Nothing automatic. In California the loan contingency stays in force after its deadline until the buyer removes it in writing. Missing the date does not remove the contingency, does not cancel the deal, and does not put the deposit at risk. What it does is hand the seller the right to start a two-day clock.
The panic is understandable and mostly misplaced. Agents coming from states where contingencies lapse on their own assume day 22 means the protection evaporated overnight. In California it did not.
California runs on active removal. A contingency is a live term of the contract until the buyer signs it away, usually on the Contingency Removal form. The calendar date in the grid is not an expiration — it is the point after which the seller is allowed to apply pressure. Understanding the difference is the whole of this article, and it changes what you do on the morning you notice.
What the seller can actually do
The seller's remedy is the Notice to Buyer to Perform, and it is deliberately slow.
The deadline passes
The loan contingency remains fully in effect. The buyer keeps every right they had on day 20, including the right to cancel and recover the deposit if financing genuinely fails.
The seller serves an NBP
It must be in writing and signed. It cannot be delivered more than two days before the underlying deadline, so it cannot be sitting pre-loaded in an inbox waiting for midnight.
Two days run
At least two days after delivery. The day of service does not count, and the time of day it was served is irrelevant — only whole days count.
Only now can the seller cancel
And only if the buyer has still not removed the contingency or cancelled. Cancellation is a right the seller may exercise, not something that happens on its own.
So the realistic exposure from missing day 21 is not the deal. It is roughly three days of goodwill and a conversation with the listing agent that you would rather not have had.
The thing to check first. Before doing anything else, confirm the acceptance date on the file against the contract. A meaningful share of "missed deadlines" are arithmetic — the file was built off the offer date or the seller's signature date rather than delivery of acceptance, and the deadline you think you blew is actually tomorrow.
What to do on the morning you notice
In order, and quickly:
| First | Recount from the acceptance date. Confirm you actually missed it. |
| Second | Call the lender before you call anyone else. Whether the buyer is clear to close determines which of the next two paths you are on. |
| Third | Call the listing agent, unprompted. An NBP served after a call is a formality. An NBP served into silence is a signal the other side is building a file. |
| Fourth | Either sign the removal, or request an extension in writing on the appropriate addendum. Verbal extensions are worth what they cost. |
If the loan is not there yet, an extension request is the honest move and is granted more often than agents expect, particularly when the seller has no backup offer and the alternative is going back on market with a stale listing. If the loan is dead, cancel while the contingency is still alive — that is precisely what it is there for, and the deposit comes back.
Where the deposit actually gets exposed
Not here. The deposit risk sits on the other side of removal.
A buyer who removes the loan contingency on day 21 to look cooperative, and then loses financing on day 28, is in a different legal position entirely. They no longer hold a contractual right to cancel. That is the scenario liquidated damages exists for — and it is why removing a loan contingency before a clear-to-close is a decision with a number attached, not a courtesy.
The 3% figure is widely misquoted
You will read everywhere that California caps the seller's recovery at 3% of the purchase price. That is not quite what the statute says, and the distinction matters if you are ever advising through one of these.
Civil Code section 1675 sets a presumption, not a ceiling. An amount at or below 3% is presumed reasonable, and the buyer carries the burden of showing it is not. An amount above 3% flips the burden — it is presumed invalid unless the seller establishes it was reasonable. Courts weigh the circumstances at the time the contract was made, and also what the property subsequently sold for if it resold within six months.
Section 1677 adds a second gate that gets overlooked: the liquidated damages provision has to be separately signed or initialed and set in the required typeface to be enforceable at all. A meaningful number of California deposit disputes turn on whether that box was ever initialed.
And practically: escrow does not simply hand the money over. Escrow holders generally require mutual written instruction before releasing a disputed deposit, which is why these fights sit in escrow for months rather than resolving in a week.
Common questions
Does the loan contingency expire on its own?
No. It stays in force until the buyer removes it in writing. Passing the deadline only gives the seller the right to serve a Notice to Buyer to Perform.
Can the seller cancel the same day the deadline passes?
No. They must deliver an NBP and wait at least two days, with the day of service not counting. Only after that can they exercise a right to cancel.
Does the buyer lose the deposit for missing the date?
Not for missing the date. While the contingency remains in place the buyer generally keeps the right to cancel and recover the deposit. Exposure begins after removal.
Is 3% a hard cap on liquidated damages?
No — it is a presumption under Civil Code section 1675. At or below 3% is presumed reasonable; above 3% is presumed invalid unless the seller proves otherwise. Section 1677 separately requires the clause to be initialed and correctly formatted.
Can we extend the loan contingency after the deadline has already passed?
Yes, by written agreement between the parties on the appropriate addendum. Since the contingency is still alive, an extension is a normal amendment rather than a revival of something expired. Get it in writing.