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
B) The seller retains the deposit as liquidated damages, capped at 3% of the purchase price
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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Related Topics & Key Terms
Key Terms:
Related Concepts
The chain of title is the sequential history of all transfers of ownership for a specific property, from the original source (typically a government patent or grant) to the present owner. An unbroken chain is essential for marketable title.
The closing process, also called settlement, is the final step in a real estate transaction where documents are signed, funds are disbursed, and title is officially transferred from the seller to the buyer.
Constructive notice is the legal presumption that a person has knowledge of information that is available through public records or visible inspection of the property, regardless of whether they actually knew about it.
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A California escrow involves a 1031 tax-deferred exchange. The seller (exchanger) wants to use the proceeds from the sale of a rental property to acquire a replacement property. The escrow officer is coordinating with a qualified intermediary. Under IRS rules for a 1031 exchange, the exchanger must identify the replacement property within how many days of closing on the relinquished property?
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