Seller Cancellation Must Be Done By The Book

Real Estate News

Seller Cancellation Must Be Done By The Book


Written By: Bob Hunt
Monday, August 21, 2017

Breaking up is hard to do. So is cancelling a California real estate purchase contract. Especially if you are the seller. That is why, a little over a year ago, the legal department of the California Association of Realtors CAR produced a memorandum titled, "How a Seller May Cancel a Purchase Agreement: Checklist and QA".

The need for such an advisory arises out of the fact that a non-performing buyer may still want to buy. Sometimes buyers miss performance deadlines due to nothing more than sheer inefficiency. Sometimes it is because things have not gone as planned e.g. they dont yet have the money for the increased deposit that is due. And, sometimes, they stall the closing in an attempt to squeeze the seller for a further concession. In each case, they still want to buy -- just not on exactly the terms that had been agreed to.

The CAR memo notes: "Many sellers and agents are impatient. They want the contract canceled yesterday. But rushing the process of cancellation will often lead to a defective or questionable cancellation. What good does it do to cancel a contract if the buyer can come back and possibly claim a right to buy?"

For what reasons may a seller cancel? In a typical situation, the standard purchase contract RPA provides exactly ten reasons. The CAR memo provides the following list: 1 buyer failure to remove an applicable contingency; 2 buyer failure to deposit the earnest money, or an increased deposit; 3 funds for money deposited are not good; 4 buyer fails to deliver prequalification letter; 5 buyer fails to deliver verification of down payment and closing costs; 6 seller has reasonably disapproved of the verification of funds; 7 buyer fails to return the Transfer Disclosure Statement, Natural Hazard Disclosure, lead disclosures or other disclosures if required; 8 buyer fails to sign a separate liquidated damages form for an increased deposit; 9 buyer fails to deliver notice of FHA or VA costs or terms if applicable; and, finally, 10 buyer does not close escrow on time.

The ten reasons listed are in a standard transaction. Other possibilities could be added, such as a contingency for short sale approval, or the purchase of another property. Also, there are common law legal reasons such as fraud or duress.

When a buyer has failed to comply with one of the conditions in 1 -- 9 above, the seller must, before canceling, first give the buyer a Notice to Buyer to Perform NBP. In such an instance, it is important that the seller and his agent are careful to calculate correctly what is the buyers deadline date for compliance. The NBP can be delivered no earlier than two days before that date.

If the buyer has failed to close escrow on time condition 10, then the seller should use the Demand to Close Escrow DCE, not a notice to perform.

It is also important that the seller has fulfilled all of his obligations with respect to the buyers contingencies. "The [Purchase Contract] specifies that where the seller has sent out disclosures, reports or other information late, then the buyer will have an additional 5 days after receipt to remove contingencies if those 5 days go beyond the [contractual] contingency period."

Sellers will often want to retain some or all of a buyers earnest money deposit. In cases where an NBP has been used, this is not possible. The purchase contract gives the seller the right to cancel if the buyer has not performed after receiving an NBP, but it also provides that the seller will >If the buyer has not conformed with a Notice to Perform, or has not closed after receiving a Demand to Close Escrow, the seller may then deliver a Cancellation of Contract CC to the buyer. This form comes in two parts: one cancels the contract, the other cancels escrow and provides for disposition of the deposit money. It is important to note that the first part, unlike the second, does not require the signatures of both parties. It is >"Cancellation is a unilateral act regardless of whether there is an open escrow. The ten reasons for cancellation as outlined confer upon the seller a right to cancel unilaterally. It is ir>It goes on to say, "Escrow may require signatures from both parties to cancel the escrow, but the fact of an escrow being open does not affect the validity of the sellers cancellation." And further, "The fact that there is an open escrow does not by itself mean that the initial buyer retains a right to buy. If the contract was properly cancelled, then a seller may sell the property to a subsequent buyer."

Of course, there are still issues to be discussed. What happens to deposit money if the buyer balks? Can the property be put on the market if escrow isnt cancelled? What is the prudent thing to do? etc. But those are all for discussion some other day.

Bob Hunt is a director of the California Association of Realtorsreg;. He is the author of Real Estate the Ethical Way. His email address is .

Copyright© 2024 Realty Times®. All Rights Reserved

 

  • Search in English
  • Search in Spanish
  • Search in French
  • Search in Italian
  • Search in Portuguese
  • Search in German
  • Search in Russian
  • Search in chinesse
pinterest
Facebook
Twitter
googleplus
6 Tips for Selling Your South Florida Home This Summer
6 Tips for Selling Your South Florida Home This Summer By Meredith Hale   Summer...

How to Stage Your Beachfront Outdoor Living Space
How to Stage Your Beachfront Outdoor Living Space John Williams   Selling...

Back to School with Beachfront
Beachfront has enjoyed a busy summer, unlike others, there is quickly becoming less difference...