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Can Seller withhold return of deposit even if I cancelled the contract in timely manner due to failure to obtain bank loan?

Los Angeles, CA |

Seller and myself signed agreement that made transaction contingent upon me getting a bank loan. After putting deposit into escrow account, I couldn't get the loan so Seller sent me the Notice to Buyer to Perform. I responded in timely manner in writing and informed Seller that I wanted to cancel the contract and requested return of the deposit. Seller is refusing to sign the cancellation for the escrow to release the deposit to me because they are claiming that although I provided something in writing in regards to the cancellation in timely manner, my conduct indicated otherwise. Shouldn't I be entitled to the security deposit since I notified Seller of the Cancellation of contract in timely manner?

My logic stems from the fact that the agreement clearly stated that the removal of the contingency needed to be in writing and I never produced anything in writing stating that the contingency could be removed an effectuate the agreement. In fact, I provided Seller with the written cancellation which clearly stated the opposite.

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Attorney answers 5


It is difficult to properly advise you without reviewing all of the relevant documents here.


See what the escrow folks say.
If no return of $$ you may still have a small claims case, if under 10,000.00.
Otherwise, you may indeed need an attorney to get involved...


Based on the specific language of the purchase and sale agreement as well as any changes on the escrow instructions, your loan approval, a condition precedent, you at be able to cancel and request your deposit.

Sellers refusal to sign cancellation may be without grounds. You should have all the documents reviewed by real estate attorney to best advise you.

Hire an attorney and a demand letter to escrow if grounds exists could do the job. And you would know exactly where you stand.

Good luck.

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Provided that you timely gave notice of cancellation and also provided that you properly followed the notice procedure, you should be able to get your money back. But, I would also look to the liquidated damages provision of your contract to determine if the Seller is entitled to retain your deposit regardless of cancellation. This would of course require a review of the facts and more importantly, the relevant facts.

As to escrow, they will do nothing unless there is agreement between Buyer and Seller. Most escrow instructions provide for resolution of disputes and also generally allow escrow to file an interpleader action, name both Buyer and Seller as Defendants, deposit funds with the Court and then let the Court decide who is entitled to funds.

In an interpleader action, the escrow company's attorney will be entitled to fees which will be payable from the interplead funds, i.e. the Buyer's deposit.

You may also have claims against the Seller and recover fees - but once again, one must review docs and get facts for accurate response.

Consult counsel, provide facts so that you know your rights and responsibilities.

All the best.

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I would need to look at your documents, but if the escrow instructions tell the escrow company to release funds if you cancel the sale and do not obtain financing, then they have no choice other than to release the money from you irrespective of what the seller is doing. I just handled a matter like this for one of my clients and got all but $83 back for them (the $83 was for some insurance request that was made specifically by my client but not necessary).