Earnest Money Deposit Disputes in California

When you make an offer on a home in California, you typically put down an earnest money deposit — often 3% of the purchase price, held in escrow — to show the seller you are serious. On a Bay Area home, that deposit can easily exceed $30,000. When a deal falls apart, both sides may claim that money, and escrow will not release it without mutual instructions or a court or arbitration order.

When is a buyer entitled to the deposit back?

If you cancel the purchase within your contingency periods — inspection, appraisal, or loan contingencies under the California Association of Realtors Residential Purchase Agreement — you are generally entitled to your full deposit back. Even after contingencies are removed, a standard liquidated damages clause typically limits what an owner-occupied home seller can keep to no more than 3% of the purchase price, and the seller must actually be entitled to it.

What if the other side refuses to sign the release?

California Civil Code § 1057.3 requires a party with no good faith claim to the deposit to release it. A party who wrongfully refuses in bad faith can be liable for the deposit, actual damages, and a statutory penalty. In many cases, a firm demand letter from an attorney citing § 1057.3 is enough to get the funds released without a lawsuit.

How Jimmy can help

Jimmy Nguyen is a San Jose real estate attorney and licensed California broker who represents buyers fighting to recover their earnest money deposit. He can review your purchase agreement and cancellation timeline, send a demand letter, negotiate a resolution, or take it to arbitration or court if the seller will not budge.

For residential and commercial transaction guidance, see our Real Estate Law, Commercial Real Estate, and Real Estate Law FAQ pages.

Is escrow holding your deposit hostage? Call 408.645.0606 or email jimmy@lawjn.com for a complimentary phone consultation.