Legal Question in Real Estate Law in California

Re: Escrow Cancellation and Deposit

From the facts given, it looks to me as though you would lose. Escrows are usually opened after a binding agreement of sale is signed. Of course, there may still be a contingency after escrow is opened, but you don't mention one.

So, cancelling escrow would not cancel your contract. In fact, cancelling escrow would be a breach of your contract. The seller would then be entitled to liquidated damages for breach, if such as provided for in the contract, which it usually is.

Further, one party probably can't cancel an escrow acting unilaterally, even if there is a dual agent. What do the escrow instruction you signed say about cancellation? What does your sales agreement contain in the way of unsatisfied contingencies, liquidated damages and mediation/arbitration clauses?

Re: Escrow Cancellation and Deposit

I am assuming that you were using the standard California Association of Realtors (CAR) residential purchase agreement and joint escrow instructions. If so, your rights and obligations are spelled out in the conract. The failure to cancel the deal prior to the 17-day time period is probably not good for you. Based on the facts you provide, I think it is more likely than not that the seller would be entitled to return of the $5,000 deposit (as liquidated damages). You have the right to contest the other damages that the seller is claiming.

Assuming (again) that you were using that form contract, the contract provides that the parties must go to mediation. The contract also provides that the parties must (then) go to binding arbitration (if the mediation is not successful), but only if the boxes next to arbitration are checked and initialled by both buyer and seller, so look to see if they were.

One way or the other, you should agree to go to mediation, because (again, assuming you are using this form contract) the contract provides that if you do not go to mediation, you can never recover attorneys' fees, even if you are the prevailing party. It's also generally a very good way of resolving what is still a small dispute. If the arbitration box is checked, you must then go to arbitration for the same reason (if mediation is unsuccessful).

Here's another point however: If you notified your realtor that you were unable to qualify for financing prior to the 17-day cutoff (financing being one of the conditions for going forward with the purchase), and if your realtor then failed to convey the information to the seller, you may have a claim against your realtor for malpractice (negligence). (I can't tell from your statement about "lack of financing" if this is what it means, but it may be.) Your realtor may have signed a box on your contract also agreeing to go to mediation and/or arbitration. If not, look in your listing agreement and see if there is a mediation and/or arbitration clause.

I hope that's helpful. I encourage you to get good legal advice at this point, and to do it quickly (given that you said that Fidelity National, which I interpret to be the escrow company, is about to file an interpleader). Good luck.