We were recently involved in a case where a $73,000 dollar purchase deposit was forfeited when a Buyer backed out of a deal after waiving all contingencies. Or at least the Seller thought so.

Turns out that the Buyer had a smart (or a smart alecky) lawyer, who came up with this … novel … theory.

The standard CAR Purchase Agreement form states at § 10.A(I) that the Seller is obligated to “Deliver to Buyer … (iii) unless exempt, fully completed disclosures or notices required by Sections 21102 et seq. and 1103 et seq. Of the Civil Code (“Statutory Disclosures”). Statutory Disclosures include, but are not limited to, a Real Estate Transfer Disclosure Statement (“TDS”)…”.

§ 10.A(2) that “Any Statutory Disclosure required by this paragraph is considered fully completed if Seller has answered all questions and completed and signed the Seller’s section(s) and the Listing Agent, if any, has completed and signed the Listing Broker section(s).”

The lawyer then went on to say that because “Section II, C.16 remain[ed] unanswered by the Sellers” that the obligations for a “complete” TDS has not been met, and the deal could be called off by the Buyer. Who would, as a result, get their $73,000 back; thank you very much.

What was the issue in the case? The Buyer didn’t believe that a prior owner had gotten a permit for a bathroom remodel. The previous owner (not the Seller, mind, you, the owner the Seller brought from) turned over the permits HE got when he did the remodel, and while it called for “plumbing” it did not specifically state is was “plumbing for a bathroom.” The prior owner’s permit was signed off upon by the City inspectors. The county assessor’s records showed the property with the additional bathroom.

And, Section II.C.16? That has to do with whether there had been any lawsuits in the last 5 years. In other words – NOTHING to do with permits or bathrooms.

The Buyer had tied up the property for most of the summer, and it sold in early winter for about $100,000 less than the Buyer’s offer price. The Seller, was not amused.

The case settled. No one was happy with the settlement. (Which means it was probably fair…)

The point?

Is leaving ONE question from a TDS unanswered compliant with the terms of the Purchase Agreement? Especially if that one question has nothing to do with a later dispute?

The law says that a contract will be deemed “complete” is there is “substantial compliance” with its terms. The CAR purchase agreement says “all” the questions must be answered. Which will govern?

We didn’t find out in this case. Will there be another one that actually goes to court, and then gets appealed so we’ll know for sure? Inquiring minds want to know!

Be careful out there.