Where the deposit goes when a deal ends
The transaction is over and the money is still sitting in escrow. Here is what actually decides who receives it in California, and why the answer is almost never immediate.
The three ordinary endings
Most deals end in one of three ways. The buyer acts on a live contingency, and the deposit returns to them. The parties agree to end it and sign instructions saying where the money goes. Or one side believes the other defaulted, and the deposit is disputed.
Only the third is difficult, and it is the one where the statutory rule matters. The first two are administrative once the paperwork is signed.
What the law says about how much
For residential property of not more than four units bought by someone intending to live there, Civil Code § 1675 treats a liquidated damages amount up to 3% of the purchase price as presumed valid, and an amount above 3% as presumed invalid unless shown to be reasonable. It also requires a seller to refund amounts previously kept above the greater of 3% or the seller’s actual losses.
The practical consequence is that the size of the deposit relative to the price changes the shape of the argument. A deposit at or under 3% is a harder thing for a buyer to claw back; a deposit well above it puts the excess on the seller to justify.
Why the paperwork matters more than the story
Disputes about deposits are decided on what was signed and delivered, not on what everyone remembers agreeing. A contingency that was never removed in writing is still in place; a notice that was never delivered never started its clock. Files where each change was documented as it happened tend to resolve quickly, because there is little to argue about.
Forms this touches
Named so you know which document the conversation ends in. Their text is not reproduced here.
- CCA — Cancellation of Contract
Questions that come up
How long can a disputed deposit stay in escrow?
Indefinitely, in principle. Escrow generally holds until both parties sign release instructions or a court decides, so the timeline is set by the parties rather than by escrow.
Does the buyer always get the deposit back if a contingency is live?
It is the strongest position, but the money still moves on signed instructions. A seller who disputes it can decline to sign, which turns a clear entitlement into a negotiation.
Does the 3% rule apply to investment property?
The statute is written for residential property of not more than four units where the buyer intended to occupy it. Other purchases sit outside that specific presumption.
Describe the change in plain English
Amendly drafts the California amendment or addendum for your deal from a sentence. You review every line before it goes anywhere.
Draft your first amendmentRelated in this guide
- Backing out after removing contingenciesWhat a California buyer is actually exposed to after signing a contingency removal, and the 3% rule in Civil Code § 1675 that limits what a seller may keep.
- C.A.R. Form CCA — ending the contractThe form that ends a California purchase agreement, and why ending the contract is a separate question from who receives the deposit.
- Removing contingencies in CaliforniaCalifornia removes contingencies actively, by signed form. A deadline expiring does not remove one — which surprises nearly everybody.
- When a California contingency deadline passesA passing deadline does not remove a California contingency or allow cancellation. What a seller has to deliver first, and how long it takes.
Where this comes from
This page describes how California residential transactions typically work. It is general information, not legal advice, and it is not a substitute for an attorney on a specific deal. Amendly is not a law firm. Forms are named and described here; their text is not reproduced. Amendly is not affiliated with or endorsed by the California Association of REALTORS® or any state agency.