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USE OF CAR’S CANCELLATION OF CONTRACT, DISPOSITION OF DEPOSIT AND CANCELLATION OF ESCROW FORM

by | Apr 17, 2026 | Contracts and Forms

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

USE OF CAR’S CANCELLATION OF CONTRACT, DISPOSITION OF DEPOSIT AND CANCELLATION OF ESCROW FORM

There appears to be confusion regarding cancellation of contract and disposition of a deposit, particularly when using the California Association of Realtors’ Cancellation of Contract, Disposition of Deposit and Cancellation of Escrow (CC) Form.  The following discusses the usage of that form with examples.

There are three requirements to effectively cancel a real estate purchase contract and escrow including the following:

  1. The parties to the contract must agree to cancel the contract and sign a cancellation;
  2. The parties must agree to cancel the escrow; and
  3. The parties must agree on the disposition of the deposit.

Parties refers to all parties to the contract, not just the buyers or the sellers.

The cancellation of a contract and escrow can occur in phases.  For example, the Residential Purchase Agreement (RPA) can be canceled without the disposition of the deposit or cancellation of escrow.  If that occurs, the escrow will remain open and the deposit will likely remain in escrow until the buyer and seller agree upon the disposition of the deposit.

Consider the following scenarios.  A copy of CAR’s CC is attached to this tip to follow the scenarios.

SCENARIO NO. 1:  Buyer does not timely remove buyer’s contingencies.  Seller issues a Notice to Buyer to Perform.  Buyer refuses to remove buyer’s contingencies.  Seller initiates a cancellation of contract and signs Paragraph 1, Cancellation of Contract stating the seller is cancelling the contract.  Seller then seeks disposition of the deposit by marking Paragraph 2.C.2, and signs the CC.  Buyer refuses to sign the CC.  What are the parties’ options?

RESPONSE:  Currently, there remains an effective contract between buyer and seller, since the buyer has not signed the contract cancellation.  Under the law, until both parties agree to cancel the contract the contract remains in effect.  In this scenario, the listing agent should suggest to the buyer’s agent that the parties agree to cancel the contract and leave the deposit in escrow pending resolution of the deposit dispute between the buyer and the seller.  If the parties agree to cancel the contract, but leave the deposit in escrow, the cancellation of contract should be revised as follows:  CC Form, Paragraph 1.B, should be marked with the seller signing.  Paragraph 2.D should be marked and completed with both parties signing on Page 2.

SCENARIO NO. 2:  Buyer removes all contingencies.  Buyer then learns of an undisclosed material defect at the property and seeks to cancel the RPA.  Buyer seeks to recover buyer’s deposit.  Seller agrees to cancel the RPA, but seeks to recover the deposit.  How should the CC be completed?

RESPONSE:  Paragraph 1.B, Proposed Mutual Cancellation, should be marked with the buyer signing since the buyer is initiating cancellation.  Paragraph 1.D should be marked and completed with both buyer and seller signing.

The scenario of when there is disagreement between a buyer and seller regarding cancellation will be discussed in next week’s tip.

DISCUSSION:

If one of the parties seeks to cancel the contract, but there is a dispute between the parties as to the deposit, it is important that the contract be canceled and, if the seller and buyer can agree, that the deposit remain in escrow pending the outcome of a resolution of the dispute between the buyer and the seller.  It is important that the contract be canceled, so that the property can be placed on the market and resold.  If a buyer refuses to cancel the contract and attempts to hold the property “hostage” pending the release of the deposit, the buyer could be subjecting themselves to additional liability.  If this occurs, an agent should recommend to the buyer that the buyer speak with a qualified California real estate attorney.

If the contract is canceled and the parties are disputing the disposition of the deposit, it is recommended that the real estate agents refrain from giving any advice with regard to the disposition of the deposit or the dispute.  The entitlement to a deposit dispute involves a legal analysis, which should be left to the parties and their counsel.  If agents involve themselves in a deposit dispute, they will likely be invited to mediation with liability attributed to the agents.  Unless an agent contributed to the deposit dispute or a breach of contract, agents are generally not involved in mediations involving deposit disputes.

PRACTICE TIPS:

  1. If a party seeks to cancel the contract, but the parties cannot agree on the disposition of the deposit, it is recommended that the parties agree to cancel the contract by one party signing on Page 1 (party requesting the cancellation) and that on Page 2, 2.D is marked and completed, leaving the deposit in escrow.
  2. If a deposit dispute arises, agents should refrain from providing advice to their clients as to their clients’ alleged entitlement to the deposit.
  3. If agents have questions or concerns with regard to the completion of the CC form, they should consult with their manager.

Attachment: CAR CC Form

ATTORNEY-CLIENT PRIVILEGED COMMUNICATION: DO NOT FORWARD TO CLIENTS.  This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.