If the buyer doesn’t deposit earnest money in California, the seller can cancel the purchase agreement, but only after sending a written Notice to Buyer to Perform and giving the buyer two business days to cure. The seller cannot cancel on the spot, and because no money ever reached escrow, the usual remedy of keeping the deposit is off the table.
The Deposit Deadline the Buyer Missed
Most California home sales use the California Association of Realtors Residential Purchase Agreement, known as the RPA. The RPA sets both the dollar amount of the earnest money and the deadline for wiring it to escrow. That deadline is typically three business days after the seller accepts the offer, though the parties can negotiate something different.
Earnest money in California generally runs 1% to 3% of the purchase price. On an $800,000 home, that is somewhere between $8,000 and $24,000. Buyers in competitive markets sometimes offer more to stand out. Whatever the number, depositing it is a binding contract term. Missing the deadline is a breach, and everything the seller can do next flows from that fact.
Send a Notice to Buyer to Perform First
When the deadline passes and nothing has hit escrow, the seller’s first move is not to tear up the contract. The RPA requires a formal written document called a Notice to Buyer to Perform, or NBP. The notice tells the buyer exactly what they failed to do and gives them a final chance to fix it.
Delivery matters. The NBP has to be delivered so the buyer or the buyer’s agent personally receives it. The day of receipt counts as day zero. From there, the buyer has two full days to get the money into escrow. If the cure period would end on a Saturday, Sunday, or holiday, it rolls to the next business day.
The seller cannot skip this step. Jumping straight to cancellation without an NBP leaves the seller on weak ground if the buyer later challenges the cancellation. Before sending the notice, the seller should also confirm they have met their own obligations: required disclosures delivered, inspection access provided, nothing done to obstruct the buyer. A seller who is behind on their own duties is in a poor position to demand performance from the other side.
Canceling the Contract After the Cure Period
If the two days pass and the deposit still has not arrived, the seller gains the right to cancel. Cancellation happens through a separate document called the Cancellation of Contract. Once the seller signs and delivers that form, the purchase agreement is dead, the seller is released from all obligations, and the property can go back on the market immediately.
Timing has to be right. The seller cannot sign the cancellation on the buyer’s last day to perform. The earliest the seller can cancel is the day after the cure period expires. Signing a few hours early gives the buyer an argument that they were denied their full chance to cure.
Cancellation is a right, not a requirement. If the buyer calls on day two to explain a wire delay and asks for one more day, the seller can agree. Nothing in the RPA forces the seller to pull the plug. The NBP simply unlocks the option.
Why There’s No Deposit to Keep
Here is the part that catches sellers off guard. California caps liquidated damages in residential real estate deals, and the cap is tied to money the buyer has actually paid. Under California Civil Code Section 1675, if the buyer’s total payment does not exceed 3% of the purchase price, the liquidated damages clause is presumed valid unless the buyer proves it is unreasonable.1California Legislative Information. California Civil Code 1675 Above 3%, the burden flips and the seller must prove the amount is reasonable.
The operative phrase is “actually paid.” Liquidated damages only attach to money the buyer physically handed over. When the buyer never deposits a dime, the seller has nothing to retain. The liquidated damages clause, normally the seller’s cleanest remedy in a buyer breach, is effectively useless. For non-residential property, separate rules under Civil Code Section 1676 apply, but the same logic holds: you can only keep money that was paid.2California Legislative Information. California Civil Code 1676
This is why listing agents treat a missing earnest money deposit as such a red flag. A buyer who deposits $20,000 and then breaches at least leaves the seller with that money as compensation. A buyer who deposits nothing and then walks away leaves the seller with nothing but the right to sue.
Suing for Actual Damages
The seller can sue for actual damages, though most do not when the breach happens this early. If no deposit ever came in and the seller cancels within days, the losses tend to be modest: a few weeks of carrying costs, a slightly stale listing, the time and expense of restarting the marketing push. Those damages exist but are often too small to justify litigation.
Actual damages become meaningful when the seller turned down other offers in reliance on the buyer’s contract, or when the market drops between the breach and the eventual sale. If the seller had a $900,000 offer, rejected competing bids, and then sold six months later for $850,000, the $50,000 gap is a real, provable loss. Courts evaluate the reasonableness of claimed damages by looking at both the circumstances when the contract was signed and the terms of any subsequent sale within six months of the default.1California Legislative Information. California Civil Code 1675
Specific performance, which means asking a court to force the buyer to complete the purchase, is technically available but a poor fit here. A court is unlikely to force a buyer who could not even produce the deposit to close on an entire home. The remedy exists in principle and almost never works in this fact pattern.
Mediate Before You Sue
The standard RPA requires the parties to attempt mediation before filing suit or demanding arbitration. This is not optional posturing. Under the contract, a party who skips mediation and files anyway forfeits the right to recover attorney’s fees and costs, even if they win the case. That penalty applies regardless of how strong the underlying claim is.
Mediation costs are typically split equally between the buyer and seller. If one side refuses to participate after repeated good-faith attempts to schedule, the other can move on to litigation or arbitration. The requesting party needs to document those attempts carefully, because the fee-forfeiture penalty turns on whether the obligation to request mediation was actually met.
For most missing-deposit cases, the mediation requirement is one more reason sellers rarely sue. The cost and delay of mediation, followed by possible arbitration or trial, usually exceeds what the seller could realistically recover from a buyer who walked away before putting any money into escrow.
When a Late Deposit Isn’t Bad Faith
Not every missed deadline means the buyer is backing out. Wire transfers sometimes take longer than expected, especially when large sums move between institutions on a Friday afternoon. Banks place holds. Lenders are slow to release proof-of-funds documentation. These are logistical problems, not cold feet.
Buyers who communicate immediately usually keep the deal alive. A quick call from the buyer’s agent to the listing agent, with proof that funds are in transit, often resolves the situation without anyone reaching for the NBP. Sellers who want the deal to close will typically grant an extra day informally. The NBP is a tool for sellers who suspect the buyer will not perform at all, not a gotcha for a 24-hour wire delay.
What the Buyer Loses
The obvious consequence is the house. Once the seller cancels, the buyer has no claim to the property, and the seller can accept another offer the next hour.
Reputational damage is less visible and just as real. Agents in a given market talk. A buyer who ties up a property and then fails to fund earnest money burns credibility with listing agents, escrow officers, and anyone else involved. Future offers from that buyer may be viewed skeptically, especially if the listing agent recognizes the name or checks references. In competitive markets where sellers choose among multiple offers, that reputation can cost the buyer their next home too.
Escrow cancellation fees may also apply. Even though the transaction never closed, the escrow company opened a file and did work. The purchase agreement typically specifies who bears those costs when a deal falls through due to one party’s breach.