Closing on Time

“What are the seller’s rights if the buyer does not close escrow on time?”

This is a common and important question when selling a home.  The typical answer is that it depends.  It can depend on what is written in the contract.  Because the vast majority of residential purchase agreements in California are based on a standard contract by the California Association of Realtors, the contract languages is the same, however, the contract is vague on this issue.

The biggest influential factor is what actions have occurred during escrow.  This can include an infinite number of events but the important factor is whether or not the seller has done things or failed to do things that would lead the buyer to believe that an extension of the escrow period is permissible.  

In one case, the Second Appellate District Court of Appeal affirmed the Superior Court Judgement, in the case Galdjie vs. Darwish.  The judgement allowed the buyer, Galdjie, to sue the seller, Darwish, after Darwish tried to cancel escrow.  The seller had allowed the buyer to go months past closing date through a number of conversations, writings, and behavior, before attempting to cancel.  The problem was that, “She did not reestablish time conditions by giving notice that the deal must close by a certain date.”

This case should warn sellers that if they are going to allow extensions of the escrow they terms and conditions should be explicitly stated.  However, in most cases where there is an absence of the factual conditions that occurred in Galdjie vs. Darwish, California courts will typically enforce time deadlines in real estate contracts.  This allows the seller to cancel after the time in contracts where it is specifically stated time is made of the essence, UNLESS there is a waiver or potential forfeiture.

Sellers should remember that the “mere failure of one party or both parties to perform… within the time specified in the contract does not terminate the contract automatically.”  



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