Purchase and Sale Disputes

A California real estate contract can fall apart in a dozen ways — a seller who gets a better offer, a buyer who cannot fund, an appraisal that comes in low, a contingency that was never properly removed. What separates a manageable dispute from an expensive one is usually how quickly the right steps get taken in the first two weeks.

ROMO Law Group represents buyers and sellers in purchase and sale disputes, specific performance actions, deposit fights, and escrow disputes across California, residential and commercial. This page explains how the governing statutes work and where the leverage actually sits.

Specific performance: compelling the sale

California law starts from the position that land is unique. Civil Code section 3387 provides that it is to be presumed that the breach of an agreement to transfer real property cannot be adequately relieved by pecuniary compensation. The strength of that presumption depends on the property and the buyer:

• Single-family dwelling the buyer intends to occupy: the presumption is conclusive. It cannot be rebutted. The seller may not argue that money is an adequate substitute.
• Everything else — commercial, multi-unit, investment property, non-occupying buyers: the presumption affects the burden of proof. It is rebuttable, but the defendant carries the burden of showing damages are adequate.

An investor’s profit motive does not defeat the presumption. In Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 1563, the court held the trial court abused its discretion by denying specific performance solely because the buyer was an investor — California presumes all real property is unique, including commercial and investment property.

What a buyer has to prove

The classic elements are inadequacy of the legal remedy; an underlying contract that is reasonable and supported by adequate consideration; mutuality of remedies; terms sufficiently definite for the court to know what it is enforcing; and substantial similarity between the performance requested and the performance promised.

Two statutes do most of the work in practice:

Civil Code section 3392 provides that specific performance cannot be enforced in favor of a party who has not fully and fairly performed all conditions precedent, except where the failure is only partial and either entirely immaterial or capable of being fully compensated. This is the statutory home of the “ready, willing and able” requirement. A buyer suing for specific performance must be prepared to prove ability to perform — proof of funds, a loan commitment, reserves. It is the most common failure point in buyer-side cases, and the reason to preserve financing documentation from the day the deal goes sideways.

Civil Code section 3391 is the defense. Specific performance cannot be enforced against a party who did not receive adequate consideration, or where the contract is not as to that party just and reasonable, or where assent was obtained by misrepresentation, concealment, circumvention, or unfair practices, or given under mistake, misapprehension, or surprise. A seller resisting in a rising market will argue the price is now unfair. The answer is that adequacy of consideration is measured at the time of contracting, not at the time of breach or trial.

Civil Code section 3390 lists obligations that cannot be specifically enforced, including — importantly — an agreement whose terms are not sufficiently certain to make the precise act to be done clearly ascertainable, and an agreement to procure the consent of a spouse or other third person. Letters of intent and agreements with open price or financing terms fail on definiteness. So does a contract that depends on a non-signing spouse’s consent.

Specific performance against a buyer is rare in practice. Courts are reluctant to compel a purchase where the seller’s injury is monetary and the buyer faces loan qualification obstacles a court cannot cure. Sellers ordinarily proceed under damages and liquidated damages instead.

The lis pendens is the leverage

In a specific performance case, the notice of pending action is usually what actually stops the seller from closing with someone else. A specific performance cause of action squarely qualifies as a “real property claim” under Code of Civil Procedure section 405.4 because it seeks to compel conveyance of title. A claim for money damages only does not, and a lis pendens supporting a damages-only complaint is subject to mandatory expungement.

The mechanics reward care and punish shortcuts:

• Section 405.21: an attorney of record may sign the notice. A self-represented party cannot record one without a judge’s approval.
• Section 405.22: before recording, the claimant must serve a copy by registered or certified mail, return receipt requested, on all known addresses of adverse parties and all record owners per the latest county assessment roll, and must file a copy with the court immediately after recording.
• Section 405.23: the notice is void and invalid as to any party for whom those service requirements were not met and for whom a recorded proof of service is missing. Service defects are a standard and frequently successful expungement argument.
• Section 405.24: from recording, later purchasers and encumbrancers take with constructive notice, and the claimant’s rights relate back to the recording date.

Expungement

Section 405.30 places the burden on the claimant — an inversion of ordinary motion practice. The court must expunge if the pleading does not contain a real property claim (section 405.31), or if the claimant has not established the probable validity of the claim by a preponderance of the evidence (section 405.32). Probable validity means it is more likely than not that the claimant will obtain judgment. In effect, the buyer has to preview the merits months before trial, on declarations. Buyer-side specific performance cases need to be documented and declaration-ready from day one.

Two more rules worth knowing. Under section 405.35, an expungement order is not effective or recordable until the time to seek writ review has run, and if a writ petition is timely filed the order remains ineffective until that proceeding is finally adjudicated — so the notice survives during review. And under section 405.36, once a notice has been expunged, the claimant may not record another as to that property without leave of court. One shot.

Section 405.38 makes attorney fees and costs mandatory to the party prevailing on any motion under the chapter, unless the other party acted with substantial justification or an award would be unjust. Those fees run both ways, and they are independent of the purchase agreement’s fee clause. A buyer who records an improper lis pendens can face a fee award even if they later win the case.

Deposits and liquidated damages

Deposit disputes are the most common category of purchase and sale litigation, and often the most winnable, because the statutory requirements are technical and frequently unmet.

The 3 percent rule — and its conditions

Civil Code section 1675 defines “residential property” for these purposes as property primarily consisting of a dwelling that meets both conditions: the dwelling contains not more than four residential units, and at the time the contract was made the buyer intended to occupy the dwelling or one of its units as a residence. Both conditions must hold.

• Under section 1675(b), the provision is valid only to the extent payment in cash or check was actually made. An unfunded or bounced deposit is not liquidated damages.
• Under section 1675(c), where the amount actually paid does not exceed 3 percent of the purchase price, the provision is valid unless the buyer establishes the amount is unreasonable.
• Under section 1675(d), where it exceeds 3 percent, the provision is invalid unless the party seeking to uphold it establishes the amount is reasonable. The burden flips.
• Under section 1675(e), reasonableness takes into account both the circumstances existing when the contract was made and the price and terms of any resale of the same property within six months of the buyer’s default.

That last provision is a powerful and underused buyer-side argument. A seller who resells within six months at the same or a higher price has considerable difficulty defending a forfeiture as reasonable.

Commercial and investment property has no 3 percent safe harbor. Under Civil Code section 1676, it is governed by the general reasonableness standard of Civil Code section 1671(b) — valid unless the challenging party shows the provision was unreasonable under the circumstances existing at the time the contract was made.

Note also Civil Code section 1680: nothing in the liquidated damages chapter affects a party’s right to obtain specific performance. A liquidated damages clause does not bar a seller from seeking to compel the purchase.

How the money actually gets released

Escrow will not release a disputed deposit to either side without mutual signed instructions or a court or arbitration order. Neither party’s cancellation self-executes on the funds.

Civil Code section 1057.3 supplies the pressure. For escrows on one to four residential units where at least one unit was to be occupied by the buyer, a party who fails to execute a document required by the escrow holder to release deposited funds within 30 days following a written demand by the other party is liable for the funds, for damages of treble the amount not held to resolve a good faith dispute — not less than $100 and not more than $1,000 — and for reasonable attorney fees incurred in an action to enforce the section. There is a good faith dispute defense where the trier of fact finds the withholding party had a reasonable belief of legal entitlement.

The $1,000 cap makes section 1057.3 a leverage statute rather than a damages statute. Its real value is the fee clause, and the 30-day written demand that starts the clock.

Contingencies, notices, and the mistakes that cause litigation

Under the C.A.R. Residential Purchase Agreement, contingencies do not expire on their own. They must be removed actively, in writing and signed. What the passage of a contingency deadline does is unlock the seller’s right to serve a Notice to Buyer to Perform — which must be in writing, signed by the seller, and give the buyer at least two days after delivery to act. Until written removal occurs, the buyer generally retains the cancellation right tied to that contingency and the claim to the deposit.

A seller may not cancel for failure to remove contingencies without first serving that notice. And a cancellation following a proper notice does not by itself entitle the seller to keep the deposit — release still requires mutual instructions or an order. A mirror-image Notice to Seller to Perform runs against sellers who fail to deliver disclosures, complete agreed repairs, or sign escrow documents.

Default contingency periods and paragraph numbering vary by form revision, and the form has changed materially — the December 2025 release relocated the mediation, arbitration, and liquidated damages provisions to sit immediately before the signature pages, and the June 2026 release reworked the appraisal contingency to allow an appraisal gap option under which a buyer specifies a maximum shortfall they will cover, calculated off the final purchase price. Always read the operative form and its revision date rather than relying on general descriptions, including this one.

Damages when the deal cannot be saved

Breach by the seller — Civil Code section 3306

A buyer may recover the price paid; expenses properly incurred in examining title and preparing the necessary papers; the difference between the price agreed to be paid and the value of the estate agreed to be conveyed at the time of the breach; expenses properly incurred in preparing to enter upon the land; consequential damages according to proof; and interest.

The 1872 version of section 3306 allowed loss-of-bargain damages only in case of bad faith. The 1983 amendment deleted that qualifier. A California buyer may now recover benefit-of-the-bargain damages regardless of whether the seller acted in good or bad faith. What the amendment did not change is the valuation date: Reese v. Wong (2001) 93 Cal.App.4th 51 holds the differential is measured at the time of breach, not at trial, regardless of subsequent appreciation.

Breach by the buyer — Civil Code section 3307

A seller may recover the excess, if any, of the amount that would have been due under the contract over the value of the property to the seller, plus consequential damages according to proof — carrying costs, additional mortgage interest, taxes, insurance, HOA dues, re-listing and marketing costs, price concessions on resale — plus interest.

The asymmetry matters. If the market held or rose after the buyer walked, the section 3307 differential is zero and the seller is left with consequential damages and whatever the liquidated damages clause provides. If the market fell, section 3307 can substantially exceed 3 percent — which is why a seller should think carefully before treating the liquidated damages clause as the exclusive remedy.

Mediate before you file

The C.A.R. purchase agreement provides that a party who commences an action without first attempting to resolve the matter through mediation, or who refuses to mediate after a request, shall not be entitled to recover attorney fees — even if fees would otherwise be available.

California courts enforce this literally. Lange v. Schilling (2008) 163 Cal.App.4th 1412 held that a plaintiff who filed suit without first attempting mediation forfeited attorney fees entirely despite prevailing, rejecting a substantial compliance defense and treating the requirement as an unambiguous condition precedent. A mediation request made after filing does not cure it. The plaintiff in that case spent roughly $113,000 in fees to recover a $13,000 judgment and recovered none of the fees.

Two corollaries. First, a defendant who refuses a documented pre-suit mediation request likewise forfeits fees — so the request should be made in writing and the response preserved. Second, filing a court action to preserve a statute of limitations or to enable recording a lis pendens is expressly carved out of the mediation obligation. A buyer racing to record does not forfeit fees by filing first, but should still send the mediation request at the same time.

Civil Code section 1717 makes contractual fee clauses reciprocal: a clause favoring only one party entitles the prevailing party to fees whether or not they are the party specified. But fees under section 1717 are available only on contract claims, and allocation between contract and tort theories is routinely litigated. Lis pendens fees under Code of Civil Procedure section 405.38 are separate and independent of all of this.

The written contract requirement

Civil Code section 1624 requires an agreement for the sale of real property or an interest in it to be in writing and subscribed by the party to be charged, and requires that an agent’s authority to sign for a principal itself be in writing. Broker commission agreements must be in writing as well. A note or memorandum containing the essential terms can satisfy the statute — signed counter-offers and email chains have supported enforcement — but an agreement definite enough to support damages may still be too indefinite to support specific performance under Civil Code section 3390.

Part performance is a recognized exception where a party has substantially performed and enforcing the statute would work an unconscionable injury, with the acts of part performance unequivocally referring to the contract. Possession, payment of part or all of the price, and substantial improvements are the classic triggers.

Deadlines

Matters we handle

What to do in the first two weeks

1. Preserve the complete contract file — the purchase agreement with all counter-offers and addenda, every signed contingency removal or notice to perform, and the escrow instructions.
2. Document your ability to perform: proof of funds, loan commitment, reserves.
3. Send a written mediation request, and keep proof of delivery and any refusal.
4. Get advice on whether a lis pendens is appropriate before recording one — the fee exposure under section 405.38 runs against a claimant who records improperly.
5. Note the closest deadline. In a rising market, the cost of waiting is measured in appreciation you cannot recover.

ROMO Law Group offers free consultations on purchase and sale disputes throughout California.

Frequently asked questions