An agreement for a “nonrefundable” escrow deposit is invalid and unenforceable, according to the recent California case of Kuish v. Smith (2010 WL 373225). This case serves as a good reminder for REALTORS® that inserting a “nonrefundable deposit” provision into a real property purchase contract may be legally ineffective.
The Kuish case involved a $620,000 escrow deposit for the purchase of a $14 million oceanfront home in Laguna Beach. Instead of using a liquidated damages provision, the buyer and sellers merely agreed in the purchase contract that the deposit would be “nonrefundable.” According to the trial court, both parties were “big boys,” meaning that they were “sophisticated business people [who] understood all the ramifications of their actions in freely negotiating to make the [deposit] non-refundable.”
The buyer eventually cancelled the agreement. The sellers refused to return the deposit to the buyer, even though they sold the property to someone else for $1 million more.
The buyer sued to recover the $620,000 deposit, and won on appeal. The court stated that “any provision by which money or property would be forfeited without regard to actual damage suffered would be an unenforceable penalty. To construe the term ‘nonrefundable’ to establish [the sellers’] entitlement to the full deposit without regard to actual damages would essentially create a liquidated damages provision.” Yet, the parties in this case did not separately sign or initial a liquidated damages provision.
Under C.A.R.’s Residential Purchase Agreement, the sellers would have been entitled to the escrow deposit (not to exceed three percent of the purchase price), if the parties initialed the liquidated damages provision, and the buyer had no contingencies or had removed all his contingencies.
Very timely post. We are going to make an offer (LA area) and your post made me go back and review this part of the contract. Thanks.
Jim,
OT question:
Do you perceive a difference in the relative value of ocean view and/or proximate RRE post-2000 vs. pre-2000? I can’t shake the feeling that even though everything went up, the premium on coast properties went through the roof and has remained comparatively higher overall than it had been.
OT ~ (This is a true story.) Jim, I’ve been nabbed by the CA Recycle Cops! I know the state is broke but this is ridiculous. Could you please come up the coast and bail me out? Seriously, I need your stellar negotiation skills…
Jim,
As a follow-up to your two posts on Fairbanks Ranch, note there are 100+ homes (http://www.ranchosantafeteam.com/page.cfm?page=NewMap) for sale ($2.0M – 5.0M+) in FB and RSF.
You might want to comment on what appears to be a HUGE oversupply in this high-end submarket.
You might want to comment on what appears to be a HUGE oversupply in this high-end submarket.
The inventory is smaller than it used to be two years ago.
Not so fast cowboy.
I looked up an old post from June 2008 that showed houses for sale over $800,000, and added the same from today:
June 2008/Today
Del Mar, 92014 – 104/145
RSF, 92067 – 225/244
Solana, 92075 – 51/45
Carmel Valley, 92130 – 150/129
Total Active Detached Listings over $800K – 530/563
It might be higher now, but both are obscenely high compared to sales. But sellers and agents are oblivious to the competition, and refuse to lower their prices.
I can’t over-state how beligerent the agents are about their OPTs. Not only will they not show them, they won’t even return a call or email unless you remark that you will pay their price.
Capitulation has to be in the air? Only for those who are desperate, which appears to be the minority.
Solds from June 2008:
92014 – 10, $1,053/sf
92067 – 12, $624/sf
92075 – 5, $788/sf
92130 – 28, $371/sf
Solds from Sept 2010:
92014 – 14, $626/sf
92067 – 13, $413/sf
92075 – 5, $531/sf
92130 – 27, $334/sf
Totals to compare:
June 2008 – 55, $588/sf
Sept 2010 – 59, $437/sf
It appears that even though the pricing metric of $/sf has come down substantially, the buyers aren’t flooding the market to pick up the current offerings.
For once, this is a decision that makes sense all around.
Susie, around here they nail people for taking metal out of the recycle bins and cashing it in themselves. When I first read your post and thinking “Cali” I assumed you failed to put your recyclables IN. Just curious which they got you for…
Emmi – Here’s what happened yesterday. I drove to our Recycle Center. I put a lot of recyclables in the right dumpster. But I had two items (rusted charcoal starter and a small computer part that I didn’t think would recycle. Another dumpster with a small “trash” sign was a few feet away. So I walked over and put the items in the empty dumpster. There was no other sign on the dumpster.
I never saw the guy back up in his car from Sacto and snap a picture of my license. The recycle guy came over to tell me after the guy left as his “boss” asked him if he knew me. When he told me, I immediately apologized and even offered to “dumpster dive” to retrieve the two items out of the empty dumpster. He said it was too late.
I leave in 3 days to close on my new home out-of-state. I think my first piece of mail there will be some kind of ticket from CA but I have no idea what the fine will be…
Susie-I’m not sure what your “crime” is. Throwing stuff in a dumpster? I suspect you won’t hear anything about it.
Exactly, the deposit has always been there is to protect the seller from actual damages. If none are suffered, it must be returned by law.
Susie, I don’t see how that has anything to do with recycling. You used someone else’s dumpster for your stuff and they didn’t like it. It’s your fault for getting caught, that’s all. Maybe you’d be okay with someone sneaking into your house and using your toilet, but these aren’t that kind of people.
The key is to use a dumpster that nobody is around. I always use apartment complexes where the dumpster is at the end of a parking area and real residents are free to dump things in, so nobody suspects any different when I do it. The more you know..
How is looking through a dumpster illegal? There’s any number of court cases that say the cops don’t need a warrant to go through your garbage out at the curb.
My reclylcing story: We used to have an old guy in the neighborhood who would go through recylcing for parts of old newspapers. At the time, our recylcing was required to be organized: papers on the bottom, bottles on top. He completely screwed up my sort and they refused to pick up my recylcing. So, I through it all in the trash can.