CA Buyer in Default Refusing to Release Earnest Money

[James Haig Streeter]

I recently sold my CA home, with the initial accepted offer being 7% over asking, with all contingencies removed from the outset. After paying the standard 3% earnest money into Escrow the buyer then cancelled the contract and demanded the deposit back. This is even though the California Purchase Agreement has a liquidated damages clause that states if the buyer defaults the seller “shall retain the deposit”. The buyer also signed a contingency release which has similar language.

I finally sold to a backup offer, for asking price – therefore a 7% loss compared to the initial offer. As this home is located in the SF Bay Area this represents quite a substantial sum.

Question: As the buyer who was in default is refusing to sign the release of the earnest money, are there any next steps I can take to compel them to sign? I understand that often this situation ends with an agreement for each party to take a 50/50 split. Any other options that anyone can suggest, keeping in mind this is a CA contract?

[Jon Schwartz]

Originally posted by @James Haig Streeter:

I recently sold my CA home, with the initial accepted offer being 7% over asking, with all contingencies removed from the outset. After paying the standard 3% earnest money into Escrow the buyer then cancelled the contract and demanded the deposit back. This is even though the California Purchase Agreement has a liquidated damages clause that states if the buyer defaults the seller “shall retain the deposit”. The buyer also signed a contingency release which has similar language.

I finally sold to a backup offer, for asking price – therefore a 7% loss compared to the initial offer. As this home is located in the SF Bay Area this represents quite a substantial sum.

Question: As the buyer who was in default is refusing to sign the release of the earnest money, are there any next steps I can take to compel them to sign? I understand that often this situation ends with an agreement for each party to take a 50/50 split. Any other options that anyone can suggest, keeping in mind this is a CA contract?

James,

I believe the next step is mediation. Read section 21 of the CA Residential Purchase Agreement (assuming you transacting on this document).

I've not been through mediation or arbitration myself, but if the buyer removed all contingencies when he submitted the offer, then cancelled, AND you suffered actual damages (a subsequently reduced sale price), your case seems pretty iron-clad to me.

I believe you can enter mediation and arbitration without a lawyer, so I say go for it! Keep you costs down and fight it!

Best,

Jon