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It is important to note that the contingency removals cannot happen automatically. They must be removed in writing. In years passed the contract would say the buyer had 10 days to remove contingencies, and if the buyer didn’t notify escrow, in writing, that there was a problem, the contingency was removed automatically and the buyer was assumed to have approved the documents and lease terms. No more, the courts decided that the buyer should not loose his right to object, automatically and now buyers have to sign a written document stating that the contingencies are removed.
If a seller or his agent is not aware of this change, in the law, the buyer may never be asked to remove the contingency and it will remain open during the whole escrow. This means that the buyer can back out of the deal without penalty.
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The correct procedure is for the seller’s agent, when the review period is reached, to send a notice to the buyer requesting the written removal of the contingencies within a 24 hour period or the seller can cancel the escrow. The buyer then usually signs the “Removal of Contingency Document or writes the letter to escrow. If the buyer doesn’t do this, the seller cancels escrow and gives the buyer back his deposit.
Again, signing this Liquidated Damage clause and then releasing the contingencies, activates the clause. If the buyer backs out of this escrow for any reason, except something that is the seller’s fault, the buyer will loose 100% of his deposit.
Why would anyone sign this clause? The alternative to not signing this clause may be worse than signing it and loosing your deposit.
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