the seller in writing that closing escrow without getting a signed cancellation from the first buyer is against our advice, and doing so may have serious legal and other consequences for the seller. We would also say that we strongly encourage the seller to discuss the matter with the seller’s own attorney before proceeding.

Answer D is the correct answer. We should always try our best to get the buyer to sign the cancellation. If the buyer refuses to sign or the buyer cannot be found, be sure to discuss the matter with your manager who will consult with one of our in-house attorneys as needed.

-Thank you to Kyle Kemp (District Manager for Santa Barbara County) for suggesting this week’s legal tip.

Copyright© 2019 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of April 29, 2019. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.