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Q.If escrow doesn't close, is the buyer entitled to have the deposit returned?
A.California Civil Code Section 1057.3 provides that it is "the obligation of a buyer and seller who enter into a contract to purchase and sell real property to ensure that all funds deposited into an escrow account are returned to the person who deposited the funds or who is otherwise entitled to the funds under the contract, if the purchase of the property is not completed by the date set forth in the contract for the close of escrow or any [extension]."
Many escrow companies who have experienced it all typically include a clause in their general instructions that says in the event either the buyer or seller want to cancel escrow, the escrow company will not release any funds or documents on deposit until escrow receives mutually agreed to cancellation instructions. If either the seller or buyer thereafter want to cancel escrow, the escrow company will try to get both the buyer and seller to sign a release agreeing to the return of the buyer's deposit. If either the buyer or seller refuse to sign the release within 30 days, the buyer will have to file a court action. If a court action is filed, escrow will deposit the money in dispute with the court and if the court finds that the party who refused to sign the release was wrong, the court may award the other party three times the amount wrongfully held (not less than $100 and not more than $1,000) plus attorney's fees.
All of this, however, can be avoided with simple negotiated alternative terms. Before opening escrow, a buyer can have an attorney prepare escrow instructions that require the return of the buyer's deposit under various circumstances. If the seller agrees, escrow must accept the revised terms.
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