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Surveys vs. Visual Inspections. Most buyers do not order a survey before purchasing a home. Some visually check corners for survey pins in the ground, but most do not. When borders and boundaries are already identified by the location of pre-existing fences, bushes, trees, lines of occupation and maintenance, most purchasers accept what they see “on the ground” as being the land they are acquiring.

Similarly, sellers typically do the same thing, representing in their Property Disclosure Statement that they have legal authority to sell the property and that there are no “encroachments.” But are these correct statements? [PCQ Comment: The Property Disclosure Statement explains that it it based upon the “Seller’s actual knowledge *** at the time of disclosure.” (Underscore mine.) The form also warns buyers “…to obtain and pay for the services of a qualified specialist to inspect the property….” And right above their signature receipting for the Statement, buyers “…acknowledge the duty to pay diligent attention to any material defects that are known to me/us or can be known by me/us by utilizing diligent attention and observation.”  The upshot of these warnings is that the disclosure form is not a guarantee or warranty about the condition of the property. In most case, seller disclosures are based upon what they believe to be true without checking. They are not required to first conduct inspections or surveys before completing the form. Ergo, unless the buyer can prove by clear and convincing evidence that their seller had “actual knowledge” their answers were wrong, it is not normally the basis for a claim of fraud or misrepresentation. However, if, after delivery of the form, the seller subsequently learns their answers are incorrect, he/she should update it in writing and so inform the buyer.]  

Surveys perform a useful and helpful role in the conveyance of real property. However, they are not typically performed every time title to residential property is transferred. Buyer’s rely upon their title reports, believing that they are fully protected. What most don’t know is that their title policy excludes “matters a correct survey would disclose.” This fact is not a secret; its explained in the preliminary title report (“PTR”) and subequent policy.  The problem is buyers normally don’t read their PTRs before closing. And even if they did, one has to wonder if they grasp the implication of the disclaimers. Many real estate brokers suffer from the same confusion. The point is that title companies do not make visual inspections of the subject property; they do not perform surveys. They just report what the public record discloses. And title companies do not check for recorded surveys – buyer buyers can and should if there are any questions.

This means that when manmade boundaries are mistakenly placed, built, or grown, at locations that are inconsistent with the legal description in the owner’s recorded deed, their subsequent good faith use and occupation to a misplaced line for ten or more years will normally take precedence over the legal description in their deed. Bells don’t go off when the ten years run. Unless there is a survey, or perhaps a lawsuit, the encroachment remain unknown and off the public record.

This principle is a two-way street; it applies to sellers whose property line is encroached upon by their neighbor (i.e., seller now owns less land than he/she believes) and it applies to the extra land the seller originally acquired by encroaching upon their neighbor’s property (i.e., seller now owns more land. Tip: That extra land tansfers to buyer under seller’s deed even though it only contained the original legal description so long as the conveyance was by a standard deed, not counting a quitclaim deed.  But until this issue comes to light, e.g., following a survey, it can continue for years. In Oregon, the garden-variety sales of pre-owned residential lots do not normally trigger a request for a survey.

Deed Descriptions vs. Lines of Occupation. At closing, the consideration is paid, and a deed is signed and delivered to the buyer, thus representing the consummation of the transaction. However, the deed contains a legal description, which, unless the property is located in a subdivision, is usually written in “metes and bounds” i.e. in distances, angles and directions. For example:

Real property in the County of XXXXX, State of Oregon, described as follows:

Lot 600 of the plat of MOUNTAIN ACRES NO. 3 located in the Southeast One-Quarter of Section 12 of Township 1 South, Range 2 West, Willamette Meridian, City of XXXXX, YYYYYYY County, Oregon, being more particularly described as follows:

Beginning at the northeast corner of said Lot 600, also being on the westerly right-of-way line of SW 12th Avenue (28.5 feet from the centerline); thence along said westerly right-of-way line (with a radial bearing of South 67°13;22″ East) with a radius of 428.50 feet, delta of 9°31’23”, length of 71.22 feet, and a chord of South 18°00’57” West 71.14 feet to a line parallel with and 10.50 feet southerly of the south line of said Lot 300; thence along said parallel line, North 87°12’28” West 97.13 feet to the southerly extension of the west line of said Lot 600; thence along said southerly extension and said west line, North 02°47’22” East 68.64 feet to the northwest corner of said Lot 600; thence along the north line of said Lot 600, South 87°12’38” East 115.81 feet to the Point of Beginning.

Except to an experienced title examiner or surveyor, this description might as well have been written in Greek. Home buyers and sellers rely upon the evidence they see on the ground in determining what they are buying or selling – the legal description in their deed means little.

Example. It is only where the lines of use and occupation vary from the legal description, that problems arise. Say for example, Parcel X was owned consecutively by three separate families spanning 25 years, from 1995 to 2020. The first owner lived there for 12 years (1995-2007); the second for three years (2007-2010), and the current owner for ten years (2010-2020). During that time, they all possessed up to the same monuments, trees, fences and other lines of occupation.

But in July 2020, the owner of the adjoining land on Parcel Y, Mr. Hatfield, commissioned a survey which revealed that the fence on between his property and Parcel X enclosed six feet of his land. In other words, the fence  “encroached” onto Parcel Y by six feet (the “Disputed Area”).  The survey was based upon the legal description in Mr. Hatfield’s deed, with the boundaries and corners located by markers.

Mr. Hatfield immediately concluded that the offending fence had to go. If the survey said this land was described in his deed, then By Golly, he was going to reclaim it (even if he’d not been occupying it). So he tore the fence down, moved the discarded pile of posts and boards onto Parcel X, and constructed a temporary wire fence where the survey said the original boundary line was per his old deed. Then he posted “No Trespassing” signs on the fence, warning against intruders.

Summary of Legal Rights. Needless to say, the Owner of Parcel X, Mr. McCoy, was very upset, and went to his attorney to find out his legal rights.  Here is what his lawyer told him:

  1. Assuming that the first owner: (a) had an honest belief that he owned Parcel X, which he had been using and occupying; (b) that that belief had an objective basis and was reasonable; (c) that all of the other elements of ORS 105.620(1)(a) and (b)[1] were satisfied; and (d) it could establish this by clear and convincing evidence, then title by adverse possession vested in the first owner after 10 years of use and occupancy, i.e. 2005.
  2. Since title vested in the first owner in 2005, assuming the two subsequent conveyances conveyed the land by legally adequate deeds, they transferred title not only to the land described in those successive deeds, but also to the Disputed Area, based upon the adverse possession by the first owner.
  3. Since the current owner of Parcel X, Mr. McCoy, now legally owned the Disputed Area by adverse possession, when Mr. Hatfield came over and tore down the existing wooden fence, he had committed a trespass. He had no right to remove the fence, and if it was owned by Mr. McCoy, Mr. Hatfield was liable for destruction of the property.
  4. As for the recent Hatfield survey, which purportedly identified the common boundary line shared with Mr. McCoy, it would be superseded by a court’s decision holding that the Disputed Area was now owned by Mr. McCoy based upon his predecessor’s acquisition of title through adverse possession in 2005. Each successive conveyance after 2005 would include ownership of the Disputed Area, even though it was not expressly stated in their deeds.
  5. Remember, that when title by adverse possession vests in a party other than the owner who originally acquired the land under their deed, the public record does not disclose the event. It happens in a vacuum, so to speak. So when a dispute arises, the public record needs to be corrected if an agreement results in a boundary line moving. There are different ways to do this, but they generally require mutual consent of the warring neighbors. If no agreement can be reached, the matter will have to be resolved in court, with the issuance of a judgment recorded to correct the title on the public record. [Note that the court judgment, even though it is a publicly accessible document, is not – subject to some limited exceptions – found in the deed records (as opposed to “court records”), so they would not show up on the preliminary or final title report received by the buyer at closing. Do title companies care? Not too much. They warrant to buyers the status of the title based upon deed records. Not court records and not surveys. Their policy of insurance specifically excludes matters that a correct survey would disclose.]
  6. Lastly, since ORS 105.620 does not carry with it a right of attorney fees to the prevailing party, using the court system to resolve an adverse possession claims is not very cost-efficient. Many times, the parties spend more money in attorney fees than the disputed area is worth.

Conclusion. The take-away for prospective buyers is to carefully walk the property, being observant to anomalies in the boundary lines (e.g., odd lot configurations, fences or posts out of place, etc.). Old survey pins or markers should always be vetted. If there is any doubt or question, check with the seller, neighbors, recorded maps, plats, aerial photography, and lawyers or other experts before closing. ~ Phil 

© Copyright 2026. All rights reserved. Querin Law, LLC.

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[1]  105.620 Acquiring title by adverse possession. (1) A person may acquire fee simple title to real property by adverse possession only if:

(a) The person and the predecessors in interest of the person have maintained actual, open, notorious, exclusive, hostile and continuous possession of the property for a period of 10 years;

(b) At the time the person claiming by adverse possession or the person’s predecessors in interest, first entered into possession of the property, the person entering into possession had the honest belief that the person was the actual owner of the property and that belief:

(A) By the person and the person’s predecessor in interest, continued throughout the vesting period;

(B) Had an objective basis; and

(C) Was reasonable under the particular circumstances; and

(c) The person proves each of the elements set out in this section by clear and convincing evidence.

(2)(a) A person maintains “hostile possession” of property if the possession is under claim of right or with color of title. “Color of title” means the adverse possessor claims under a written conveyance of the property or by operation of law from one claiming under a written conveyance.

(b) Absent additional supporting facts, the grazing of livestock is insufficient to satisfy the requirements of subsection (1)(a) of this section.

(3) As used in this section and ORS 105.005 and 105.615, “person” includes, but is not limited to, the state and its political subdivisions as created by statute.

[This article is one of a series of upcoming posts dealing with real estate disputes in Oregon, ranging from transactional matters to litigation matters. Enjoy!]

Introduction.  The term “Earnest Money Deposit” is familiar to most people – at least on the surface: It is the “deposit” that prospective buyers initially put down when offering to purchase a home.  Metaphorically, it shows their offer is made in “earnest.” But beyond the name, there are many tripwires that can arise, such as whether it will be refundable if buyer changes their mind? What if the seller wants an early release of the deposit before closing? What if seller changes their mind; can they return the deposit and end the transaction?

The Forms. In Oregon there are two standard form Sale Agreements: (a) The OREF form published by Oregon Real Estate Forms, LLC. It is the oldest form, dating back to the late 1990s; it laid the foundation for the current form today. It has been continuously updated to comply with changes in Oregon case law, statutes, and Realtor standards of practice. (b) The Oregon Realtors Association (“OR”) Sale Agreement form which came into existence circa 2021 and substantially followed the substance of the OREF form, although it is formatted differently. For purposes of this article, the following discussion will be based upon the OREF form, simply because I represented the company for 20+ years and am familiar with the genesis (i.e., rationale) of each provision.

The Basics. Functionally, an Earnest Money Deposit (hereinafter “Deposit”) normally accompanies the buyer’s written offer, the terms of which are set forth in the Sale Agreement. In Oregon, if one or more Realtors are involved on behalf of the parties, the terms of the Sale Agreement will likely be written up on the OREF form or the OR form.

Once the terms of the transaction are mutually agreed upon, the Sale Agreement is signed, Deposit paid, and escrow is opened at a local title insurance  or escrow company. Closing occurs after buyer’s purchase funds have been deposited, the loan has funded (unless it is a full cash offer and no lender is involved), title is marketable, escrow and title costs, prorates (e.g., for taxes, insurance, liens, and other expenses) have been paid, and the seller’s Deed has been signed and delivered for recording. The Deposit, which is technically a part of buyer’s downpayment, normally remains in escrow until closing, unless the parties agree that it will be disbursed earlier.

The main thing for all parties and their Realtors to remember is that escrow is a neutral depository; it cannot take any action without the joint written instructions of both seller and buyer; it will not act upon only one party’s instruction. Realtors are not parties to escrow and cannot give “instructions.” Once funds are deposited in escrow, their distribution thereafter must be jointly agreed upon by seller and buyer. This means that if there is a dispute over where the escrow funds are to go, it must be resolved either by joint agreement of the parties or pursuant to a court or arbitrator’s ruling. If no agreement can be reached, the title company has the option of tendering the disputed funds into court, filing a lawsuit against both seller and buyer,  and asking for judicial instructions for distribution of the funds. This legal process is called “interpleader” and the title/escrow company can recover attorney fees for their efforts. It is a process seller or buyer should avoid for obvious reasons – it means pride got in the way of prudence.

Liquidated Damages. This is a legal concept in which the parties agree, in advance of entering into a contract, that because of the difficulty in establishing damages for a breach, a fixed figure is pre-agreed upon, i.e., it is “liquidated.”  There is good reason for this; in real estate transactions, if the buyer fails or refuses to close, how will the seller “prove” they were damaged by the breach?  In most cases, seller’s damages from buyer’s failure to close are a result of the property being held off the market for an extended time. But in such cases, to be damaged the seller would have to point to other offers that were rejected. However, once an offer is accepted, it appears as “Pending” on the local MLS and prospective buyers shy away from them.  (There are other forms of damages such as “lost opportunity” or other events.)

But proving “what ifs” can be a formidable task. Ergo, the liquidiated damage clause is used to avoid these difficulties. It allows seller to avoid proving damages flowing from buyer’s breach. Caveat: Liquidated damage clauses are useful if properly used. But because the parties pre-agreed upon seller’s damages from buyer’s breach, they can become an unintended trap; if seller’s actual damages exceed the liquidated amount, seller is limited to the latter amount.

There are only two or three major Oregon cases on liquidated damages, and the law is fairly well settled. The basic elements of an enforceable liquidated damage clause will contain the following recitals (all of which are found in the OREF Sale Agreement form; the OR text appears to be shorter):

  • The parties expressly agree that seller’s economic and non-economic damages arising from buyer’s failure to close the transaction would be difficult or impossible to ascertain with any certainty;
  • The Deposit identified in the Sale Agreement is a fair, reasonable, and appropriate estimate of seller’s damages if the buyer defaults;
  • It represents a binding liquidated sum, not a penalty (i.e., it is intended to compensate seller, not punish buyer); and
  • The seller’s sole remedy against buyer for their breach of the Sale Agreement is limited to the Deposit. (Note that buyer’s remedy for seller’s refusal to close is not limited to recovering back the Deposit. See below.)

When Does The Deposit Becomes Nonrefundable?   This depends upon whether the Sale Agreement contains any buyer contingency clauses. Both the OREF and OR forms contain such clauses; they both allow buyer an agreed-upon period to exercise his/her due diligence (e.g., for title review, property inspection, sewer, septic, lead based paint inspections, financing/appraisal, etc.). If buyer gives seller timely written notice that one or more of the contingency provisions have failed, the Sale Agreement provides that the Deposit will be refunded. But if not timely given, they are deemed waived and the Deposit can become nonrefundable. This issue is where a good Realtor can come in handy. When the parties reach agreement, the Realtor can be asked to provide a written timeline of the important contingency commencement and expiration dates.

Early Buyer Defaults vs. Last Minute Defaults. It is one thing if a buyer’s breach occurs soon after the Sale Agreement is signed, e.g., their check or funding transfer fails to clear; buyer suddenly changes their mind; or events of illness, death, etc. In such cases, the seller could quickly declare a default, refund the Deposit, and put the property back on the market. But it is quite another thing if the buyer fails to show up for closing six weeks into the transaction. In the case of a late buyer default, the seller may be severely damaged for, say, moving out of the home, having stored furniture, or paid a nonrefundable Deposit on another home.

A belated buyer default could become a Doomsday Scenario in some cases.  Accordingly, in establishing the amount of the Deposit, seller should ask: “What is the worst thing that can happen?” “Can it occur here?” If so, the amount of the Deposit should be set at an amount to address it. Why? Because once the Deposit has been agreed upon, if it is insufficient to fully compensate seller for buyer’s belated default, it’s too late.

Who finally decides on the amount of the Deposit for the transaction? The answer is very fact-based. If buyer is ready, willing and able to close, seller needs to sell quickly (e.g. divorce or job transfer), and there are many available homes on the market, the buyer’s preference may carry the day. But in a tight market with limited homes for sale, the seller who can afford to wait for the best offer will likely determine the amount of the Deposit.

Tips, Traps and Take-Aways.  Below are a few – there are many more.

  • Sellers should be careful when agreeing upon the amount of the Deposit. If it is too small, say $1,000 – $2,000, it may be inadequate to fully compensate the seller; conversely, the smaller amount makes it easier for buyers to default and walk away from a comparatively small Deposit.
  • However, a Deposit that is unrealistically large could be deemed unenforceable as a penalty. What amount would constitute a “penalty”? It varies with the facts; if the property is highly prized and listed for $5,000,000, a $100,000 Deposit may not be out of the question. But if the property is selling for $350,000, a $100,000 Deposit would likely be deemed a penalty, and declared unenforceable.
  • Conversely, in bidding wars when several buyers are vying for a property, who gets to the front of the line may be determined, in part, by the size of the Deposit since it could serve as an inducement to accept an offer – especially if it is made nonrefundable. (A risky step for buyers, but not unheard of.)
  • When it comes to tailoring a provision for disposition of the Deposit, Realtors should avoid the temptation of writing an amendment to the pre-printed terms of the Sale Agreement; legal assistance may be appropriate. For example, to state that the Deposit will be “nonrefundable” is inadequate. If there is a dispute, the buyer will likely argue that it was too vague to be enforced.
  • Here is a caveat regarding non-refundability issues: The Sale Agreement already addresses the Deposit and contains other preprinted provisions in the Sale Agreement stating the conditions upon which the Deposit is refundable. They will likely be inconsistent with a hand-drafted nonrefunability addendum. Such inconsistencies should be addressed in advance.
  • Although the Sale Agreement contains a provision for buyers to pay an “Additional Deposit” later in the transaction, it is frequently overlooked. Yet this clause can be very useful for sellers where the closing date is extended or other seller concessions are granted. The longer a transaction remains open and the home is off the market, the greater the risk of unanticipated issues arising.

Conclusion. Disputes over who keeps the Deposit can be a “zero-sum” proposition. That is, when a breach occurs, the Sale Agreement says the entire sum is either forfeited to seller as liquidated damages, or refunded to buyer. There is no middle ground; it is all or nothing. Unfortunately, some arbitrators may not heed that concept, and try to allocate a forfeited Deposit based upon “comparative fault” between the parties. This is an issue that seller’s attorneys may need to emphasize to the arbitrator. Conversely, buyer attorneys might argue that seller contributed to the events leading up to the default, and argue for an allocation of the Deposit, despite there being no language in the Sale Agreement addressing it.

Important Notes: (1) The Sale Agreement provides that if seller breaches and refuses to close, buyer may obtain a refund of the Deposit and seek damages including “specific performance” (i.e. requiring seller to sell per the Sale Agreement). This is because land is regarded as “unique” and recovery of money damages to the buyer are not the same as awarding him/her the property  – more about that in another article. (2) If there is a dispute only over disposition of the Deposit, i.e., it is agreed the sale transaction is over, seller can and should put the property back on the market. But before doing so, seller must first inquire whether the same title/escrow company can close another transaction while holding the disputed Deposit. If they say No, the subsequent sale should be opened at another escrow or title company.

Lastly, remember, the Sale Agreement contains a prevailing attorney fee provision. Thus, the smaller the Deposit the riskier it is to litigate/arbitrate, since the legal fees can exceed the amount  at issue.  Losing a $15,000 earnest money deposit dispute and paying $25,000+ in attorney fees to the other side (in addition to your own) can be a bitter pill. Both of the two statewide Sale Agreement forms provide that disputes over Deposits of $10,000 or less must be submitted to Small Claims Court, where attorneys are not permitted to represent the litigants. ~ Phil

Introduction. The term “Earnest Money Deposit” is familiar to most people – at least on the surface: It is the “deposit” that prospective buyers initially put down when offering to purchase a home.  But beyond that, there is much more, such as whether it will be refundable if buyer changes their mind? Does it stay refundable all the way to closing? What if seller changes their mind; can they just cancel the transaction, return the deposit, and resell the property for a higher price? These issues are a common source of conflict when the seller or buyer tries to withdraw from the transaction before closing.

Basics. In Oregon there are two standard form Sale Agreements: (a) The OREF form published by Oregon Real Estate Forms, LLC. It is the oldest form, dating back to the late 1990s. It is continuously updated to comply with changes in Oregon case law, statutes, and standards of practice. (b) The Oregon Realtors Association Sale Agreement form which came into existence circa 2021 and is substantially similar to the OREF form. For purposes of this article, the topics discussed below are not materially different between the two forms.

The Earnest Money Deposit (hereinafter “Deposit”) is a sum of money that normally accompanies the Sale Agreement offer. Once the terms of the transaction are mutually agreed upon, escrow is opened at a local title insurance company. Closing occurs after buyer’s funds have been deposited, the purchase money loan has funded (unless it is a cash offer), title is marketable, costs and prorates (e.g., for taxes, insurance, liens, and other expenses) have been paid, and the seller’s Deed has been signed and delivered for recording. The Deposit normally remains in escrow until closing; earlier disbursement to seller may only occur upon joint written instructions to escrow.

Liquidated Damages. There are only two or three major Oregon cases that are material to a discussion of liquidated damages. The law is fairly well settled. A well-drafted liquidated damages clause for Oregon Sale Agreements should contain the necessary recitals the law requires , such as the following elements:

  • The parties expressly agree seller’s economic and non-economic damages arising from buyer’s failure to close the transaction would be difficult or impossible to ascertain with any certainty;
  • The Deposit identified in the Sale Agreement is a fair, reasonable, and appropriate estimate of seller’s damages;
  • It represents a binding liquidated sum, not a penalty; and
  • The seller’s sole remedy against buyer for buyer’s failure to close the transaction is limited to the Deposit. (Note that buyer’s remedy for seller’s refusal to close is not limited to recovering back the Deposit. See below.)

Caveat: It is one thing if the buyer’s breach occurs soon after the Sale Agreement is signed, such as their check for the Deposit fails to clear; here the seller can quickly declare the default and put the property back on the market. But it is quite another thing if the buyer fails to show up for closing six weeks into the transaction. This is where a seller may be severely damaged for, say, moving out of the home, having stored furniture, possibly put nonrefundable money down on another home. Sellers should keep the Doomsday Scenario in mind when setting the amount of the Deposit: “What is the worst that can happen?”

Who finally decides on the amount of the Deposit for the transaction? The answer may be found in this cynical version of the Golden Rule: “He who has the gold makes the rules.” If seller needs to sell for economic reasons, the buyer’s offer will likely be at a lower price and with a smaller Deposit; if seller can afford to hold the property and wait for the highest and best offer, he/she will demand a larger Deposit.

Tips, Traps and Take-Aways.  Below are a few; there are many more.

  • Sellers should be careful when agreeing upon the amount of the Deposit. If it is too small, say $1,000 – $2,000, it may be inadequate. For example, if the buyer finds another more desirable home, he/she could refuse to perform under the Sale Agreement, readily forfeit the small Deposit and move on. Sellers should insist that the amount of the Deposit be of sufficient size to deal with the Doomsday Scenario and in an amount that the buyer will think twice about walking away. However, it cannot be unrealistically large – otherwise it could be deemed unenforceable as a penalty.
  • If seller wants the Deposit to be disbursed from escrow and become nonrefundable before closing, the arrangement must be carefully drafted. Realtors should avoid the temptation of writing their own special provisions into an Addendum that amend the pre-printed terms of the Sale Agreement; legal assistance may be appropriate. Saying nothing more than that the Deposit will be “disbursed and become nonrefundable” is inadequate. Here are a couple of reasons: (a) The clause should address what happens if seller causes the default; and (b) What about the other provisions in the Sale Agreement providing that the Deposit is refundable upon certain conditions? Otherwise, the Sale Agreement and Addendum are inconsistent. These issues should be addressed.
  • Although the Sale Agreement contains a provision for buyers to pay an “Additional Deposit” later in the transaction, it is frequently overlooked. Yet this clause can be very useful for sellers where the closing date is extended. The longer a transaction remains pending and the home is off the market, the greater the risk of unanticipated issues arising.
  • When does the earnest money deposit become nonrefundable? The basic rule is that the Deposit is refundable if buyer gives seller timely written notice that one or more of the Sale Agreement’s contingency provisions have failed (e.g., for title review, property, sewer, septic, lead based paint inspection, and financing/appraisal). These standard provisions all contain a limited period of time for buyer to exercise them. Otherwise, they are waived and the Deposit can become nonrefundable. This is where a good Realtor can come in handy. Ask him/her to provide a written timeline of these important events and dates. 

Conclusion. Disputes over who keeps the Deposit can be a “zero-sum” proposition. That is, when a breach occurs, the Sale Agreement says the entire sum is either forfeited to seller or refunded to buyer. There is no middle ground. (Important Note: The Sale Agreement provides that if seller breaches and refuses to close, buyer may obtain a refund of the Deposit and seek specific performance. This is because land is regarded as “unique” and recovery of money damages are not the same as awarding buyer the property.)

Lastly, remember, the Sale Agreement contains a prevailing attorney fee provision. Thus, the smaller the Deposit and the closer the case, the riskier it is to litigate/arbitrate, since legal fees can exceed the amount  at issue.  Losing a $15,000 earnest money deposit case and paying $25,000+ in attorney fees to the other side (in addition to your own) can be a bitter pill. For better or worse, the Sale Agreement provides that disputes over Deposits of $10,000 or less must be submitted to Small Claims Court, where attorneys are not permitted to represent the litigants. ~ Phil

©Copyright 2025 QUERIN LAW, LLC. Phillip C. Querin

Introduction. Most Oregon residential transactions are documented by one of two Sale Agreement forms, the OREF form, created circa 1997, or the Oregon Realtor (“OR”) form which was created circa 2020-23. Both forms are continuously updated. (Readers are encouraged to compare both forms before deciding which one to use. In either case, these documents are proprietary and should not be used in violation of their copyright.)1 

As explained below, the term “protocols” refers to the steps sellers and buyers follow throughout the transactional process. Over the past 25+ years, with the proliferation of state and federal real estate laws and regulations, most Oregon residential transactions have followed a “lock-step” approach, commencing with seller’s acceptance of buyer’s offer (or buyer’s acceptance of seller’s counteroffer) and ending with closing, when seller’s deed to buyer is recorded and possession changes hands.

Seller Property Disclosure Form. The genesis of this form goes back to 1993, in which the Oregon Legislature gave residential sellers a choice of offering buyers a “Disclosure” form or a “Disclaimer” form.  The Disclosure form required sellers to answer a series of questions about the property, and the Disclaimer form “disclaimed” all representations about the property. The immediate result was that most attorneys advised their seller-clients to disclaim everything, rather than disclose anything. This approach did nothing to enhance transparency, so the disclaimer alternative was abandoned. In Oregon we’ve used the Disclosure form ever since. Buyers had (and still have) an absolute 5-business day right of revocation following delivery of that form.

Generally, the 1993 Disclosure form has remained substantially the same over the years, only with slightly improved text and a few new questions for sellers to answer. It is still not a model of draftsmanship (which is what occurs when representatives from the various stakeholders – e.g., title companies, consumer groups, Realtor groups, lenders, insurers, contractors, etc. – must all agree on the final product. (For an abbreviated article explaining “group think,” see “Abilene Paradox” story.)

Nevertheless, the Disclosure form is an important first step in giving buyers a starting point for conducting their due diligence. However, sellers’ representations in the form are not warranties; they are based only upon the seller’s “actual knowledge” i.e., what he or she believes at the time of completing the form, without necessarily having performed any investigation in advance.  The form warns that sellers’ representations are not intended for buyers to rely upon in lieu of conducting their own inspections and other due diligence. At best, the Disclosure form is a starting point for buyers. If negative information is revealed by the seller, e.g., prior flooding in the crawl space, it is required to be explained in an accompanying addendum, and the responsibility then shifts to the buyer to further investigate and evaluate the issue.

Real Estate Sale Agreement. Normally the buyer and/or their Realtor complete the Sale Agreement form for submission to the seller. Before acceptance, usually the only substantive information a prospective buyer has about the property consists of  data obtained from available public records, e.g., property taxes, and the multiple listing service (“MLS”) information where the seller’s broker has listed the property.

  • Buyer Due Diligence. Once the offer is accepted, the Sale Agreement permits buyer to complete their due diligence by the exercise of several inspection contingencies including, among other things,  the status of title and the physical condition of the property and its operating systems, e.g, sewer/septic, water, cooling, heating, plumbing, electrical, etc. Another major buyer contingency makes the transaction subject to a satisfactory appraisal and financing. If the buyer is dissatisfied (in his/her sole discretion) with any one of these contingencies, he/she (or their broker) may give timely written notice to the seller (or their broker) to terminate the transaction and obtain a full refund of the earnest money deposit.
  • Buyer Warnings. In addition to making the offer contingent upon buyer’s satisfaction with all of their contingencies, the Sale Agreement carries with it several warnings to buyers:
    • Section 10 (Property Inspections) advises buyers to have a complete inspection of the Property by qualified licensed professionals (e.g.,  for structural condition, soil condition/compaction/stability, survey, etc.). It also provides that if the buyer proceeds to close the transaction, he/she waives all contingencies and accepts the condition of the Property.
      • Note, the inspection contingency expires at an identified time, and unless buyer gives timely written notice of termination, he/she will be deemed to have accepted the condition of the property. In other words, “silence is consent.”
    • Section 14 (Seller Representations) of the Sale Agreement warns that the seller representations are not warranties regarding the condition of the Property and are not a substitute for buyer’s responsibility to conduct their own independent investigation, including the use of professionals, where appropriate.
    • As if these warnings were not enough, the Sale Agreement contains at Section 16 an As-Is provision: “Except for Seller’s express written agreements and written representations contained herein, and Seller’s Property Disclosure, if any, Buyer is purchasing the Property “AS-IS,” in its present condition and with all defects apparent or not apparent.”
    • Section 41 (Offer to Purchase) acknowledges that Buyer has fully read and understands the terms of the Sale Agreement and “has not relied on any oral or written statement made by Seller, Seller’s Agent, or Buyer’s Agent that is not expressly contained in this Agreement.”
      • This warning is important because the listing agreement and broker’s promotional literature may contain descriptions amenities that do not become a part of the Sale Agreement unless expressly incorporated into it.
      • Accordingly, the safest practice for buyers and their brokers is to specifically include in the offer any important representations or promises about the property that are not already found in the Sale Agreement. In short, unless expressly included, ancillary promotional information (e.g., “property abuts Green Space that cannot be developed”) does not become a part of the Sale Agreement.

Conclusion. In summary, residential real estate transactions in Oregon divide buyer and seller responsibilities as follows:

  • Sellers’ duties are to complete the Property Disclosure form and Sale Agreement upon their “actual knowledge.”  The Sale Agreement provides the representations are made to the “best of Seller’s knowledge.”  Sellers should carefully review these representations before signing the Sale Agreement. Query: Is this it, or does seller have any further duties of disclosure beyond these two forms? The answer is Yes. Oregon’s common law, i.e., the law developed in written opinions from the appellate courts over the years, still applies. This will be covered in a subsequent post.
  • Upon mutual execution  of the Sale Agreement, the buyer’s duty is to exercise their due diligence responsibilities during the prescribed contingency periods. During this time they must review and evaluate all important information, such as the preliminary title report, professional inspections, sewer/septic reports, and all other agreed-upon inspections or tests. If financing is a contingency, it makes the sale subject to the buyer obtaining purchase money financing (unless it is a cash offer) and an appraisal that is not less than the agreed-upon purchase price of the home. As noted above, although buyers have a right to rely upon seller’s representations, those statements are not warranties or guaranties; they should not be relied upon to the exclusion of their own due diligence. If a buyer learns of a discrepancy between the seller’s written disclosures and their own due diligence, buyer should immediately stop and clarify the reason for the discrepancy. Closing without doing so can arguably result in a waiver by buyer. (Note: The preceding assumes there is no  fraud or concealment by seller.)

If these protocols are followed, buyers will be able to make an informed decision whether to: (a)  Allow their contingencies to lapse and close the transaction or (b) Timely withdraw from the transaction and obtain a return of the earnest money deposit. ~ Phil

©Copyright 2025 QUERIN LAW, LLC. Phillip C. Querin

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  1. In the interest of full disclosure, as legal counsel for OREF during its first approximately 20 years I was very involved in the development of the OREF Sale Agreement and all of its other real estate forms.

Introduction. Having had my share of bad mediators over the years, I cannot resist this Q-Rant.

There is a reason mediators are also called “Neutrals” – they’re supposd to be “neutral.”  Neutrality is a pretty basic concept; it goes back centuries. Words such as “impartial” and “unbiased” come to mind. Think of Switzerland during World War II.

While being a “neutral” may appear to be a fairly straightforward role, it can become problematic when undertaken by attorneys. Who ever thought they would make good mediators, anyway?  While they may know the law, and understand how it applies to a particular dispute, many attorneys’ stock-in-trade is advocacy, and they are constitutionally incapable of shaking that role. Being a “neutral” requires attorneys to metaphorically take off one hat – say, that of the gunslinger – and put on another – say, that of the peacemaker. While attorney/mediators may begin the mediation with the best of intentions, there is a risk that at some point in the process, they will lapse into what they were trained to do, i.e., becoming an advocate.

The Process. Most mediations are conducted in a manner whereby the adversaries are never in the same physical room. Rather, the mediator confers with each side in their own room, shuttling back and forth during negotiations. For remote mediations, everyone has virtual rooms, using Zoom, Google Meet, or a similar app. In most cases the parties’ attorneys have – or should have – explained this process in advance with their respective clients. Each attorney should prepare a written submission to the mediator, explaining the factual background of the dispute, the issues, and the law.  Since it is confidential and not shared with the other side (unless authorized), it may be appropriate for the attorney to address – in advance – weaknesses in their case, i.e., making concessions so the mediator knows that certain facts will not be disputed. (This is not to say the mediator is authorized to relay these concession to the other side. Attorneys should clarify with the mediator in advance, what information is to be shared with the other side and what is not. Good mediators will pick up on these issues and ask in advance.)

The upshot of this separation of parties means they are never allowed to interact; the mediator never speaks to both sides at the same time (except perhaps at the start for introductions).

Although it can occur, a party should never participate in a mediation without using an attorney. Why? Because the attorney’s presence makes the mediator’s job easier. Otherwise, the unrepresented party will likely not know or understand the process, the ground rules, or proper protocol. The undrepresented party has no one to confer with during the mediation about the strength of their case,  the other side’s case, or the reasonableness of any terms of settlement. And the mediator can – and should – demur when asked to “advise” the unrepresented party about what to do. Some mediators even decline to participate in mediations where the parties are unrepresented.

The mediator will not disclose conversations held with the other side, unless expressly authorized in advance. For better or worse, this means that neither side knows what the mediator discussed with the other party. The mediator only discloses to a party what the other side authorized. When discussions get down to specifics, i.e., the payment of money or performance of certain obligations, the mediator obtains specific authority to relay offers and counteroffers. If the process proceeds as it should, the specifics of settlement become narrower and narrower, until the differences are compromised.

At the very end, a “Material Terms” sheet is prepared by the mediator – usually a page or less – which outlines the basic elements of the settlement. Once finalized it should be signed by the parties before the mediation is concluded. This is done with the understanding that a more formal agreement will be drafted with the standard recitals and boilerplate clauses attorneys are fond of inserting. If a dispute arises before the final agreement is signed, the Material Terms sheet will apply. Typically it will provide that if there is a dispute over the settlement, the mediator has the last word; their decision is final, binding, and non-appealable. 

Measuring Success of a Mediation.  Some mediators keep a mental (and perhaps physical) list of “wins” and “losses.” The settled cases go under the “W” column and the unsettled ones are relegated to the “L” column. This scorecard can become more important to the mediator than the process that preceded it. This can lead to short-cuts. In other words, the mediator’s focus can move from assisting the parties to collaboratively reach their settlement to arm-twisting, i.e., trying to convincing one side (or both sides) they will lose. If this occurs, the mediator is not doing their job – in my opinion.  Rather than assisting the parties in reaching a mutual settlement, the mediator has sought to force a resolution using fear. The mediator may have secured a “Win” but at what cost to the parties and perhaps their attorneys?

Remember, the disputants hired lawyers and filed their claims likely because they believed the facts and law were on their side. At least that may be what their attorneys told them. (The smart attorney should always temper his/her advice with a dose of reality, describing both the good and the bad aspects of the case.  Avoid superlatives when describing outcomes; don’t forget the doomsday scenario! Frequently, these admonitions need to be repeated more than once, and often in writing.)

Consider this: How is a party going to feel when the mediator tells them that they have a bad case and are going to lose? They may settle out of fear of a catastrophic loss – but when the process is over, it now falls to their attorney to explain why the mediator viewed their case so critically. Was there something the attorney failed to discuss/disclose with his or her client? In these cases, where the mediator negatively evaluates a party’s case in the presence of their own attorney, the client will – sooner or later – begin to doubt their counsel’s advice. In these situations, you can be sure the attorney will likely never select that mediator again – and rightfully so. Does this mean the mediator cannot have an honest discussion of the good and bad aspects of the case in the presense of both attorney and client? Not at all. Read below.

The Bad Lawyer-Mediator.  This is the lawyer-mediator who views the facts and law of the case as subordinate to getting the case settled. He or she believes they can convince one or both of the parties to put aside their (heretofore) strongly-held beliefs, and “just settle the case and move on.”  A mediator with this mind-set is ill-prepared to actually discuss the merits of the case or applicable law. This is because the mediator did not spend enough time in reviewing the case at the start. As a result, after a few hours have passed in the mediation, patience is wearing thin; the lawyer-mediator may cease being a “neutral,” and morph into an advocate – perhaps even telling both sides (separately), that they will lose if they don’t settle now. That is the easy way out for the mediator and a disservice to the parties who have paid – in advance – for this service.

What Makes A Good Mediator? The same thing that makes a good doctor, “Bedside Manner.”  Unwelcome news can be delivered in different ways. The good mediator will get the recalcitrant party (or parties) to the settlement table using honey  rather than vinegar. While it is axiomatic that settlements may leave both parties unhappy about some aspect of the result, the ultimate goal should be that they experience a sense of relief in knowing that the process allowed them to fully evaluate the case and potential outcome; the result was the best they could do. This is far preferable than a settlement resulting in regret and recrimination.

A good mediator should first become thoroughly familiar with the case; requiring written submissions and following up with each party’s attorney in advance if there are questions. Mediators should ask each party and their attorneys to describe the “weak” or “negative” aspects of their case – both the facts and law. This forces them to honestly confront the flaws in their case. (Remember, there is no such thing as a “perfect case.” If it were perfect, it would have settled without the need for mediation.)

If the parties or their attorneys engage in obfuscation rather than evaluation, the mediator should ask the tough questions: “How do you deal with Fact X or Case Y?” This approach is far better than telling one or both of the parties and their attorneys that they have a bad case. (Such a conclusion is, at best, conjecture by a person who has spent far less time, effort, and analysis on the matter than the parties and their attorneys.)

The one reality mediators can and should truthfully communicate to the parties is that final outcomes can oftentimes be surprising and/or disappointing. In a word, there is risk in not settling now. This is because the final decision-maker, judge, arbitrator, or jury, may have a completely different view of the case – because they are human.

Many mediators frequently ask each attorney in front of their client what they estimate the total costs and legal fees will be if the case goes all the way through trial or arbitration. Since many cases carry a right to prevailing attorney fees, this reality check can have a sobering effect on the participants.  (If the attorneys have not already had this discussion with their respective clients, they should have.)

In summary, the main attribute – nay, “skill” – of all good mediators is that they follow (intentionally or otherwise) a Socratic approach to the process. This means the important issues, facts, and laws, are explored by the mediator asking the parties and their attorneys material questions. This exercise allows for (or at least encourages) a collaborative and honest discussion about the strengths and weaknesses of the case, with an eye toward how best to resolve differences and settle the dispute. This is far better than the mediator telling a party or their attorney that they are “wrong.”

Ultimately, most mediations will result in each party having to address certain negative realities: E.g., (a)  That one side will have to pay more money than they originally wanted; or (b) The other side will likely have to accept less money than they originally expected; or (c) the losing party could get tagged for having to pay the other side’s attorney fees as well as their own.  A good mediator can have these discussions with the parties and attorneys, allowing both sides to complete the process with equal dignity.

An ancient maxim in The Art of Worldly Wisdom, (1647) by Baltasar Gracián is still instructive today:

Chapter XXV Know how to play the Card of Truth. ’Tis dangerous, yet a good man cannot avoid speaking it. But great skill is needed here: the most expert doctors of the soul pay great attention to the means of sweetening the pill of truth. For when it deals with the destroying of illusion it [can be] the quintessence of bitterness. A pleasant manner has here an opportunity for a display of skill ****

– Phil

 

Introduction.  Contract law is pretty basic; once the agreement becomes “binding” on a party, withdrawal normally cannot occur without consequences.  The OREF Sale Agreement is no different.

Reduced to basics, if the Seller refuses to perform before closing, the Buyer has a right to file a claim in arbitration for specific performance (i.e., asking the arbitrator to enter an award requiring the seller to perform the terms of the Sale Agreement) and for damages, if any. [Note: This issue can become complicated if the Seller had duties to perform before closing, such as subdividing the parcel to be conveyed.]

If the Buyer refuses to perform before closing, the Seller has the right to retain the earnest money deposit held in escrow. But that is the Seller’s sole remedy. Under the OREF Sale Agreement, contrary to some sale agreements, the Seller does not have the right to seek an award of specific performance of the buyer. There are many reasons for this, which are best explained in another article.

The earnest money deposit is the contractual “liquidated damage” amount the parties agreed would be the Seller’s damages for the Buyer’s nonperformance. This is why deposits are important, and sellers should give them serious thought before arriving at a figure. If it is too low, a Buyer can walk away with minor financial consequences while the Seller’s property was tied up for several weeks during a hot market. Before settling on the amount of the earnest money deposit, Sellers should consider what they will be doing going forward: Will the Seller put down a deposit on another property? Relocating and getting another job? Will they be moving furniture and furnishings; putting them in storage? Will they move to another state? What would the financial consequences be if the transaction failed? These issues should be vetted before settling on the amount of earnest money deposit.

Definitional Sections 43(g) and (k). The Sale Agreement provides that it becomes binding on the “Effective Date.” It defines this term as the date and time the contract has been “Signed and Delivered” which is further defined to mean when the Seller and Buyer “…have signed [the] document, and delivered it to the other party.” The text goes on to say that “When a document is “Signed and Delivered,” the document becomes legally binding on Buyer and Seller, and neither has the ability to withdraw it.”

Note that this defintion applies not only to the Sale Agreement, but to counteroffers and addenda, unless they provide otherwise.

However, The Devil Is In The Details. The above defintions are generally correct as far as they go, but there are certain unstated assumptions and/or exceptions in the text. [Admittedly they could all be set out in detail in the Sale Agreement, but it would be 25+ pages long, no-one would read or understand it, and the attorneys would have a field day!  As it is, in Oregon, attorneys are rarely involved in residential real estate transactions using the OREF forms.]

Here are some of those devilish details:

  • If the Sale Agreement is signed by a Buyer and their agent submits it to the Seller’s agent (aka, the listing agent) there will be a designated time for the Buyer to accept, counter, or reject:

“This offer will automatically expire on (insert date and time) _____________________ at __________ ______ [ ] a.m.[ ]  p.m. (the “Offer Deadline”). If not  accepted by that time, Buyer may withdraw this offer before the Offer Deadline any time before Seller’s transmission of signed acceptance. This offer may be accepted by Seller only in writing.” 

  • This means that, in fact, there is a right for the Buyer to timely withdraw the offer, even though he/she did sign it – so long as Seller has not accepted the offer and delivered it to the Buyer (or Buyer’s agent).
  • Also, unstated, but important to remember is that a Seller can make a counteroffer to the Buyer. [See Section 52.] In a counteroffer the Buyer has now become the “offeror”, saying, for example, “I will accept everything in your offer, except the Sale Price must be $X.”
  • Also, it is not entirely correct to say that the once the Sale Agreement becomes binding on Seller and Buyer “neither has the ability to withdraw it.” As noted above, even though the Buyer signed and submitted their offer and the Seller signed and accepted it, Buyer can still withdraw – but doing so will mean that he/she will likely forfeit their earnest money deposit. Section 33.2 of the Sale Agreement provides:

“If Seller signs and accepts this Agreement and title is marketable, Seller, at Seller’s option, may terminate this Agreement, and all Deposits paid or agreed to be paid will be paid to Seller as liquidated damages, if: *** (c) Buyer fails to complete this transaction in accordance with the material terms of this Agreement.”

  • Though not expressly stated above (perhaps it should be) transmitting a signed acceptance to an offer late, i.e. after the stated deadline, is not technically binding on either party – unless the parties expressly agree otherwise, or through performance, they act in a manner affirming the terms of the Sale Agreement. In such cases, the best practice is for both parties to enter into a written agreement reciting that notwithstanding the late acceptance, they will treat the Sale Agreement as binding.
  • Remember, it is not sufficient to merely sign an acceptance to make a contract binding – that signed document must be hand-delivered or electronically sent via electronic mail or facsimile (“transmission”) to the offering party (i.e., the “offeror”) or their agent. Signing your acceptance to an offer at 8:00 PM on Tuesday night but fogetting to deliver it back by the Wednesday’s 5:00 PM deadline means there is no binding contract.

Conclusion. Carefully reading the OREF Sale Agreement is critical to understanding the parties’ rights and duties, and for understanding the deadlines.  The best time to do this is before signing. If there is a change of mind after signing, options can become limited and timing becomes criticial. Prompt action in notifying the other side is necessary in mitigating any damage that might occur.  ~Phil

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Introduction. Regardless of how active (or inactive) the market is, sellers’ brokers should always be on the lookout for “red flags.” These are the often harmless-looking provisions that, if ignored, can later come back and bite sellers. Here are a few. Note that this article refers to the 2022 OREF Sale Agreement, so section and line numbers may be different today):

The “Or Assigns” Provision. First, be aware that deep in the 2022 OREF Residential Sale Agreement (Sec.37(6)) is a single sentence that many Realtors® may be unfamiliar with. It states:

“…Buyer’s rights under this Agreement, or in the Property, are not assignable without the prior written consent of Seller.” (Emphasis added.)

Where does this issue come up? When the Sale Agreement offer includes the words “or assigns” after buyer(s) names in Section 1. There is a reasonable chance when requested by buyer, his/her broker dutifully does so without inquiring about the intent or purpose of the provision. There is also a reasonable chance the buyer’s broker may not be aware of Section 37(6) saying that seller’s consent is required.

May Seller Impose Conditions on the Assignment? So, if the offer is accepted with the “or assigns” language inserted, does the seller have any say in whether they will give or withhold consent? Clearly yes – assuming they are aware that Section 37(6) gives them that right.  It is my opinion that accepting an offer on the OREF Sale Agreement with the words “or assigns” inserted after the name of the buyer does not mean the buyer is free to assign the Sale Agreement without seller’s consent.

Below is a short summary of the variety of issues that arise from these two seemingly innocuous words unless fully vetted by sellers before accepting the offer. The main issue is whether seller can condition their consent upon other factors, such as:

  • Requiring that the assignee have the same or better financial credentials as the buyer-assignor?
  • Requiring that the buyer-assignor remain as a guarantor of the assignee’s performance?

There are at least two very different reasons for a buyer’s use of the “or assigns” language:

  • Buyer is merely acting as a middleman,[1] often with the idea of tying up the property and then “flipping” it, to use the vernacular sense. This business model is invariably coupled with the idea that the buyer intends to improve the property, either cosmetically or more substantively, and make a profit upon resale. While there should be no particular concern to the seller in this transaction (assuming the buyer is properly vetted), there should be – in my opinion – a heightened due diligence concern to third-party buyers who acquire such property. But that is the subject of another post.
  • As is seen in more commercial ventures, the buyer is using the “or assigns” language to acquire a property and then create a holding entity, such as an LLC, to go into title. The only issue of significance here is for sellers to make sure that the original buyer (who has presumably already been vetted for their financial bona fides) does not create the holding company that is controlled by a new member with whom seller is unacquainted. This condition can and should be included in any consent to the assignment.

Risk Management Tip. There are some individuals who believe they can, without a real estate license, purchase real property using this “or assigns” verbiage, and flip the property to a third-party, taking profit from the difference between the purchase and re-selling price. I do not recommend this business model, since (a) the Oregon Real Estate Agency (at least in the past) has taken the position that this practice violates the licensing law, and can require the flipper to “disgorge” their “illegal commission” because it was obtained without an Oregon license[2]; (b) the flip requires the assignee, often a consumer, to understand and appreciate what is occurring, since by the time of the assignment, all of the standard buyer due diligence contingencies could have expired; and (c) it will raise the ire of every broker in the neighborhood, and thus result in a stream of complaints to the Agency.

Conclusion. So, the take-away here is that when buyers add the “or assigns” text to their offers, seller and listing agent antennae should go up. While there may be perfectly legitimate reasons for this approach, it bears serious vetting by sellers before accepting the offer. Waiting until after acceptance could be too late.  ~ Phil 

©Copyright 2022 QUERIN LAW, LLC. Phillip C. Querin

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[1] To the woke crowd, forgive me for the use of this allegedly misogynistic term. But according to Online Etymology Dictionary, here, the word “middleman” means, “…in the trading sense, ‘contractor, negotiator, broker,’ especially one who buys merchandise in bulk and sells it in smaller quantities to retailers or other traders,” 1795, from middle (adj.) + man (n.).” Accordingly, I have deferred to 200+ years of linguistic consensus saying it’s OK for me to use this word in mixed company. Whew!

[2] If you doubt the Agency’s authority to do this, take a close look at the list of activities for which Oregon requires a real estate license before earning a commission (ORS 696.010 (17), then consider ORS 696.040, which provides that “(o)ne act or transaction of professional real estate activity is sufficient to constitute engaging in professional real estate activity, within the meaning of this chapter.”

Introduction. This is a continuation of Part One, which addressed the printed contingencies found in the 2022 OREF Residential Real Estate Sale Agreement. (References to section and line numbers may be different today.)

Part One already covered:

  • Sections 5.1 (Financing Contingencies) and 5.2 (Failure of Financing Contingencies);
  • Section 6. (Seller-Carried Financing); and
  • Section 9 (Title Insurance).

As a reminder, a contingency is an event that must occur (or not occur)[1] for the transaction to become binding. All printed contingencies in the Sale Agreement are for the buyer’s benefit. There may be other contingencies in the transaction, such as the seller finding a replacement home, but they would be added by Addendum.[2]

Section 11.1 (Private Wells). This section asks: “Does the Property include a well that supplies or is intended to supply domestic water for household use? [  ] Yes [  ]No. If yes, Buyer has attached OREF 082 Private Well Addendum to this Agreement.”

For buyers who have never owned a property serviced by a well, this contingency demands caution. Contact the Water Resources Department for information: https://www.oregon.gov/owrd/pages/index.aspx.

Even for experienced buyers, caution must be exercised. The seller’s knowledge and opinions are important, but expert verification is critical. The Addendum asks about well logs, well reports, and other information. If available, an expert should carefully review them. If there are no such logs or reports, ask why.

Buyers should familiarize themselves with the experiences of nearby neighbors who are also on wells. Are there any known problems? How much does it cost to drill a new well in the area? Are there any geologic issues that are problematic? What about water purity and flow? Has the seller complained about any well issues in the past?

Well testing is critical. The Well Addendum provides that Seller, at Seller’s expense, is to have the well tested for arsenic, nitrates and total coliform bacteria and to submit the results to the Oregon Health Authority and buyer. However, unless there is a transfer of title, well testing is not required.

Areas impacted by recent wildfires could contain arsenic, nitrate, bacteria, lead, and, possibly benzene, toluene, ethylbenzene, and xylenes (BTEX). However, these are “extra” tests and at buyer’s cost.

Well flow testing is at buyer’s expense. It should never be waived.

Buyer’s right to terminate in the Well Addendum is slightly different from the professional inspection provision in the Sale Agreement, discussed above. In the latter, there is an immediate right to “unconditionally disapprove” of the home inspector’s report. But in the Well Addendum, after release of the test results, there is a “negotiation period” for the parties to attempt to reach agreement on the nature, cost and financial responsibility for remedying any “substantial deficiencies” in the system. However, in the end, buyer is not obligated to reach agreement on a solution and may terminate the transaction and obtain a refund of their earnest money deposit.

Risk Management Tip. Well water problems discovered after closing can be costly to buyers – and their real estate agents who may be brought into the dispute. For brokers who are new to the business or unfamiliar with well water issues, it is critical to partner with another broker with this expertise. And regardless, the buyer should always secure an experienced professional to evaluate the system. Brokers should resist the temptation to offer their opinions about a well, the system, or quality and flow of drinking water – regardless of their familiarity with the seller, well water in general, or their experience. The minute an opinion is expressed, it makes you an expert. The Sale Agreement goes to great lengths in saying Realtors® are not experts –  allow that disclaimer to protect you!

Section 11.2 (Septic/Onsite Sewage System). This too is an important contingency for buyers unfamiliar with these systems. If the system is shared, buyer should have an expert review the terms of the sharing agreement. They can vary in terms and clarity. Buyers should find out if there have been any problems in cost sharing. The Oregon DEQ regulates residential septic systems. See link here.

The protocols in the Septic Addendum are similar to those for well water. But interestingly, contrary to the Well Addendum, there is no “negotiation period” after the test results are shared. The “unconditional termination” provision of the Septic Addendum is similar to the one found in the professional inspection section of the Sale Agreement.

Risk Management Tip. Brokers should always remember that when dealing with septic systems, there are two issues: (a) the tank; and, (b) the drain field. In some cases, the tank could be perfectly fine, but the drain field shot – or vice versa.

And as with the Well Water Addendum, brokers with limited familiarity with these systems should partner with a more experienced person. And as with well water problems discovered after closing, the cost to remedy a failing tank or drain field can be significant. As the dollars increase, buyers are more inclined to look around for someone – such as a real estate agent with E&O insurance – to share the cost. Let the expert do the talking and stay in the background when dealing with well water and septic systems.

Section 12. (Lead Based Paint Contingency Period). As most Realtors® know, if a residential property is being sold that was constructed before 1978, then on, or promptly after, the Effective Date of the Sale Agreement, the seller is required to deliver to buyer OREF 021 Lead-Based Paint Disclosure Addendum together with the EPA Pamphlet entitled “Protect Your Family From Lead in Your Home.”

Unless waived by Buyer in the Disclosure Addendum, buyer has ten (10) calendar days (or another mutually agreed on period) to (a) conduct a lead-based paint assessment or inspection and (b) unconditionally cancel the transaction by written notice to the seller at any time before midnight on the last day of the 10-day period. If timely made, the transaction is then terminated, and buyer has the right to recover their earnest money deposit.

Seems pretty straightforward, right? Simple enough, yes? This is what the 2022 Sale Agreement says today. This is not what it used to say for several years prior to 2022. The problem today is this: Under the terms of the 2022 Sale Agreement, buyer’s right of cancellation is unlimited, so long as it is timely made – it no longer requires any inspection or evaluation.

For example, say the buyers found a beautiful old pre-1978 home in a beautiful old neighborhood. They loved the home but had not made up their minds whether they could afford the repairs and upkeep. But it was sure to go quickly – there were already multiple offers. Rather than getting repair bids and putting a sharp pencil to the numbers, they immediately made an all-cash offer, paid $100,000 earnest money deposit, and waived their property inspection contingency. The good news for the buyers was that their offer was accepted. The bad news for the sellers is that they accepted the offer without requiring their buyers to waive the LBP Contingency. So now, buyers have tied up the property for a “free peek” and have time to decide whether to remain in the transaction with little or no risk. They may cancel the transaction within the 10-calendar day period for no reason, without inspecting or evaluating the property for LBP, and obtain a full refund of their $100,000 deposit!

Why? Because the LBP Contingency no longer provides that buyer’s right of cancellation may occur only if a certified LBP inspector identifies the existence of LBP or LBP Hazards in the property.

Risk Management Tip. First, consider the rationale for buyers having LBP inspections. If the home is pre-1978 the chance of it containing LBP somewhere is pretty high since lead was found in all paint back then. The question today isn’t really if there is LBP, but whether it has been “incapsulated” – i.e., painted over with more recent non-LBP in the years since 1978 i.e., during the last 44 years.

“Lead based paint hazards” are those you can see, include peeling, chipping, chalking, cracking, damaged, or damp LBP. Certainly, these conditions bear evaluation, especially if the buyers have small children. But most buyers, assuming they are familiar with LBP risks to their kids, would likely recognize during one or more walk-throughs whether those conditions existed, and would hire remediation experts immediately after closing and before taking possession.

The Take-Away. Listing agents should view with caution buyers’ use of the LBP Contingency as it currently reads. It can – and has – been used as a ruse to tie up a property with very little risk of losing the earnest money deposit.  Is it a ruse, or is it based on a legitimate good faith concern? I submit that if its use arises from a legitimate good faith concern, then listing agents suggest their seller require that the LBP Contingency include an inspection and report by a professional.  But if there is a suspicion the purchasers are merely using the LBP Contingency to buy time, suggest the seller require that the purchasers waive it.

One last comment. The reason the Seller Property Disclosure Section 13 of the Sale Agreement is not discussed as a “contingency” in these two articles is because it was not created by OREF, but by Oregon statute. It really is not a “contingency” since it does not depend on any third-party events, such as unsatisfactory inspections, LBP, title defect, or sewer and well water reports.

All rights and duties relating to the Seller Property Disclosure Statement are found at ORS 105.464 et seq. It was well-intended legislation that serves as a cautionary tale about how things can go awry when forms drafting is relegated to disparate legislative committees and interest groups with differing agendas, skills, and attention spans. ~Phil

 ©Copyright 2022 QUERIN LAW, LLC. Phillip C. Querin

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[1] I say “not occur” because the professional inspection contingency is tied to buyer not rejecting the report. Same for the title contingency. Silence is consent.

2 Note to sellers: This contingency can be risky if not carefully drafted to assure that the contingent event is not satisfied or waived too early. Merely “entering into an agreement to purchase a replacement home” can be premature. The inspection should be completed, and financing pre-approval obtained – at minimum.

Introduction. Disputes involving earnest money deposits are a “zero sum game.” There is one winner and one loser; no in-between. Arbitrators do not – or certainly should not – split the deposit in a misguided effort to equitably allocate the funds. (Note: This analysis refers to the OREF Sale Agreement form, so references to section and line numbers may be different from those today.)

Equity is not the issue; both parties have already stipulated in the Sale Agreement’s liquidated damages clause that if there is a breach, the non-breaching party keeps the deposit. (A liquidated damage clause is one in which the contracting parties agree, in advance, that should there be a breach, the damages will be the sum of X dollars. If properly drafted, the clause prevents both sides from later arguing that the actual damages resulting from the breach are either higher or lower than the pre-agreed “liquidated” amount.  In the case of the buyer’s breach of the OREF Sale Agreement, the parties agree that seller’s remedy for the buyer’s breach will be to retain the deposit – i.e., it is the liquidated sum the parties have pre-agreed upon.  Thus, if the seller breaches the Sale Agreement, the buyer recovers back the deposit (but retains the right to also seek specific performance of the contract). If the buyer breachs the Sale Agreement, the seller retains the deposit as liquidated damages.  There is no provision in the Sale Agreement allowing the arbitrator or court to “apportion” liquidated damages.

Critical to understanding liquidated damage clauses is recognizing the difficulty in quantifying a seller’s damages when their buyer breaches the Sale Agreement. The clause relieves the seller of the difficulty in “proving” the value of the lost opportunity to sell the property to a person who never made an offer.

This is where the liquidate damages clause proves its worth. Otherwise, how is the seller to prove that but for the buyer’s offer, a better offer would have been made? Once a transaction appears as “pending” in the MLS, most prospective buyers move on – at least assuming other inventory is available. Without a liquidated damage clause it is almost impossible for sellers to prove they were damaged by “losing” an offer they never received.

Earnest Money Dispute Scenarios – Seller Keeps the Deposit

Section 28.3 of the Sale Agreement lays out three scenarios which can result in the buyer forfeiting their deposit. If seller signs and accepts the Sale Agreement, title is marketable, and seller did not breach, he or she may terminate the transaction and keep the deposit if:

  1. Buyer misrepresented their financial status. Section 4 of the 2022 OREF Sale Agreement provides at lines 55-58:

Buyer represents that Buyer has liquid and available funds for the Deposit and down payment, and if an all-cash transaction, the full Purchase Price, sufficient to Close this transaction and is not relying on any contingent source of funds (for example, from loans, gifts, sale or closing of other property, 401(k) disbursements, etc.), except as follows (describe):                                                                          _________________________

What this means is that buyers signing an offer of purchase actually have the money. Buyer agents should vet this issue with their clients; the failure to do so is a disservice to the seller and listing agent. And if sellers doubt their buyer’s financial bona fides they should counter the offer with a demand that the buyer provide proof of collected funds capable of being used to fund the deposit and down payment.

Practice Tip: Sellers and their brokers should be careful about inadvertently waiving this provision. Once a seller and/or their broker acquire knowledge that the buyer has misrepresented their financial status, seller must decide whether to terminate, or continue moving forward with the buyer. In the latter scenario, seller should call out the non-performance and give the buyer a choice to either forfeit the deposit or agree to some other solution satisfactory to seller in a written Addendum. Doing nothing and moving forward can result in a waiver of this provision.

Earnest money deposit is not timely paid. If the buyer’s bank (a) does not pay, when presented, a check given as earnest money, or (b) buyer fails to timely make a wire transfer for the deposit, it entitles the seller to claim a breach of contract and retain the deposit. But again, sellers cannot ignore the breach and only later claim it as a basis for retaining the deposit. Unfortunately, buyers’ late payments are frequently overlooked, and the parties continue to move forward, trying to keep the transaction together while the buyer struggles to find the necessary funds.

Practice Tip: Section 37.1 of the 2022 OREF Sale Agreement (Miscellaneous) provides at Line 414: “Time is of the essence of this Agreement.” Upon the failure of the deposit to be timely made, sellers and/or their brokers should immediately address it in an Addendum, reciting the default and obligating the buyer to another performance date for the deposit. Waiting after two or three failures makes it difficult for the seller to later claim that time is still “of the essence.” [Note: the 2025 form may vary slightly.]

  1. Buyer’s fails to complete the transaction in accordance with the material terms of the Sale Agreement. This provision is a catch-all, and the most significant for sellers. However, the buyer’s failure must be “material,” i.e., a provision or condition that is essential to completion of the transaction. Technical defaults or failures quickly remedied are not always “material.”

Earnest Money Dispute Scenarios – Deposit Returned to Buyer

Refund to Buyer. The OREF Sale Agreement identifies three scenarios that will result in the buyer recovering back the deposit. However, a refund of the deposit is not the buyer’s only remedy should the seller default; buyer may also bring a claim for specific performance and/or damages.

  1. The parties are under contract, but the seller cannot deliver “marketable title.” Marketable title is title that is free of all objectionable liens and encumbrances. For example, title to property is frequently encumbered by recorded utility easements. While they show up on the preliminary title report, and technically “encumber” or “burden” the property – they are normally not a problem. Utility easements for the installation and maintenance of powerlines, gas lines, water, etc., do not negatively affect the quality of title but, rather, enhance its developability.

When title is “unmarketable” it is encumbered by some recorded instrument, e.g., a judgment lien, a mortgage, or a tax lien, that could result in the owner having to pay money to release the lien. Similarly, certain recorded easements could negatively affect a property making it unmarketable – e.g., an unlimited public right of access over the property to the beach.

Who determines whether title is unmarketable such that the buyer can cancel the transaction and obtain a refund of their earnest money deposit? If the parties cannot agree, the judge or arbitrator will decide whether the lien or encumbrance on title is sufficiently significant as to make it unmarketable.[1]

  1. Seller fails to complete the transaction in accordance with the material terms of the Sale Agreement. For example, seller refuses to permit access to buyer’s inspector or appraiser. In such a case, a buyer could terminate the transaction and demand a full refund of the deposit. But remember, as noted above, even if the buyer recovers back his or her deposit, they may also bring a claim against the seller for “specific performance.”

Conversely, unless the Sale Agreement provides otherwise, a seller’s sole remedy on account of their buyer’s breach is to retain the deposit as “liquidated damages.” The OREF Sale Agreement, as most residential sale agreements, limits the seller’s damages to the amount of the deposit. In other words, the seller cannot pursue a defaulting buyer for “specific performance” or additional damages.[2]

  1. If a buyer-contingency fails through no fault of the buyer. For example, if the professional inspection contingency fails, buyer is entitled to a refund of the deposit. In addition to ones inserted in the offer (e.g., sale of buyer’s residence), there are several pre-printed buyer contingencies in the Sale Agreement. Realtors® should become familiar with all of them.

Note that the “no fault of the buyer” clause does not mean the buyer cannot exercise their right of termination by disapproval of a sewer, septic, inspection report, or well water report – this is their right.

However, if a buyer sabotaged their financial statement so as to be rejected for financing, that would prevent them from obtaining a refund of the deposit. The law implies an obligation on parties under contract to exercise them in good faith; the failure to do so is a breach of that implied obligation and a breach of the contract.[3]

Liquidated Damages. There are only two or three major Oregon cases that are material to a discussion of liquidated damages. The law is fairly well settled. A well-drafted liquidated damages clause should contain the necessary recitals the law looks to in upholding them. For example, in the 2022 OREF Sale Agreement, it Section 28.3 provided:

The parties expressly agree Seller’s economic and non-economic damages arising from buyer’s failure to close this transaction in accordance with the terms of this Agreement would be difficult or impossible to ascertain with any certainty, that the Deposits identified in this Agreement are a fair, reasonable, and appropriate estimate of those damages, and represent a binding liquidated sum, not a penalty. [Note: The 2025 form may vary slightly.]

The Seller’s sole remedy against Buyer for Buyer’s failure to close this transaction in accordance with the material terms of this Agreement is limited to the amount of earnest money paid or agreed to be paid in this Agreement. Seller’s right to recover from Buyer any unpaid earnest money agreed to be paid in this Agreement will be resolved as described in the Dispute Resolution Sections below.

What has not been addressed above – but should not be ignored in any discussion of earnest money deposits, is that under the OREF Sale Agreement, and similar forms in Oregon, retention of the earnest money deposit is the seller’s sole remedy in the event of a buyer’s breach. That is why the amount of the deposit is so important.

It is one thing if the breach occurs soon after the Sale Agreement is signed, such as the buyer’s check for the deposit fails to clear – the seller can quickly declare the default and put the property back on the market. But it is quite another thing if the buyer fails to show up for closing six weeks into the transaction.

The take-away for listing agents is that they should discuss with their sellers in advance, what damage might occur if the buyer defaulted late in the transaction. The raison d’être for the deposit is to make a seller think twice about defaulting. In other words, walking away from the transaction must “hurt” financially. This is not to say it should be designed to “penalize” buyers for defaulting, but it should be a sufficient amount to keep them  incentivized to remain in the transaction.[4] A deposit the buyer can walk away from without concern is not a real deposit.

 Conclusion. As noted at the beginning, earnest money disputes are a “zero-sum” proposition, since a forfeiture or refund depends upon who committed the breach. Once determined, the prevailing party gets the deposit.[5]

But an equally important issue is whether both parties are prepared to roll the dice, knowing that the prevailing party is entitled to recover their attorney fees from the losing side. Thus, the loser loses big; this directs the focus on the size of the gamble. A large deposit, say $75,000 or $100,000+ might incentivize one side or the other to pursue the funds; but lesser amounts require more evaluation, especially when the amount of the deposit could be exceeded by the attorney fees expended in the battle – in other words, a Pyrrhic Victory.

©Copyright 2025 QUERIN LAW, LLC. Phillip C. Querin

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[1] Note: Title being “unmarketable” is different from saying the property cannot be sold or that it has no value. “Unmarketability” is sufficient if it reduces the property’s value such that it no longer is worth what a ready, willing and able buyer would pay for its intended purpose. For example, if the property is zoned residential, but because of recorded easements or other limitations on use, it cannot be sold as a residential lot, it is unmarketable for its highest and best use.

[2] I am speaking of customary practice in Oregon, not elsewhere.

[3] Note that all inspection reports can be rejected by buyers without having to give a reason. In other words, they can reject the “report” not some particular item in that report. If the latter standard were the rule, sellers would be forever arguing that the item buyer rejected, e.g., the furnace was fully functional, and not a good faith basis to terminate  the transaction.

[4] For example, a deposit of $50,000 – $75,000, if duly considered by the seller in advance (assuming the sale price was significant), e.g., $1,000,000 would likely withstand scrutiny. $500,000 likely would not. Beware: Brokers should avoid applying a simple 10% or 20% multiplier since that is not “a fair, reasonable, and appropriate estimate” of damages – it is just a formula pulled out of the air.

[5] Lest the reader ask, rhetorically, “what happens if both seller and buyer are in default?” the answer is the latest default is the only one that counts. For example, if the buyer failed to timely make the deposit, but eventually did so – and it was accepted – that “default” has been waived by the seller. If the next default occurs, say by the seller in failing to close on time, buyer can terminate and get their deposit back. But note that the Sale Agreement expressly provides that a refund of the buyer’s deposit does not mean the seller is off the hook. The reason is because even if the deposit is returned to the buyer, he or she still has a right to seek specific performance. Otherwise, a seller could avoid having to sell to a buyer by simply creating their own default and refunding the deposit.

Introduction. Generally, a contingency is an event that must occur (or not occur)[1] for the transaction to become binding (e.g., loan approval, condition of title, inspection report, sale of existing home, etc.). The reason it is called a “contingency” is that the transaction is contingent upon the event occurring (or not occurring), such as loan approval.

    • If the buyer is not approved for the loan, buyer must timely notify the seller or seller’s agent, and the transaction is terminated, and the deposit refunded.
    • If Buyer is approved, that contingency is deemed “satisfied” and goes away.
    • After expiration of the agreed-upon contingency period, e.g., for professional inspection, the buyer is no longer able to withdraw without losing the deposit.

All contingencies in the OREF pre-printed Sale Agreement are for the benefit of the buyer. This means that the seller cannot use the failure of a buyer’s contingency to terminate the transaction – only the buyer can do that. Continue reading “Buyer Contingencies in OREF Sale Agreement (Part One)”