A California buyer removes all contingencies under a C.A.R. Residential Purchase Agreement and then defaults without a valid contractual reason. Both parties had initialed the liquidated damages clause. What is the most likely outcome regarding the earnest money deposit?
Correct Answer
C) The seller retains the full deposit regardless of its amount, as the buyer was in breach
Under the C.A.R. Residential Purchase Agreement and California Civil Code §1675, when both parties have initialed the liquidated damages clause and the buyer defaults after removing contingencies, the seller may retain the buyer's deposit as liquidated damages. However, for residential properties of 1–4 units, the amount retained is capped at 3% of the purchase price. Any deposit amount exceeding that cap must be returned to the buyer.
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