David’s Real Estate Corner

August 2016

Cancelling a real estate purchase agreement by the seller the proper way. Unless a real estate purchase agreement is properly cancelled, a seller may face legal action by the buyer for breach of contract, specific performance, and other remedies. The California Residential Purchase Agreement (RPA-CA) prescribes ten reasons why a seller may cancel. All of the reasons require some type of notice to be given to the buyer, either a Notice to Buyer to Perform (Form NBP) or a Demand to Close Escrow (Form DCE before a seller may issue a cancellation. A seller may cancel if the buyer, after being served with an NBP, fails to perform as follows: 1. The buyer fails to remove the applicable contingencies 2. The buyer fails to deposit the earnest money deposit (or increased deposit) into escrow 3. The funds for the earnest money deposit (or increased deposit) are not good when deposited 4. The buyer fails to deliver the prequalification letter 5. The buyer fails to deliver verification of down payment and closing costs 6. The seller has reasonably disapproved of the above-mentioned verification 7. The buyer fails to return the Transfer Disclosure Statement, Natural Hazards Disclosure, lead disclosures or other disclosures (if required) 8. The buyer fails to sign a separate liquidated damages form for an increased deposit 9. The buyer fails to deliver notice of FHA or VA costs or terms (if there is either an FHA or a VA loan) 10. The buyer does not close escrow on time. When this is the reason for the seller’s cancellation, the contract requires that the seller first deliver a DCE prior to cancellation. Other cancellation rights may be written into the contract. And, a seller and buyer may cancel a contract by mutual agreement. Or, there are many other reasons which might entitle a seller to cancel including fraud, mistake, duress, undue influence, illegality, or any issue that establishes that there has never been a meeting of the minds. Because wrongful cancellation can lead to litigation, it is important for a seller with any doubts as to the propriety of cancelling the deal consult with competent legal counsel.

Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.