Can a Seller Re-Sell a Home Without Giving Back the First Buyers Deposit?

Westcoe Realtors, Riverside California…This is a question that gets asked fairly frequently in our industry…and the typical answer perpetuates an Urban Myth that started who-knows-where…because while most Realtors would answer “no” to the title question of this blog, nothing could be further from the truth. In reality, the seller most certainly can sell and close a new escrow with buyer #2 without giving back buyer #1’s good faith deposit.

First, let me throw in the usual caveat here that we are not attorneys, and if you have a particular situation that requires more than the generic information posted below, please consult your legal representation.  However, what comes below is based upon 33 years of real estate experience.

So…in the typical scenario, buyer #1 enters escrow with the seller, and everything is swimming along nicely right up to the point when it isn’t.  In most cases, it is the buyer who wants out of the transaction.  Understand here that for purposes of answering our question at the top of this blog, the reason for the buyer wanting to “bail” is immaterial.  The buyer could be totally justified in wanting out, or the buyer could be the biggest jerk in the land…it doesn’t matter (as for who gets the deposit, it would matter….but for the seller to re-sell the home, it doesn’t).

Anyway, once the buyer has decided to not continue the purchase, the normal procedure is for the buyer’s agent to notify the seller’s agent of the reason for the discontinuance of the sale…and at that point, if the seller disagrees with the buyers reasons for  wanting out, the fun begins.

Again, in most cases, an argument ensues as to who is entitled to the deposit money that is being held in escrow, as generally the buyer wants it back, and the seller wants to keep it because they feel the buyer’s reason for blowing up the sale is invalid.  Naturally, if they both agree on who should have the deposit money, all this is a moot point, as the money is  mutually released, and all press on.  However, if there is a disagreement on who should get the money (and usually there is), then what happens?

Well…the buyer (or buyer’s agent) tells the escrow officer to cancel the escrow and refund the money back to the buyer…and escrow, being a neutral third party, types up a cancellation amendment stating the buyer wants to cancel the escrow and receive the deposit money back.  This amendment is sent to both the buyer and seller, and naturally, the buyer signs it and sends it back to escrow…but what about the seller? 

Understandably, the seller is not going to go for this, so the seller (or seller’s agent) ALSO calls escrow, and asks for a cancellation amendment stating for the escrow to be cancelled and for the money to be sent to the seller…which of course, the seller signs and sends back to escrow.

Now what?  Escrow has one amendment signed by the buyer (deposit money to be refunded to the buyer), and another amendment signed by the seller (deposit money to be sent to the seller), but there is certainly no agreement between the two parties.  So what happens now?

The law in a case such as this is very clear…escrow can only release the money if one of the folowing three events occurs:  1. The buyer and seller mutually agree on where it should go, which is not the case here.  2. Escrow receives a court order instructing them on where it should go, which is usually the result of either the buyer or seller suing the other in small claims court.  or  3.  After 3 years, the money is sent to the State of California in what is known as escheat.  What the State does with the money is anyone’s guess, but off to the State it goes.

So…back to our original question at the beginning of this blog…Can the seller put the house back up for sale, accept another offer, and close escrow #2 if escrow #1 is still hanging there with no outcome of the original deposit?

YES, YES, YES…because both parties are on record with their respective cancellations that this escrow and sale are to be cancelled.  The dispute now exists as to the disposition of the deposit, not the property.  In other words, the buyer has said to cancel the escrow and the seller has said to cancel the escrow…they agree on that.  They just don’t agree on who should get the money.  Therefore, you now have a dispute over the deposit, not the property, and the seller is free to sell the home to someone else and close escrow with the new buyer #2.

The only time the seller could not sell and close the new escrow #2 is if buyer #1 is on record as still wanting the home, and is fighting the seller over the property instead of just the deposit money.  An example of this would be if the seller cancelled escrow #1 because he got a better offer from buyer #2 and simply wanted to make more money.  Here, buyer #1 would still want the home, and may therefore have a legal claim (to be decided by the courts…and for this, you will need an attorney)…so for the seller to simply try to take the home out from underneath buyer #1 would be very foolish on the sellers part.

In the end, there is no way to cover all the possibilities that could occur in a situation such as this.  Every escrow and sale is different..but just remember…if the dispute is over the deposit, the seller can go ahead and re-sell the home.  If the dispute if over the home, then everyone better check with their attorneys.  Hope this clears up the Urban Myth of what a seller can and cannot do with their home and escrow.

 Take care, and as always, if you have any questions you would like to see addressed in this blog, let us know.