Escrow Nightmare

Location: SoCal

My husband and I need advice and outside perspectives on a real estate nightmare we’ve been stuck in for months. We’re in escrow on a $2m flipped home in Southern California, and the permit situation has become a total mess. We still love the house, but we’re trying to decide whether to renegotiate, walk away, or keep pushing and if/when to sue the seller and all involved agents, including our own.

Here’s the rundown:

• We went into escrow in June. The day after we opened, the Sellers received a code enforcement violation for unpermitted work. They agreed in writing to fully resolve all permit violations before close. We knew there was unpermitted work (common here), but we had no idea how deep this would go.

• The flip includes a major kitchen and two-bath remodel, extensive electrical and plumbing, framing changes, and likely structural modifications. When we first toured, we were told the work was unpermitted but they used a licensed structural engineer and it was “all legit.”

• We’ve now spent over five months waiting on retroactive permits and code case clearance. The Sellers and our own agents kept telling us it was close. Our agent said it was a simple “like-for-like” permit that would take two weeks.

• There are two agents on our side and two on the Seller’s side. One of the Seller’s agents was an investor/partner in the flip with the actual owner (trustee of the trust on title). Our main agent is the broker of record for ALL of them. We signed the dual agency disclosures, but we did not understand how messy this could get in practice.

• Last week, both sides’ agents told us the permit was fully resolved and we were clear to close. Based on that, we signed loan docs and wired the full down payment and closing costs.

• The next morning—right before escrow was about to release funds—our agent suddenly called and said: “Actually the city still needs a final walk-through; the permit isn’t fully closed.” He framed it as a minor formality. That same day the city came out and found several major items that weren’t even on the permit yet (electrical, plumbing, mechanical, etc.). They still don’t know structural work was done because the permit doesn’t mention it.

• Last week, after a reinspection, our agent told us it was his “understanding that it passed.” It didn’t. We checked the city system ourselves. The new permit number shows it only 52% complete, with FAILED inspections and many outstanding items: engineering approval, pre-construction meeting, electrical meter release, mechanical and plumbing corrections, etc. More reinspections required.

• Separately, we learned about AB 968 (the 2024 CA flipper disclosure law). We requested the required disclosures: contractor list, structural info, receipts, etc. Sellers are refusing. They claim AB 968 doesn’t apply because (a) “same trust” ownership (not true — we confirmed a 2025 title transfer), and (b) the work was done under “owner-builder” status (also not true) and now they claim the Seller’s agent did the entire remodel himself. Owner-builder status requires the owner to have lived there for 12 months before the work. They already disclosed that no one has lived there since April 2025 and it was a rental for 19 years prior. Also, this contradicts what our own agent told us in June—that they used a licensed structural engineer.

• Even stranger: the city permit lists the “owner-builder” as a woman who died in 2023. Our agent sent us her death certificate last week when he was trying to argue there was no recent title transfer. Yet she is listed as the active owner-builder on a 2025 permit application. We have no idea how that’s possible or what the implications are.

• We’re now very concerned the work may have been done by unlicensed contractors. The quality of the remodel is far above DIY level. Multiple inspections have failed. And the city may require opening walls or ceilings to inspect beams or structural load paths if they suspect unpermitted framing changes.

• On top of all this, our rate lock expired because they pushed us into signing loan docs under false pretenses. Sellers offered $20k, then $25k, and our agent offered to personally contribute $5k. Total = $30k. When the misrepresentation happened, we countered at $100k. They refused and claimed “city delays aren’t their fault.” They’ve dug in at $30k and clearly do not understand their exposure here.

• Our agent keeps claiming he’s “fighting for us,” but he has minimized every problem and repeatedly sided with the Sellers. It’s obvious he is in self-protection mode—not acting as our fiduciary. We’re considering demanding he step aside so we can bring in a new buyer’s agent (using his commission). We believe we have enormous leverage here due to the misrepresentations, dual-agency conflicts, permit issues, possible unlicensed work, and potential permit fraud. We fully intend to file DRE complaints when this is over. But the Sellers know their greatest leverage is that we love the house and have already invested six months and hundreds of hours plus the wire of our down payment and closing costs.

We still love the house and the location. But we would never have offered $2m if we’d known any of this. So we need to renegotiate or walk away and pursue remedies.

Questions we’re trying to decide:

1. Given everything, is a $30k credit even remotely reasonable? What would be a fair concession?
2. How likely is it that the city will require destructive inspection due to the unpermitted structural/electrical/plumbing work?
3. How serious is the permit being filed under the name of someone who died in 2023? Could this create insurance or resale issues?
4. Should we continue demanding AB 968 disclosures?
5. Should we renegotiate a large credit or walk away entirely and fight for damages?
6. Can we force our agent (the broker) to reassign the buyer commission to a new agent so we have someone independent?
7. How long is reasonable for our money to sit in escrow while the permit drags on?
8. Do we sue them regardless of whether we eventually close and move in or walk away?

TIA!