Real estate transactions break down for many reasons — a buyer who can't secure financing, a seller who gets cold feet, an inspection that derails negotiations, or a title defect discovered at the last minute. When a deal fails in California, both parties have rights depending on the circumstances.
Why Transactions Fall Apart
Common causes in Los Angeles: financing contingency failure, inspection findings revealing material defects, appraisal gaps, title issues discovered in escrow, seller's remorse after receiving a better offer, or buyer's circumstances changing. The legal consequences depend entirely on which contingencies were in place, whether they were properly exercised, and what the purchase agreement says.
When the Buyer Has a Valid Right to Cancel
California purchase agreements typically include inspection, financing, and appraisal contingencies. During the contingency period, a buyer may cancel and recover the deposit without penalty. Once contingencies are removed — actively or by deadline — the buyer's ability to cancel without consequence narrows significantly.
Critical: Contingency deadlines in California are strictly enforced. Never assume a contingency automatically protects you without understanding the exact timeline.
When a Buyer Breaches
If a buyer cancels after all contingencies are removed without legal basis, the seller may retain the earnest money deposit as liquidated damages — capped at 3% of the purchase price in residential transactions. The seller may also seek specific performance to compel the buyer to close.
When a Seller Breaches — Buyer's Remedies
A seller who refuses to close without justification faces: return of the earnest money deposit; compensatory damages (inspection fees, loan costs, moving expenses); and — most powerfully — specific performance. California courts frequently order sellers to complete transactions because each property is legally unique and monetary damages are considered inadequate. Devon Warner III has successfully obtained specific performance judgments against sellers who wrongfully refused to close.
Mediation First
Most California purchase agreements require mediation before litigation. This is often effective — many disputes resolve in a single session at far less cost than a lawsuit.