BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Unauthorized Practice of Law:
Answering Clients' Questions
Q: You get them all the time. You know, the questions from your buyers and sellers asking you basically for legal advice. You want to help your client, but you know you can’t cross the line and risk being accused of “practicing law.” Yet, you don’t want to do nothing, and look like you aren’t willing to help.
These questions come up because clients want to know:
1. Do we have a contract?
2. Is the other party in breach?
3. Can I cancel the contract?
4. If I cancel, can I get my deposit back?
5. If buyer cancels, can I keep the deposit?
6. Who can I sue to recover my damages?
7. Do you think that they are liable for my damages?
8. Was the other agent negligent in her disclosures?
Is there a way to answer those questions without crossing the line of “practicing law?”
A: Yes, there IS a way to answer the above questions, without crossing that line.
It is understandable that those legal-type of questions come up frequently. Real estate transactions are conducted on written contracts. So there is contract law.
Sellers and buyers are represented by agents. So there is agency law, and the specific agency rules (disclosure and confirmation) for real estate.
Brokers and agents are fiduciaries of their clients. So there are the laws related to fiduciaries.
The law requires sellers and agents to make disclosures. So there are various disclosure laws.
Brokers and agents are regulated by the Department of Real Estate and numerous federal laws and regulations. So there is regulatory law.
In addition, the NAR Code of Ethics provides:
“REALTORS® shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it.” Article 13
“REALTORS® shall recommend that sellers/landlords obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract or lease. Standard of Practice 1-7
REALTORS®, acting as agents or brokers of buyers/tenants, shall recommend that buyers/tenants obtain the advice of legal counsel if there is a question as to whether a pre-existing contract has been terminated. Standard of Practice 1-8.
So, how to answer those questions without getting into trouble?
PRACTICE TIPS:
1. In many cases you may have a fair idea how a client could proceed (based on past experience, or after reviewing one of our Weekly Practice Tips or a CAR Legal Memo) and want to be helpful, so the conversation with your client has THREE PARTS, and parts one and three are the same:
PART 1: “I am not an attorney and can’t give you legal advice, but my understanding based on my experience as a broker is …..” (Do NOT use the word “opinion” since that has a stronger connotation.)
PART 2: State your understanding.
PART 3: “But that is not legal advice. The only person who can truly give you the best answer is a qualified California real estate attorney (or tax advisor, etc.). So, I recommend that you ask that question of your attorney (or tax advisor, etc.).
2. Follow this up with an e-mail or other written communication:
“This is to confirm our conversation of today wherein you asked me. . . . .
I told you that, while I am not an attorney and cannot give you legal advice, my understanding based on my experience as a broker is. . . . .
But, this is not legal advice and I recommend that you consult with a good real estate attorney (tax advisor) for an answer to your question before proceeding to”. . . . .
3. DUAL AGENCY: Be particularly careful if your brokerage is a dual agent (you and any agent in your firm). In those cases, you may not make any statements disparaging, or against the interests of, a seller or buyer represented by your brokerage.
See Weekly Practice Tip: “Dual Agency Issues”
4. Do not tell your client: “I talked to our company attorney, and he says that you should. . . . . ”
5. While Bill Jansen is the attorney for your brokerage, he is not your client’s attorney and is not permitted to give legal advice to sellers or buyers, landlords or tenants.
6. Do not forward Weekly Practice Tips to your clients for the same reason as above.
7. SET EXPECTATIONS EARLY: At the beginning of your relationship with your seller or buyer, let them know that they will be hiring professionals during the process to help facilitate the transaction, such as inspectors, engineers, tax advisors, loan officers and escrow officers. One of those professionals may well be an attorney
8. Tell the seller and/or buyer that you are not competent to interpret legal documents, public records, the effect of law suits, or otherwise get into activity which would constitute legal advice.
9. Because a real estate sale or purchase is often the largest transaction in the life of most buyers and sellers, it is important to do things right. The few hundreds, or even thousands, of dollars that may be spent on an attorney during escrow can save tens of thousands later. (penny-wise versus pound-foolish).
10. The belief expressed by many veteran agents is that,“Attorneys are deal breakers.”
But consider: when a matter involving some complexity or legal issue is involved, a frequent question asked of agent-defendants in lawsuits during trial is: “Did you recommend that your client consult an attorney on this issue?” The wrong answer to that question has spelled trouble for many an agent.
11. As deals get more complicated, and the market for properties more competitive, referring your buyer or seller to a qualified California real estate attorney at the appropriate time can prevent a lawsuit later. Setting client expectations from the outset that this may happen will make your clients more amenable to that suggestion when the time comes.
For more information see Weekly Practice Tip:
“Unauthorized Practice of Law – Drafting Contract Addenda and Counter-Offers”
DO NOT FORWARD TO CLIENTS. This Weekly 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.