Q: I am the Buyer’s Agent and another Broker represents the Seller. The Parties agreed that escrow would close 30 days after Acceptance; the Buyer has removed all contingencies and needs to have escrow close as scheduled which is about 5 days away. The Seller had no contingencies but his agent has now said that the Seller cannot close as agreed because he has not been able to find a replacement home he can afford.
The Buyer is frantic; her e-mail states she expects me to “force the Seller to close as agreed.” Should we send a Demand to Close Escrow now? If we send a Demand to Close Escrow and the Seller does not close, must the Buyer cancel? Can the Seller just cancel after receiving the Buyer’s Demand to Close Escrow?
A: Assuming that the Parties used the C.A.R. Residential Purchase Agreement (“RPA” form), the Buyer can send the Seller a Demand to Close Escrow (“DCE” form) but the RPA states in Paragraph 14G that the DCE “may not be Delivered any earlier than 3 Days before the scheduled close of escrow.” Therefore, based upon the facts in the question above, the Buyer needs to wait at least 2 days until the scheduled Close of Escrow is 3 calendar days away. NOTE: If the Parties used a different Purchase Agreement form (e.g., PRDS or S.F.A.R.), then no Demand to Close Escrow form can be sent since neither of those forms allow for use of that form. However, the SFAR Purchase Agreement does allow for a 2-day Notice to Perform to be given regarding the close of escrow. The PRDS Purchase Agreement has no requirement for a Demand or Notice related to the close of escrow.
Although the C.A.R. Purchase Agreement created the Demand to Close Escrow as a procedural step that either Party must take before attempting to cancel the Agreement for the failure of the other Party to close, the issuance of the Demand to Close Escrow neither obligates the Party issuing the Demand to cancel nor does it enable the recipient to cancel. It is a means to enforce the “time is of the essence” provision but neither the DCE nor any other form can “force the Seller to close as agreed.”
MUST THE DEMAND TO CLOSE ESCROW GIVE THE OTHER PARTY 3 DAYS TO CLOSE?
As is true with all other time frames in the RPA, a default or pre-set number (3 Days) was included for the Demand to Close Escrow; Buyers and Sellers are given the opportunity to negotiate the length of time for that Demand in the Purchase Agreement by inserting a different number into the blank line in Paragraph 14G. However, whether the Parties agree to use the pre-set 3 Days or any other number of Days in that Agreement, that agreed-upon contract number is the minimum time frame for the issuance of the Demand to Close and the DCE cannot be used to shorten the minimum timing.
Regardless of whether the Parties agree to the pre-set 3 Days or any other number of Days, the DCE can still not be sent more than 3 Days prior to the agreed-upon Close of Escrow (see next section).
If the Demand to Close Escrow is not signed by the issuing Party and/or does not meet all of the timing requirements in the RPA, then there is a very good argument that the DCE is not valid. Thus, it is essential when a Party wants to issue a Demand to Close, that the DCE form be properly completed and signed by the Party issuing the Demand; the DCE cannot be signed by the real estate Agents.
TIMING OF DELIVERY OF THE DEMAND TO CLOSE ESCROW
Paragraph 30 of the RPA defines terms. “Days Prior” means “the specified number of calendar days before the occurrence of the event specified.” So, if the default 3 Days for a DCE has not been changed in the Agreement, and the scheduled Close of Escrow date falls on a Friday, the DCE cannot be delivered prior to Tuesday (the day of delivery is always Day “0”). However, if the scheduled Close of Escrow date falls, for example, on a Saturday then, per paragraph 30.F, the Close of Escrow goes over to the next day that is not a Saturday, Sunday or legal holiday. In this case, if Monday is not a holiday, the scheduled calendar day for COE is Monday, and the DCE cannot be delivered prior to Friday.
WHAT DOES THE DEMAND TO CLOSE ESCROW DO?
The DCE is structured to be used by either of the Parties. It reinforces the timing element explained in Paragraph 14G of the RPA and it warns that the form cannot be used to cause the other Party to close escrow earlier than the scheduled date for COE. Unfortunately, even if a Buyer issues the DCE to the Seller within the proper time frames, that Seller is not forced to close and the same is true if a Seller issues the DCE to a Buyer.
Use of the DCE form enables the issuing Party to cancel but it does not require cancellation of the escrow and it does not create an automatic cancellation mechanism. Cancellation of escrow will still require mutually-consistent, signed instructions to the Escrow Holder as specified in Paragraph 14H of the RPA.
More than anything else, the DCE serves to warn the Party who receives that form what the potential consequences are of failing to close escrow. However, if the Buyer in the question above issues a DCE, the Note To Seller at the bottom of that form will also explain what the Buyer’s rights are if the Seller does not close after receiving the DCE. Thus, regardless of who the agent represents, agents should make sure their Clients read the applicable Note.
The DCE succinctly tells both Parties that if the Seller does not close, the Buyer has the right to bring legal action against the Seller to seek damages and/or to file a Specific Performance action to force the sale. In other words, if the Buyer in the question above wants to force the Seller to sell, the Buyer will need to retain the services of a qualified California real estate attorney to institute the requisite “legal action”; the “force” cannot be exerted by the real estate professionals.
PRACTICE TIPS:
- As is true with all transaction documents, Sales Associates should carefully read the Purchase Agreement and all forms referenced in that document (such as the Demand to Close Escrow) so as to understand the proper use of those forms and to explain the documents to their Clients.
- Sales Associates should educate Buyers and Sellers that although the transaction documents create procedural steps, obligations and rights, everyone must act in good faith and enforce their rights by using Notices to Perform and (if using C.A.R. forms) the Demand to Close Escrow.
- Avoid providing legal conclusions. Although a Party to the Purchase Agreement may not be performing exactly as agreed, real estate professionals should avoid using legal conclusions such as “Breach of Contract.” The proper terminology is that the Party is “not performing as agreed.”
- Manage the Clients’ expectations by having them read the warning notes in the Demand to Close Escrow; properly advise the Clients that if escrow does not close as agreed, then the Client should promptly retain a qualified California real estate attorney to represent their interests.
This Weekly Practice Tip is an attorney-Client privileged document 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 C.A.R. in the industry, but rather are intended to suggest good risk management practices.
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