Escrow & Title
In California escrow, when a buyer cancels the transaction after all contingencies have been removed, the seller may be entitled to retain:
ANothing — all deposits must be returned to the buyer by law
BThe buyer's earnest money deposit as liquidated damages, if the contract includes a liquidated damages clause initialed by both parties✓ Correct
CThe full purchase price as a penalty
DOnly the escrow fees already paid
Explanation
California Civil Code Section 1675 allows liquidated damages clauses in residential purchase agreements. If such a clause is included and initialed by both parties, and the buyer defaults after contingency removal, the seller may retain the earnest money deposit (up to 3% of the purchase price for residential property) as liquidated damages.
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