Q: The Seller terminated the contract and delivered a Cancellation of Contract, Release of Deposit and Joint Escrow Instructions (“CC”) to the Buyer, providing that the earnest money deposit (EMD) be released to the Seller. Buyer refuses to sign it. Seller believes that the Seller is entitled to the EMD. Why won’t the escrow officer release the EMD without a CC signed by both parties?
A: An escrow agent is a neutral third party in the transaction and cannot act upon a unilateral request by either a seller or a buyer to release the EMD. Since the escrow agent is a neutral third party, the escrow agent cannot decide who is entitled to receive the EMD. Neither the Residential Purchase Agreement and Joint Escrow Instructions (“RPA”) nor California law give an escrow agent the authority to become a judge and listen to each party’s side of the story and determine who is entitled to receive the EMD. If an escrow agent did make such a factual and legal determination, that escrow agent would have breached their fiduciary duties and could be subject to a “breach of fiduciary duty” lawsuit by the party who lost the EMD.
Q: Now the Buyer has delivered a CC to the Seller. The CC states that Buyer should receive back his EMD. The Seller refuses to sign this version and everyone is arguing with one another. What should a Buyer or Seller do?