At C.A.R. Legislative Day, REALTORS® traveled to Sacramento to support a series of priorities in support of homeowners and homebuyers. The first of those was an effort to oppose AB 1406, a bill that would double the amount of deposit that a builder can keep under the state’s liquidated damages cap.
AB 1406 doubles the statutory cap on liquidated damages in transactions where a buyer is purchasing a newly constructed owner-occupied condominium from a developer. Specifically, it raises current limits on homebuyer deposits from 3 percent to 6 percent of the expected final purchase price. C.A.R. argues the bill dismantles strong, long-standing consumer protections for buyers, putting their savings — life-changing sums of money — at risk to finance the condominium projects.
In practice, this means that if a buyer signs a contract on a new condo and later defaults — whether due to job loss, a medical emergency, or a change in financial circumstances — the developer could keep double what was previously allowed under the law. For a $600,000 condo, that could mean losing $36,000 instead of $18,000.
Rather than solving California’s housing crisis, critics argue this bill primarily benefits developers by shifting financial risk onto buyers and using their deposits as low-cost construction financing, while leaving everyday Californians with far less protection if their circumstances change before closing.
This article was written by Paul Herrera, Government Affairs Director.
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