BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
CHALLENGES OF HANDLING CLIENT ISSUES AND CONCERNS POST CLOSE OF ESCROW
A significant challenge real estate agents face is whether to assist clients after escrow closes. Many times, after clients purchase a property, issues arise with that property. For example, appliances may not work, the seller may discover non-disclosures by the seller, or other issues can arise.
Agents are challenged by whether to assist those clients post close of escrow. On the one hand, agents want to assist their clients post close of escrow as the best source of new business is existing “happy” clients and referrals. On the other hand, agents’ legal duties terminate upon the close of escrow. Therefore, agents are not legally obligated to assist their clients with issues after escrow closes. If agents choose to cross the line and assist their clients post close of escrow, in many instances, agents are unnecessarily creating legal liability for themselves.
Agents need to be extremely cautious when assisting clients post close of escrow. The following addresses scenarios and provides guidance as to when an agent can provide assistance post close of escrow and when an agent should not.
The law is clear that an agency relationship terminates upon conclusion of the purpose of the agency. Therefore, if an agent is representing a client in the purchase or sale of real estate, the agency relationship and all duties affiliated with that relationship terminate upon the close of escrow. If an agent is assisting a client with facilitating a lease, once the lease is signed, the agent’s duties generally end.
SCENARIO NO. 1: I represented a buyer in the buyer’s purchase of the property. After the close of escrow, the buyer learned that the seller had made improvements to the property without permits. The buyer has now retained an attorney. The attorney is requesting my file. I feel an obligation to assist my client. What do I do?
RESPONSE: Immediately consult with your manager regarding the handling of this matter. Under no circumstances should you be communicating with the attorney. If the attorney contacts you, please advise the attorney that your office is represented by counsel. Your manager can call Broker Risk Management to address the issues and what to provide the buyer or the buyer’s attorney, if anything. The danger of communicating with the attorney or providing documents is that you may say or provide a document which could lead to you being included as a defendant in any claim asserted by the buyer. In these circumstances, it is best to insulate you and allow your company’s legal counsel to assist. Moreover, the buyer’s attorney will be more cautious in dealing with your attorney versus dealing with you directly.
SCENARIO NO. 2: I represented a seller in a transaction. Escrow has closed and the buyer is now asserting that the seller failed to make disclosures regarding a property. The seller asked me to look on the Multiple Listing Service and provide all historical disclosures I could locate. I did that. Now the seller’s attorney is contacting me requesting additional information. How should I proceed?
RESPONSE: As indicated above, do not contact the seller’s attorney. When the seller asked for historical records, you should have immediately contacted your broker or manager. By providing those records now, post close of escrow, an issue has arisen as to why those records were not obtained and provided prior to the close of escrow. The seller likely did not have access to them, but the agents did. Agents have a duty, at the beginning of the listing, to check prior MLS listings and provide any updated disclosures in those listings and to ensure there are no inconsistencies. By producing those records now, an issue has arisen as to why the records were not provided in the past. The seller’s attorney may now include you in this dispute, arguing that you should have provided the records as part of the transaction which would have avoided the buyer’s claims. At this point, this matter should be referred to your manager and then to your company’s attorney to address the issue.
SCENARIO NO. 3: I represented a buyer in a transaction and the escrow has closed. The buyer is proceeding to mediation claiming that there were non-disclosures by the seller. The buyer has advised me that the buyer is not asserting a claim against me or my broker, but needs me at the mediation as a witness to attest to factual issues. How should I proceed?
RESONSE: Immediately discuss this matter with your manager, who can discuss it with Broker Risk Management. There is no such thing as having a “witness” at mediation. The company attorney can decide whether to participate in mediation or not. Please note that by receiving notice of this dispute, arguably, an obligation to notify your company’s E&O insurance company has arisen. If that does not occur, you could be jeopardizing insurance coverage.
SCENARIO NO. 4: I represented a buyer in the sale of a property. After the close of escrow, the buyer contacted me and advised that the neighbor next door has been harassing him. The buyer asked me to visit the property and speak with the neighbor. What should I do?
RESPONSE: Please consult with your manager, but you should not be visiting the property to address an issue with the neighbor post close of escrow. You should refer your client to a qualified California real estate attorney.
PRACTICE TIPS:
- If an attorney contacts you, do not communicate with the attorney. Specifically, do NOT: 1) meet with the attorney; 2) provide that attorney with any documents; 3) provide a chronology of events; and 4) sign anything such as an affidavit. Advise the attorney that you are represented and that your company counsel will be contacting the attorney. Immediately report the communication to your manager.
- If your client contacts you post close of escrow, do not immediately attempt to assist. Consult with your manager as to how to best address the situation. There are means of assisting a client without jeopardizing you and your company.
- If your client contacts you and requests that you participate in mediation as a “witness,” immediately consult with your manager, who can consult with your company counsel as to whether to participate and evaluate whether to involve your insurance company.
This Weekly Practice Tip an attorney-client privileged document and is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.