Legal Question in Real Estate Law in California

Escrow Deposit

My partner and I sold a piece of property in Palm Springs. The buyer placed $10,000 in the escrow account with some contingencies. At the end of the 60 day escrow he requested a 30day delay which we granted with him paying the interest on the property for 30 days. A week later he came back with a different deal than the original cash out. We negotiated back and forth for two weeks at which time he walked away from the deal and requested his $10,000 back. He had no good reason to back out, had nothing to do with contingencies and we bent over backwards to save the sale. Now we are told the $10,000 will remain in escrow until the buyer and seller agree to his disbursements. Is this true? We're out almost 90 interest and countless other monies from this default. We are also having to back out of another purchase we were almost ready to go into escrow with to purchase a business. Now we don't have the down, so that deal is gone. What are our options? We think the $10,000 should go to us. Please advise.


--name removed--russom

Asked on 7/15/01, 5:14 pm

4 Answers from Attorneys

Roy Hoffman Law Offices of Roy A. Hoffman

Re: Escrow Deposit

The escrow company you are dealing with will probably not release the $10,000 until some resolution of your dispute with the buyer occurs. At that point they will probably want joint escrow instructions telling them what to do with the money they currently hold. At this point, if the buyer has told them not to release the money, they cannot release those funds without either a court order, or further escrow instructions. If they release the money to the wrong person, they could be liable for the amount released. Escrow companies typically do not willingly accept such liability.

Whether you are entitled to the $10,000 in escrow depends almost entirely on what the sale documents say. You should first look to any offer/counter-offers, receipts for deposit, and then to the purchase agreement, to determine what is supposed to happen in the event the buyer backs out of the deal. If you used the standard CAR forms, there are provisions that deal with this contingency; however, you will need to look at your specific document to determine whether those provisions have been used.

The best advice you can be given at this juncture, is take all of the documents you have relating to this sale to an attorney and have that attorney advise you about your options.

Read more
Answered on 7/16/01, 1:55 pm
Lloyd Kirschbaum Law Offices of Lloyd Kirschbaum

Re: Escrow Deposit

Based upon the facts you describe, and depending upon the language of the sales agreement, you may be entitled to keep the $10,000 deposited into escrow by the buyer who breached that contract. Most standard real estate sales contracts provide for such "liquidated damages" in the event of a breach of the agreement by one party or the other. Liquidated damages are essentially an amount that the parties agree will be awarded for a breach of contract, without the need to prove anything other than the amount agreed upon and a breach of the contract. And your description certainly sounds like a breach of contract. That's the good news.

The practical reality is that because the escrow company is to be neutral as between the two parties, it is not about to assume the role of a court, even in the face of strong evidence, and will never make a decision to release funds deposited to one party or the other, unless there is an agreement to that effect, in writting, and signed by both of the parties. All t's crossed and i's dotted. The escrow company still thinks it has to hold on to all funds and deliver them to the seller (after making various agreed upon deductions) upon the sale of the property. If the buyer doesn't put in all of the money for the price of the property, or one of the parties breaches the agreement, escrow companies uniformly hold onto all funds that were deposited until instructed by both parties in a signed, written agreement what to do. Alternatively, escrow will only release the funds when presented with a Judgment from a court. You therefore have two viable options (three, if you include the less than satisfying walking away from the deal and letting the buyer keep his money): 1. You can negotiate with the breaching buyer untill you reach an agreement, which could theoretically run the range from $1 to $10,000 or, 2. You can sue him for breach of contract.

If you're unable to negotiate an acceptable resolution with the buyer, and decide to pursue a lawsuit against him, the suit almost certainly should be filed in Riverside County Superior Court, for Limited Jurisdiction. It's too large an amount for the maximum small claims court jurisdiction of $5,000 (although you could decide to give up anything over $5,000 and file against the buyer in small claims court). However, depending on the development of the facts that you presented, you may be able to obtain damages in addition to the liquidated damages, and, if the sales agreement provided for it (and most do), you may be able to recover your attorney's fees. If you win. That's not to say you won't, but as with most litigation, there are risks that include the opportunity to lose even a winning case, so this will probably be a decision that you make on a cost benefit basis: Is the amount to potentially be gained worth the risk and the price to go out and get it? Best of luck.

Read more
Answered on 7/16/01, 2:01 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Escrow Deposit

Your Purchase Agreement should contain provisions covering what happens if the deal collapses. Most of the pre-printed forms have such provisions. You should also review any instructions given to the escrow holder.

You should look to see whether your Agreement had a liquidated damages clause. If so, your claim against the defaulting buyer is probably limited to the specified amount, typically 3%. Otherwise you are entitled to sue for your actual damages. In theory a seller can also sue for specific performance to require the buyer to buy, but in practice this seldom happens.

In any event unless you spot the answer to your question in the Agreement or instructions, or are able to get a satisfactory explanation from the escrow officer, you should consult a local real-estate attorney regarding your rights and have an appropriate demand letter sent and/or negotiations begun.

Read more
Answered on 7/16/01, 2:02 pm

Re: Escrow Deposit

I would like to review the documents and your claim of actual damages. You may have a cause of action depending upon the contracts. Please call me directly at (619) 222-3504.

Read more
Answered on 7/16/01, 3:30 pm

Related Questions & Answers

More Real Estate and Real Property questions and answers in California