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Cancelling the Purchase of a New Home - Obtaining Refund of Deposit

Discussion in 'Buying & Selling a Home or Residence' started by Michael1133, Jun 25, 2016.

  1. Michael1133

    Michael1133 Law Topic Starter New Member

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    We are looking at homes in two new subdivisions. Both builders require a $5,000 deposit to purchase a home. We have our present home for sale. We have a concern that if our house does not sell before the new home is completed, we would end up with two homes. This is something we do not want or can afford.

    I have asked both builders what their refund policy is if cancel. One said that in California the maximum they can hold is 3%. With this builder it would be $150 (which is fine). The other builder said we would lose the entire $5,000.

    I am trying to determine in California what the law states. Any assistance would be appreciated.
  2. adjusterjack

    adjusterjack Super Moderator

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    It's CA Civil Code Section 1675:

    CA Codes (civ:1675-1681)

    Note that the statute is not cut and dried and liquidated damage could end up more than 3% under certain circumstances.

    No, it won't be $150. He's either lying or he just doesn't know any better. Ask for copies of each of their purchase contracts before you hand over any money. Look for the "liquidated damages" provision (also known as "forfeiture".

    In the following contract it's covered in Paragraph 2. Earnest Money Deposit.


    I suspect, however, that the builders' contracts are going to be much more comprehensive and complicated so make sure you get them in advance and study them carefully so you know what you are getting into and then study the actual contracts before signing them in case the builder tries to pull a fast one.

    You don't want to be back here in 6 months sobbing "I trusted." ;)

    Never trust anybody who wants to sell you something.
  3. army judge

    army judge Super Moderator

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    Never shell out money you can't afford to lose.
    Never buy new/another home, if you can't carry the notes on both homes for 12-18 months.
    There are many more "never this, never that" that have kept my butt out of court as a defendant revealed to me by my father.
    Most people can only handle a couple at a time because they're too powerful.

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