Ask the Brokers – How long does the seller have to release my deposit?

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I received this question in our Ask the Brokers inbox this week:

We are the buyers and signed contract cancellation on 10/27/07 well within 17 days of contingency. The seller relisted the house on the market as active on the same day. But our agent has not heard form the seller’s agent after he has tried to contact the agent via phone calls and email regarding the status. My agent tells me to wait for a few more days, and I am getting anxious and want to know what is the legal time frame I have to wait. What should we do nest? The reason for cancellation are that the seller inflated the square footage of the house. We have the appraisal to prove it. Also the termite inspection (infestation and wood damage) was done four months ago but the fumigation will be done next week which will be past our 17 days of contingency. Without the clearance, we don’t feel comfortable proceeding with the contract.

I will assume that we are talking about a transaction in California involving the standard California Association of Realtors Residential Purchase Agreement. If that is not the case, all bets are off.

There are several issues here, so I will try to break it down. And, of course, the standard disclaimer applies: I am not an attorney, and you are always encouraged to seek the advice of a real estate attorney in situations involving contract dispute.

Return of the Buyer’s Deposit

I sense this is the primary issue, and if I am understanding correctly, you have signed cancellation and are wondering when your earnest money deposit will be returned. As we have discussed here before, the contract is a bilateral one, meaning that it takes two sets of signatures to get you into contract and two to get you out.

Whether or not your seventeen day period for contingency removal has come and gone is mostly immaterial, as the contract requires active removal of contingencies (removal in writing). Absent having done this, you would be within your rights to cancel contract at any point. So, why is the seller playing cat and mouse? We see this occasionally. The seller is presumably not thrilled with you right now, at least in the context that he is not happy he has to start over marketing his home. While you may be entitled to the timely return of your deposit, escrow can not release the money to you without the seller’s signature, and it is probably either not his biggest concern right now or he is being ornery and wanting you to suffer just a little.

I have heard of situations where the money has been held up in escrow for months. This is the exception, of course. With an open escrow, the seller will be unable to sell his home to another buyer, since any future sale will be “subject to cancellation of previous escrow.” This is really the only leverage you have in assuring a quick return of your money. There is a clause in your contract which addresses this:

Release of funds will require mutual Signed release instructions from Buyer and Seller, judicial decision or arbitration award. A party may be subject to civil penalty of up to $1,000 for refusal to sign such instructions if no good faith dispute exists as to who is entitled to the deposited funds.

If the seller continues to be non-responsive, you may want to consider seeking the advice of a real estate attorney. The seller may be subject to damages.

The Square Footage Estimate

There can be many sources of square footage. In the Multiple Listing property flyer, the seller’s agent should have provided the source of square footage. You can assume that the source used will be the one that provided the highest estimate. These sources can include the builder brochure, Assessor’s records, an appraisal, or even the seller. Large discrepancies are most often found where there have been additions to the home, either non-permitted (which would not be reflected in original plans or in the Tax Assessor’s records) or permitted (which are sometimes missed by the Assessor). Regardless of the source, the business of estimating square footage is never absolute, but it should be within a reasonably accurate range. In the end, it really doesn’t matter if you are surprised by the your appraiser’s findings. You have the right to cancel within timeframes if you are displeased with information.

The Termite Clearance

The only contractual requirement regarding termite clearance is that it be obtained prior to close of escrow. The required work need not be accomplished within your contingency period, but the initial report must be made available to you for your review and approval. Escrow is charged with ensuring that all contractual obligations are met prior to allowing the transfer to record. Therefore, you can rest assured (unless the contract specifies otherwise) that work will be completed when you take title.

Ah, the contracts. They are long and full of words, words which too many agents and principals to the transaction gloss over but which are oh-so important. It is incumbent on both agents and their clients to discuss the terms and to have a clear understanding of the implications of the provisions. No one opens escrow expecting the dispute clauses to apply to them, but some day they might. Better to understand your rights up front so that you are prepared for the worst case. 

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