Expert: Lori Frankfort - 11/3/2007

Question
QUESTION: Hi Lori,

We have a purchase agreement on our home in SoCal, contract close date 30 Oct 07.  Currently, we have not had a response from the buyer or buyer's agent as to if they will adhere to the purchase agreement or if the buyer is going to pull out.  We have sent a Demand to Close escrow and are currently unsure what to do now.  We have had our house in this contract for 6 weeks and now seems the buyer is leaving us hanging.  How can we ensure they buyer will forfeit the earnest money?  I've dealt with a purchase agreement in CA before and my prior experience tells me the forfeit of earnest money is not a for sure thing when the buyer backs out.  The buyer's load did not fall through.  Any help on our situation?  
Thanks,
Diane

ANSWER: Hi Diane.  Your agent should defintely be helping you with this, if you have one.

Because your contract was set to close on Oct. 30th they are already in breach of contract.  I'm not sure what a Demand to close escrow is, but you should send a "24 Hour Notice to Perform".  This gives them 24 hours to close escrow or you can cancel.  This should put some fear into them.  Have you spoken with their loan agent?  I would call the loan agent immediately and find out what is going on.  He / she should be able to give you some answers, and if you tell them that you are going to cancel escrow they'll be apt to want to help.

If you end up cancelling the escrow you can keep the earnest money only IF they have removed their contingencies in writing.  Have they done this?  It would be on a form titled "Contingency Removal" and needs to specify that all the contingencies have been removed.  If they have, then you're golden.  In California you have to prove your damages in order to keep the deposit, but this is not a difficult thing to do.  I've heard of holding the earnest deposit until you have another accepted offer, and if the new offer is less then you can keep the difference from the earnest deposit.  Also, if there are other damages you can prove as a result of the escrow not closing, then you can keep that as well.  You may have to go to arbitration to do it, but it's worth it if they're backing out without cause.

Feel free to call me if you have any more questions, or you can email.

Best,
Lori Frankfort
818-270-8709
lorifrankfort@aol.com

---------- FOLLOW-UP ----------

QUESTION: Hi Lori,

Thanks for your quick response.  We are working with an agent; I just wanted to confirm since a prior sour offer left us with damages and no earnest money. The buyer ended up cancelling their offer (backing out).  

Pertaining to your second paragraph above, who would we address the "Contingency Removal" to.....the escrow company? We only had set one payment out of escrow to the termite company, so I'm guessing escrow will pay the termite company then we keep the rest of the earnest money?  

I might take you up on the offer to call. Thanks for your information.   
Diane

Answer
Hi Diane

The contingency removal form would have been generated by your agent for the Buyers to sign.  If you look in your purchase agreement, there is a section that discusses time periods.  If the contract was left standard it gave the Buyers 17 days to remove their contingencies in writing.  At that point in time your agent or the Buyer's agent should have had the Buyers sign the document agreeing that they remove their contingencies.  This is crucial, because if they didn't, you can't keep any portion of the earnest money.  Also, if they didn't, your agent has really let you down.  Call and ask her/him if they have the Contingency Removal signed by the Buyers.

Feel free to call me anytime with more questions, or you can email.

Best,
Lori