Q: My Seller closed escrow two months ago. The Buyer’s Agent just sent me an email claiming that the Buyer discovered defects in the home that were not disclosed by the Seller. The Buyer believes the Seller must have known of the defects and, since the defects were not disclosed, the Seller must fix the problems. The Buyer’s Agent has told me that “we” need to get this matter resolved to the Buyer’s satisfaction. What should I tell the Seller? What should I be doing to handle this claim?
A: Sadly, this is not an uncommon occurrence. When Buyers find any problems, defects or damage (“damage”) after escrow closes and they believe that the Seller or anyone else is liable for the damage this is a claim, the Agents are often asked to help the clients resolve the claim but please note: Agents are not qualified to handle post-close of escrow claims. These are legal matters that should be handled by the clients (and/or their qualified California real estate attorney).
If the damage is relatively minor; for example, within the $10,000 limit of Small Claims Court (“SCC”) jurisdiction for individual plaintiffs ($5,000 for all entities), then the Parties may not wish to hire an attorney and only go to SCC where attorneys are not allowed. (The Purchase Agreement states that claims within the jurisdictional limits of SCC are exempt from the obligation to mediate and/or arbitrate.) Real Estate Agents cannot represent the Parties in SCC actions.
However big or small the Buyer’s claim may be, the best practice is for the Seller’s Agent to always recommend that the Seller consult with a qualified California real estate attorney (“QCREA”) to ascertain all of the Seller’s duties, responsibilities, and options. Determining who is and who is not responsible for any post-close of escrow claim is a legal determination that should only be made by a QCREA.
In some cases, what appears to be relatively minor damage could, in fact, be much greater once the defective areas are opened up. This is particularly true if the claim involves water intrusion, mold, settlement and/or foundation issues which often involve significant repairs and costs. Thus, only the QCREA should decide how to handle the claim.
The Seller may ask you to write a response to the Buyer or the Buyer’s Agent. You have no legal obligation to do so, and the best practice is to not write such a letter. Tell your Seller to write their own letter and, at best, you can transmit it to the Buyer’s Agent, but only if the Seller insists upon using the Agents to deliver the communications. The better practice is to have the Seller and Buyer communicate with each other directly without the Agents. Follow these guidelines:
- Advise your Sellers that they should discuss the claim with a qualified California real estate attorney regarding the extent of damages, whether they have potential liability and the potential expense in fighting the Buyer’s claims (including attorneys’ fees and costs). If the Sellers cannot write their own response, then they should have their QCREA do so; regardless of how much you want to help the Sellers, the best help that they can receive is really from their own QCREA.
- Keep in mind that the agency relationship terminates as a matter of law when escrow closes. You are not the Seller’s Agent after escrow closes and you should not take on any new duties such as being the Seller’s legal advisor.
- Writing a response to a claim is actually providing legal services for the client and that could mean that you are acting outside of your agency duties and responsibilities; you are potentially violating the law by providing legal services without a license to practice law. Worse, you may inadvertently create liability for yourself depending upon how you write the response. Thus, you should not respond on behalf of the Seller regardless of what the Seller wants.
- You should not make any effort to draft any letter if it was a dual agency transaction; this could be viewed as “taking sides” and acting against your own client.
The Seller may ask you to help them commence mediation. Mediation is a legal proceeding that is best handled by attorneys. It is not your responsibility to initiate mediation, nor should you do so.
The clients’ attorney should choose the mediator but IF the clients want a referral to a mediation service, they can consider using the C.A.R. “Real Estate Mediation Center for Consumers.” The website is: www.consumermediation.org Some experienced mediators have signed up to be mediators through that service. They are required to provide a discounted fee for the first hour of their services but in some geographical areas there are not many qualified mediators to choose from. Buyers and Sellers can go to that website and fill out a request for mediation. CAR staff can then assist the principals in setting up the mediation, but the real estate licensees should not be involved in that process.
PRACTICE TIPS:
- It is important to know that you have no legal obligation to assist your Seller in fighting or resolving any post-close of escrow claims raised by the Buyer; it is in the Seller’s best interests to get the right advice from their own qualified California real estate attorney. One way to document that you have provided your Seller with the right advice is to use the separately attached Advisory for Sellers Who Receive a Claim from the Buyer After Escrow Closes (which has as its subtitle Why Sellers Need to Retain a Qualified California Real Estate Attorney).
- Do not give legal advice. Do not give any opinions or make any assumptions about who is liable, the amount of damages, or what action the client should take. All of these issues involve making legal determinations and thus should be left to the Seller to determine, preferably in consultation with the Seller’s own qualified California real estate attorney.
- You should not assist your Seller in any way without first obtaining the approval and permission of your Broker or Manager (preferably in consultation with your brokerage counsel). This includes, but is not limited to, preparing summaries of events, preparing timelines, providing transaction documents, or providing any other material, or signing any statements.
- Regardless of the explanation given, do not meet with the Seller’s attorney to discuss anything. The Seller’s attorney is not your attorney and may attempt to get you to admit wrongdoing. The fact is you are a potential target.
- Especially in dual agency situations, it is important to remain neutral; do not take sides or decide who is right and wrong. Do not send any type of communication in which you refer to “my buyer” or “your seller” since these possessive pronouns evidence a bias in favor of one party over the other.
- If the Parties agree to mediate, do not attend without authorization from your Broker in consultation with brokerage counsel. Regardless of why a client asks an Agent to be there (“they just want me there for moral support”), anyone who attends a mediation is an automatic target and can be asked to pay money to resolve the dispute.
- Do not agree to attend a deposition, meeting, or hearing. Consult with your brokerage attorney as to how to proceed.
- If you receive a summons, a subpoena, a request from anyone, even the DRE, to sign any declarations or official documents, a request to participate in any legal proceeding, a claim letter of any kind or any oral communication from any person or their attorney regarding a transaction, immediately deliver that communication to your Broker/Manager who will consult with legal counsel regarding the next best steps. Then, do not discuss the matter with anyone else.
For a discussion of handling the post-close of escrow Buyer claims as a Buyer’s Agent, see Weekly Practice Tip: “180914 Post Close of Escrow Buyer Claims.”
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip Practice Tip 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.
Copyright Broker Risk Management 2021 08/27/2021
ADVISORY FOLLOWS BELOW:
(Insert Broker Name)
Advisory for Sellers Who Receive a Claim from the Buyer After Escrow Closes
Why Sellers Need to Retain a Qualified California Real Estate Attorney
This Advisory is designed to provide practical guidance to Sellers who, after the Close of Escrow, receive a claim that the Buyer has discovered problems, defects or damage (“damage”) in the Property. This claim can be in the form of a letter or email from the Buyer, their agent or their attorney. If you are advised that the Buyer is making a claim against you, then you need to consult with a qualified California real estate attorney for legal advice. Claims are legal matters and real estate agents cannot give you legal advice regarding how to handle the Buyer’s claim(s), nor are they licensed or qualified to negotiate with the Buyer to resolve the claim on your behalf.
Whether or not you retain legal counsel, there are some practical steps that you may want to consider:
- Attempt to determine the nature, extent and scope of the damage by asking the Buyer for any pictures or documents that they have which summarize the problem(s) and find out if the Buyer has obtained any estimates for the cost of repair; and
- Review the transaction documents including all of the disclosures, reports and advisories that were provided to the Buyer to refresh your recollections as to what the Buyer was told about the Property when you sold it.
Once you have determined the extent of the damage and the cost to remedy it, you need to assess what you are willing to do to in response to the Buyer’s claim. It is up to you to determine whether or not to work with the Buyer to resolve the matter or to fight the claim. It is not necessary for your communications with the Buyer to be passed through the Brokers – it is best for you to work directly with the Buyer or you can retain a qualified California real estate attorney to respond to the Buyer. If you do resolve the matter with the Buyer through informal efforts, you should consult with your own attorney to draft a formal Settlement and Release Agreement so as to make it clear that any payment from you to the Buyer releases you from any further liability for the Buyer’s claims.
A. SMALL CLAIMS COURT (“SCC”) is an option if the damage is relatively minor; for example, if it is within the $10,000 jurisdiction limit of Small Claims Court for individual plaintiffs ($5,000 for all entities). If the Buyer chooses this option, then you may not wish to hire an attorney since you can represent yourself in SCC. Note that that the Purchase Agreement excludes claims within the jurisdiction of SCC from any obligation to mediate and/or arbitrate and please understand that neither attorneys nor real estate agents can represent you in Small Claim Court actions.
Even if the Buyer files a claim in SCC, it is still recommended that you initially consult with a qualified California real estate attorney to obtain legal advice as to all of your options. In some cases, what appears to be relatively minor damage could, in fact, be much greater once the defective areas are opened up and/or other damage is discovered. Your attorney can help guide you on several issues including, but not limited to, who are the right parties to include in the action and whether or not you should write any type of response letter to the Buyer. If you choose not to hire an attorney, you can write a response letter to the Buyer and/or anyone else who you feel may be liable, setting forth your position on the issues. If the matter cannot be resolved through informal negotiations, the next step would be for one of the Parties to file an action in SCC if the damages are relatively minor. For a guide on the SCC, go to: http://www.dca.ca.gov/publications/small_claims
B. HIRING AN ATTORNEY: If you decide to hire an attorney, make certain that the attorney is a qualified California real estate attorney so that you get the best advice on how to proceed. If the amount being claimed is greater than $10,000, mediation is the next step required by the real estate purchase agreement. At your first consultation with your attorney, you should discuss the cost of fighting a claim (attorney fees and other costs) in relation to the anticipated outcome as well as the amount of time involved in fighting such claims. Many but not all claims settle and it is important to consider a cost-benefit analysis of fighting claims beyond SCC or mediation.
REAL ESTATE AGENTS ARE NOT QUALIFIED TO GIVE LEGAL ADVICE.
SELLER ACKNOWLEDGES THAT HE/SHE WILL SOLELY RELY ON THEIR OWN QUALIFIED CALIFORNIA REAL ESTATE ATTORNEY FOR LEGAL ADVICE.
I acknowledge receipt of this Advisory:
Seller: ______________________________________ Date: _____________________
Seller: ______________________________________ Date: _____________________