Are There Consequences To Helping Out A Client In A Post-Close-Of-Escrow Dispute?
By David Hamerslough
June 30, 2021
Escrow has closed. The buyer, whom you represented, contacts you about an issue or condition in the home (the “problem”) that they just purchased; having discovered this problem, the buyer is upset and asks for your help.
You pull out the disclosures, inspection reports, and other transactional documentation, which you and the buyer review. You and the buyer conclude that the seller failed to make a full and complete disclosure about the problem. Your buyer does not know what to do; you suggest that the seller’s agent should be contacted immediately. Since you want to help your client and you know the seller’s agent, it is decided that you will contact the seller’s agent so as to bring this problem to the seller’s attention and to get the seller to either fix it or pay money to the buyer to do so. Your email to the seller’s agent points out where the seller’s disclosures on this problem were either nonexistent or incomplete. You also point out inconsistencies between the disclosures and the inspection reports.
You also recommend that your client hire a contractor that you know; he inspects the problem and draws conclusions about whether the seller knew about it, how long it may have existed, whether there have been past repairs, what needs to be done to fix it and how much that will cost. In the process of conducting this investigation, the problem is altered from its existing state.
Email exchanges between you and the listing agent do not resolve the problem. Accusations are made by you against the seller and perhaps the listing agent. The seller and their agent deny any wrongdoing and/or they claim that the essential facts regarding the problem were disclosed either by the seller or in an inspection report and it was the responsibility of the buyer (and/or you) to further investigate the disclosed information. After these exchanges, the buyer and seller retain attorneys, and a mediation is scheduled. The buyer asks you to attend the mediation, and you do so. All of this has taken place without you advising your broker or branch manager about the situation and/or retaining a qualified California real estate attorney to represent you. The outcome is unsatisfactory to your client, who now looks to you to pay what the buyer could not recover.
In another common example of this type of situation, the seller (or a tenant) remains in possession following close of escrow pursuant to an agreement between the buyer and seller. The buyer asks you to assist them in managing this occupancy or with getting the seller or tenant evicted, or the seller asks you, if you were acting as the listing agent, to assist them with an issue regarding the disposition of the security deposit. Once again, you want to help your client in resolving this post-close-of-escrow dispute. Emails are exchanged, accusations are made, and defenses are raised; unfortunately, despite the agent’s best efforts, the problem does not get resolved. One of the parties demands mediation or takes the other party to small claims court. Your client asks you to attend the mediation or testify in small claims court. You do so without informing your broker or branch manager or retaining a qualified California real estate attorney. The outcome of the mediation and/or small claims trial is contrary to your client’s expectations. Your client then turns to you and asks how and why this occurred and whether you are going to make up any loss or shortfall.
Real estate licensees are often asked by their clients to get involved in various types of post-close-of-escrow disputes. The natural tendency of most agents is to want to help solve their client’s problems, for any number of reasons. Unfortunately, the agent’s efforts to provide this type of assistance can backfire significantly on the agent. This article examines some of the potential negative consequences of providing help to clients after escrow has closed.
- In most real estate transactions, your agency relationship with your buyer or seller will terminate at the close of escrow as a result of the transfer of title and the payment of the commission. This is true unless there is an express agreement reached between you and your client to continue that agency relationship or unless continuance of the agency relationship can be inferred from the acts and conduct of you and your client. An agent’s participation in a post-close-of-escrow dispute may demonstrate that the agency relationship continues to exist. If an agency relationship continues to exist, then so do all of the agent’s fiduciary, contractual, and ethical duties and obligations. An agency relationship and the accompanying duties that go with it may also continue to exist if there are post-closing obligations related to the sale or such obligations are handled by the agent. Acting as a property manager on behalf of the buyer or seller, either as a result of any oral or written agreements reached as part of the sale or otherwise, is just one example of where this can occur. Another example is when an agent attempts to act as a lawyer for their client by writing claim letters (or preparing responses to claim letters) or as a general contractor in retaining anyone to repair any problems after close of escrow.
- Statements and accusations that are made in an agent’s post-close-of-escrow communications often inadvertently identify potential errors and omissions on the part of that licensee – for instance, accusations made about the quality or completeness of a seller’s disclosure or identifying inconsistencies between the seller’s disclosure and an inspection report may demonstrate where one or both of the agents failed to properly represent their client(s). The argument that lawyers will make is that if the agent could make these assessments after escrow closed, then the agent could have and should have made those assessments and disclosed that information to the clients before escrow closed.
- These situations can be compounded when each agent prepares timelines or summaries or drafts responses to any accusations by attempting to point out what they did or didn’t do, why they did or didn’t do it, etc.. Post-close-of-escrow communications, including those between you and your client – as well as those between you and your broker or the other agent, or even third parties such as inspectors – often contain not only accusations but also assertions as to how and why the other agent failed to perform their fiduciary, contractual, and ethical duties to their clients or to the parties to the transaction. What real estate licensees need to understand is that all of these post-close-of-escrow communications will be admissible in evidence in any arbitration or trial. The upshot is that by writing these communications, you commit yourself and your client to a series of facts, statements, and events that may be used against you and/or your client by a qualified California real estate attorney. This is particularly problematic when an agent sends a “summary of the facts” email to their broker and the agent states that they and/or the other agent could have or should have done something better. Whether the agent’s conclusions are legally or factually correct or not, that type of admission can and will be used against the agent.
- Hiring a contractor to investigate and/or repair any problems can present the following issues for both the agent and the client: (a) whether that “contractor” is qualified to assess and express opinions regarding the issue or condition; (b) whether they adequately documented, photographed, and preserved all evidence of the problem as it existed; (c) whether the contractor or anyone else has prevented the adverse party from inspecting the problem before it is altered; (d) whether that “contractor” will be able to effectively testify in any potential dispute; and (e) if repairs are undertaken at your direction, whether you have then acted as a general contractor.
- Assuming the role of an attorney, advocate, property manager, general contractor, or any other professional raises the following potential issues: (a) whether you are qualified to do so; (b) what duties and responsibilities you have now assumed without realizing it or without having the necessary qualifications or required licenses; (c) where any of those roles or capacities are covered by your E&O insurance; and (d) whether any of the actions you have taken jeopardized coverage for you and/or your broker under an E&O policy.
depending on the facts and circumstances. Real estate licensees need to consider those potential consequences (only some of which have been identified in this article) before investigating their client’s post-close-of-escrow complaints, participating in buyer-seller disputes, or communicating on behalf of a client with regard to any post-close-of-escrow issues.
Often, the best thing that real estate licensees can do for their clients and themselves when problems arise after escrow closes is to call or meet with their manager and/or a qualified California real estate attorney before providing any assistance to their clients. Stopping and asking for assistance to determine the best course of action, without putting anything in writing, can usually prevent even bigger problems for everyone.
There is an old adage that no good deed goes unpunished; in the realm of post-close-of-escrow problems, agents who try to help their clients could well be creating greater problems for themselves and their clients.