Home Seller Disputes FAQ

Whether a California seller can keep a buyer's deposit depends on the circumstances of the cancellation and the purchase agreement terms. If the buyer backs out after all contingencies have been removed and without a valid contractual reason, the seller is generally entitled to the deposit as liquidated damages. Under California Civil Code Section 1675, for residential property of one to four units, the liquidated damages amount is limited to 3% of the purchase price. The deposit must have been held in escrow, and the liquidated damages provision must have been separately initialed by both parties.

However, sellers cannot keep the deposit if the buyer canceled within a valid contingency period such as inspection, loan, or appraisal contingencies. Buyers who cancel within the three to five day disclosure review period are also entitled to return of their deposit. When disputes arise over deposit release, the escrow company will require mutual cancellation instructions. If parties cannot agree, the deposit may be held pending mediation, arbitration, or court resolution.

California sellers have extensive disclosure obligations under Civil Code Sections 1102-1102.17. The Transfer Disclosure Statement (TDS) requires sellers to disclose all known material facts affecting the value or desirability of the property. This includes defects in structural components such as foundation, roof, walls, floors, and ceilings; defects in plumbing, electrical, heating, and air conditioning systems; water damage, drainage problems, or flooding history; environmental hazards including lead paint, asbestos, mold, and pest infestations; neighborhood nuisances, noise, or odors; boundary disputes or encroachments; and any other condition that might affect the buyer's decision.

Additional required disclosures include the Natural Hazard Disclosure covering earthquake faults, flood zones, and fire hazards; Mello-Roos and special tax assessments; HOA documents if applicable; and deaths on the property within the past three years. Sellers must disclose actual knowledge of material facts and cannot hide behind willful ignorance. Failure to disclose can result in liability for fraud, negligent misrepresentation, and breach of statutory duties.

California sellers have several remedies when buyers breach purchase agreements. Liquidated damages provide the most common remedy, allowing sellers to retain the buyer's deposit as agreed compensation for breach. Under Civil Code Section 1675, liquidated damages for residential properties are capped at 3% of the purchase price. Alternatively, sellers can pursue actual damages through litigation if actual losses exceed the deposit, though the liquidated damages clause typically operates as the exclusive remedy unless the buyer's conduct constitutes fraud.

Specific performance is available to compel a buyer to complete the purchase, though sellers rarely seek this remedy since finding another buyer is usually preferable. If the property sells for less than the original contract price, sellers may seek the difference as damages. Sellers may also recover consequential damages such as additional carrying costs, mortgage payments, and property taxes incurred due to the delayed sale. The standard CAR purchase agreement requires mediation before litigation for most disputes. Sellers should carefully document all communications, buyer conduct, and financial losses when pursuing remedies.

California sellers can take several steps to minimize disclosure liability. Complete all disclosure forms thoroughly and honestly, erring on the side of over-disclosure rather than under-disclosure. Disclose anything you know or suspect might affect the property's value or desirability, even if you are unsure whether it is technically required. Document all known issues with dates and descriptions, and retain copies of all disclosures provided.

Consider obtaining pre-sale inspections, including general home inspection, pest inspection, roof inspection, and any specialized inspections for known concerns. Pre-sale inspections help identify issues you may not have known about and demonstrate good faith efforts to inform buyers. If issues are discovered, disclose them promptly by providing supplemental disclosures. Work with a knowledgeable real estate agent who understands disclosure requirements. Consider selling the property as-is while still providing all required disclosures, which limits repair obligations but does not eliminate disclosure duties. Retain all disclosure documents and delivery confirmations for at least four years after the sale.

When a California buyer claims disclosure failure, sellers should take immediate steps to protect themselves. First, gather all documentation including the original disclosures provided, inspection reports, repair records, and any communications with the buyer about property conditions. Review the disclosures carefully to determine whether the claimed defect was addressed. If you disclosed the condition, your documentation provides a strong defense. If the defect arose after disclosures were made, gather evidence of when the problem developed.

Consider whether you actually knew about the defect; sellers are only liable for failing to disclose known conditions or conditions they should have known about. If the buyer sends a demand letter, respond carefully and consider consulting a real estate attorney before admitting any liability. Many purchase agreements require mediation before litigation, which can provide an opportunity for resolution. Notify your homeowner's insurance carrier, as some policies may provide coverage for certain claims. If the claim appears to involve a condition covered by your disclosures or that you genuinely did not know about, you may have strong defenses.

Once a buyer has removed all contingencies in a California real estate transaction, their ability to cancel is significantly limited. After contingency removal, buyers cannot cancel based on inspection findings, loan approval issues, or appraisal results. However, buyers can still cancel under limited circumstances. If the seller fails to perform their obligations, such as not delivering clear title or not completing agreed-upon repairs, the buyer may cancel for seller breach. If the seller provides supplemental disclosures revealing new material information, the buyer may have additional cancellation rights.

If the buyer's loan falls through due to lender issues unrelated to the buyer's qualifications, some flexibility may exist depending on the specific loan contingency language. Fraud or misrepresentation by the seller that is discovered after contingency removal may provide grounds for cancellation or rescission. In most cases, however, a buyer who cancels after removing contingencies without valid grounds will forfeit their deposit as liquidated damages. Sellers should ensure they have proper documentation of contingency removal before proceeding toward closing.

When a California real estate closing does not occur by the scheduled date, the consequences depend on the cause of the delay and the parties' conduct. If the buyer causes the delay without valid excuse, the seller can issue a Demand to Close Escrow, typically giving the buyer 48 hours to perform. If the buyer still fails to close, the seller can cancel the contract and pursue the deposit as liquidated damages. If the seller causes the delay, the buyer has similar remedies and can demand performance or cancel with deposit return. If neither party is at fault, such as title issues, lender delays, or escrow problems, the parties typically extend the closing date by mutual agreement.

Standard CAR contracts require time extensions to be in writing. If parties cannot agree on an extension, the contract may provide that time is of the essence, making the closing date a firm deadline. Before pursuing remedies for late closing, parties should review their specific contract terms, as remedies and procedures can vary. Consider whether an extension agreement is more practical than exercising cancellation rights.

California sellers may be liable for defects discovered after closing if they knew or should have known about the condition and failed to disclose it. Under Civil Code Section 1102.13, sellers who fail to provide required disclosures face liability for actual damages. Sellers are liable for intentional fraud if they actively concealed known defects or made false statements about the property's condition. Negligent misrepresentation liability applies when sellers carelessly made false statements without reasonable grounds for believing them true.

However, sellers are generally not liable for defects that developed after the sale closed, defects they genuinely did not know about and had no reason to know about, or defects that were visible or discoverable through reasonable inspection. An as-is clause does not protect sellers from liability for failure to disclose known defects or fraud. The statute of limitations for most claims is three to four years, but the discovery rule may extend this period. Sellers should retain copies of all disclosures and delivery confirmations indefinitely as evidence of compliance.

California sellers have limited remedies for buyers who waste their time during unsuccessful transactions. If the buyer properly canceled within contingency periods or before deadlines, the seller has no claim regardless of the inconvenience caused. If the buyer strung along the seller without genuine intent to purchase, potential claims include fraud if the buyer made false representations about their ability or intent to close, tortious interference if the buyer deliberately prevented the seller from pursuing other buyers, and breach of contract if the buyer violated specific contract terms. However, these claims are difficult to prove and rarely pursued.

The practical reality is that contingency periods exist to give buyers flexibility, and sellers accept this when entering contracts. The seller's primary remedy for buyer breach is retaining the deposit as liquidated damages. To minimize time wasted, sellers can require buyers to demonstrate loan pre-approval before accepting offers, set firm contingency deadlines, promptly issue Notices to Perform when buyers miss deadlines, and consider backup offers during contingency periods.

When a buyer's loan is not approved in California, the seller's rights depend on whether the loan contingency was still in effect. If the loan contingency remained in place and the buyer's financing falls through, the buyer typically can cancel the transaction and receive their deposit back. The seller must return the deposit even if frustrated by the outcome. If the buyer removed the loan contingency and subsequently cannot obtain financing, the seller may be entitled to the deposit as liquidated damages since the buyer assumed the risk of financing failure upon removing the contingency. Sellers should verify that contingency removal was properly documented.

To protect themselves, sellers should require buyers to provide pre-approval letters from reputable lenders before accepting offers, verify the buyer's financial qualifications are consistent with the purchase price, monitor loan contingency deadlines closely, and issue Notices to Perform if buyers fail to remove contingencies on time. Consider requiring larger deposits from buyers who appear to have borderline qualifications. If financing fails after contingency removal, the seller must still go through proper cancellation procedures before retaining the deposit.