Realty Reality: Demand to Close Escrow Form Introduced

Written by Posted On Monday, 24 October 2005 17:00

A new form, Demand to Close Escrow (DCE), was introduced at the recent annual convention and meetings of the California Association of Realtors (CAR) held in San Diego. New California real estate forms and form revisions are released twice yearly, in April and October. CAR directors and other interested parties usually get an early look at the director and committee meetings held prior to the release. This is so that the Standard Forms committee can obtain feedback and do any last-minute "tweaking" prior to the actual release. Such will be the case with the DCE, scheduled for release the week of October 24. A number of useful revisions and suggestions were made in San Diego.

The DCE is not a revision of a current form, but, rather, an entirely new one. In such instances it is always fair to ask, "Why?" Did we really need another form?

Not long ago we addressed the question, "What are the seller's rights when the buyer does not close escrow on time?" While noting that a host of particular circumstances could affect the correct answer to this question, it is pretty clear that, assuming that the buyer has removed all contingencies, the seller has the right to cancel if the buyer does not then proceed to close according to schedule.

Of course, if the buyer still has unsatisfied contingencies -- for example, he may not have removed the physical inspection contingency -- the seller must first give him a notice to remove the contingency before the seller will have a cancellation right. At least that's the way it works in California.

So, suppose that all the buyer's contingencies have been removed, yet the buyer still does not put his money in and close according to the scheduled time. What can the seller do? The seller has the right to cancel, but prudence dictates that the seller should give the buyer notice first. There is no specific law on this; we're talking prudence, and what is likely to be found acceptable should the matter wind up in court. Moreover, case law has made clear that, once the seller has become loose about the time periods -- suppose, e.g., that he has already let the buyer stall for a couple of weeks -- then he is going to need to re-establish that time is important, "of the essence" as they say.

According to reports that CAR staff attorneys were receiving from the field, one of three things tend to happen when a buyer begins to stall and doesn't complete the steps to closing:

  1. the agents go into hiding and fervently hope that escrow will close,

  2. the seller's agent will send a written demand to the buyer, usually via the buyer's agent, or

  3. the seller's agent will deliver to the buyer, or his agent, a standard CAR Notice to Perform.

None of these is good.

First of all, although doing nothing is not always to be eschewed, in this case it might involve an agent's failure to fulfill his or her fiduciary duty to the client.

Secondly, it just isn't a good idea for agents to start constructing letters to principals saying what should and shouldn't be done, and what various consequences might be. Not only does this begin to look like a prohibited attempt to practice law without a license, but also it is likely to result in the saying of things that may not have been intended.

Using the CAR Notice to Perform document is tempting. It is, after all, an authorized form, isn't it? Yes, but not for this situation. The CAR standard purchase contract spells out how a Notice to Perform may be used, but in doing so it specifies that if a buyer does not comply, then the seller may cancel and authorize the return of the deposit. (Paragraph 14.C.1) Usually, when a buyer refuses to close, the seller not only wants to cancel, but also he or she wants to keep the deposit. Using the Notice to Perform would prevent that. (Of course, whether the seller is entitled to keep the deposit will depend upon the particular circumstances of the situation.)

Finally, it should be noted that the Demand to Close Escrow form is one that can also be delivered from the buyer to the seller. Sometimes it is sellers who become reluctant to see a transaction completed; and buyers have rights too.

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Bob Hunt

Bob Hunt is a former director of the National Association of Realtors and is author of Ethics at Work and Real Estate the Ethical Way. A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at [email protected].

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