Cancellation of Escrow Considerations

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Invariably I have come across disputes in real estate sales where a cancellation of contract, release of deposit and cancellation of escrow on a California Association of Realtors© form CC has been sent to either the listing or selling agent for his or her client(s) to date, sign and return to the party sending the form and there is no timely response. The result is frustration by the party on whose behalf the cancellation was sent.

California Civil Code section 1057.3 sets forth the guidelines when the California Association of Realtors© form “CC” is not timely signed, dated and returned to the party sending it authorizing the cancellation of escrow and the return of any earnest money deposit. The penalty for non-compliance for the failure to date, sign and return the submitted cancellation of escrow within thirty (30) days of its sending is between one-hundred dollars ($100.00) and one-thousand dollars ($1,000.00) plus reasonable attorney’s fees to enforce the signature, dating and return of the cancellation. The penalties and attorney’s fee provision do not apply if there is a “reasonable and good faith dispute over the cancellation” sent by one of the parties.

What is a “reasonable and good faith dispute over the cancellation” depends upon the facts of each escrow. Hence it is key that the real estate licensee memorialize the dispute over the cancellation in writing with the real estate agent representing the other party and forward suggested emails pertaining to the dispute to the client while saving all emails in the transaction file which clearly suggest that the client should consult with an attorney about the situation as soon as possible since it is now a legal matter.

Many times the listing agent sends a cancellation of escrow to the selling agent and there is simply no response causing the seller some stress because he, she, or both want to move forward and sell their parcel to another buyer. My recommendation is that when a cancellation of contract, release of deposit and cancellation of escrow is sent to either the seller or the buyer, a copy of the transmission and cancellation document be also sent to the designated escrow officer so that he or she is kept advised of the escrow’s status.

What the listing agent should do in a situation where the selling agent does not timely return the signed and dated cancellation of contract, release of deposit and cancellation of escrow is to call and e mail the selling agent about the seller’s need for the document and that the parcel will be placed back on the market for other buyers with reference to Civil Code section 1057.3.

Forward the email to the seller clients suggesting that they consult with an attorney. Mention in the email to the seller clients that the parcel will be placed back on the market and that any new buyers who submit an offer that is accepted will be placed in express “back-up” position to the current buyer(s) who have refused to sign, date and return the cancellation of contract, release of deposit and cancellation of escrow.

In this email to the seller client, the listing agent needs to make it very clear that he/she will not place any new buyers in the same position as the buyer who refuses to sign the cancellation of contract, release of deposit and cancellation of escrow and that any new buyer’s purchase of the listed parcel will be “subject to” the present buyer dating, signing and returning the needed cancellation of contract, release of deposit and cancellation of escrow. The listing agent needs to disclose in writing to all potential new buyers through their selling agent of the problem of the current buyer refusing to sign the cancellation of contract, release of deposit and cancellation of escrow. A copy of such disclosure needs to be sent to the seller clients and all documents and emails should be kept in the transaction file in hardcopy as well as electronically.

In a situation where a prior buyer has refused to sign, date and return a cancellation of contract, release of deposit and cancellation of escrow a subsequent new buyer can close on the property under contract so long as no lawsuit is filed and no lis pendens is recorded on the listed property by the buyer who received a cancellation of the escrow.

About the Author

Edward McCutchan
B. Edward McCutchan, Jr.
Sunderland | McCutchan, LLP

Mr. McCutchan’s practice is primarily civil litigation with an emphasis in defending professionals and businesses in real estate, mortgage brokering, construction, banking and agricultural industries and all phases of dispute resolution through trial and appeal. His area of practice is also agricultural law (viticulture and wineries), trusts and estates, probate, real estate transactions, business law and elder abuse. B. Edward McCutchan, Jr. was admitted to the Bar in 1985 and is admitted and qualified to practice in all California courts and the U.S. District Court, Eastern and Northern Districts of California as well as the United States Tax Court.

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