Question: In last week’s Legal Tip, you said that, in a non-contingent sale, “circumstances could arise during escrow that may allow a buyer to cancel and get the deposit back.” You also said that those situations tend to be complicated, and should be considered on a case-by-case basis as they arise. Can you at least tell us what the “circumstances” could be? 

Answer: Yes, but please also read “Agent’s Role” below. The following is a list of some of the circumstances to consider when determining whether a buyer in a non-contingent sale can cancel and keep the deposit:

1. Seller’s Failure to Perform: If the buyer is unable to move forward on a sales contract due to the seller’s failure to perform as agreed, the buyer can generally cancel after first delivering a 2-day Notice to Seller to Perform (NSP) (see paragraph 14D(2) of the RPA). Examples are a seller’s failure to allow the buyer to conduct a final walk-through, to complete agreed-upon repairs in a timely manner, to keep the premises in substantially the same condition as on the date of acceptance, to remove an existing tenant as promised, or to transfer title as agreed. Of course, if the seller is nevertheless able to perform within the 2-day timeframe after service of the NSP, the buyer can no longer cancel under that provision.

2. Seller’s Failure to Close Escrow: Similar to #1 above, if a seller fails to close escrow as scheduled, the buyer can cancel after first delivering to the seller a 3-day Demand to Close Escrow (DCE) (see paragraph 14G). Again, if the seller can perform within that 3-day timeframe, the buyer can no longer cancel under that provision.

3. Delivery of Certain Disclosures: The law generally provides a buyer with a 5-day right to cancel after electronic delivery of certain disclosures, even though the buyer may have removed all contingencies (see paragraph 11G). Those disclosures include, if applicable, the Transfer Disclosure Statement (TDS), Natural Hazard Disclosure Statement (NHD), and other related disclosures.

4. Discovery of New Matters: A seller must generally provide the buyer with an amended disclosure if the seller becomes aware of any new material facts adversely affecting the property (see paragraph 11A(4) of the RPA). No amended disclosure, however, is required under the RPA for conditions that the buyer “is otherwise aware, or which are discovered by Buyer or disclosed in reports or documents provided to or ordered and paid for by Buyer.” For any such amended disclosure, a buyer may have a 5-day to cancel the contract after electronic delivery (see paragraph 11G).

5. Mutual Agreement to Cancel: The parties may mutually agree to cancel their sales contract, and release the deposit partially or wholly to each other.

Agent’s Role: As an agent involved in a transaction where the buyer is attempting to cancel and get the deposit back, you can say or do the wrong thing, and you could be held liable for your actions, even though you are unlikely to get paid for a cancelled transaction. In this situation, you can make an informal attempt at helping the parties resolve their dispute. However, if the dispute is not quickly resolved to both parties’ satisfaction, you must generally encourage your clients to pursue the matter themselves as they deem fit, through court, mediation, arbitration, or otherwise, hopefully with the help of their own attorney.

-Thank you to Paul Hurst (Montecito Associate Manager) for suggesting this week’s legal tip!

Copyright© 2022 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 June 6, 2022. 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.