BROKER RISK MANAGEMENT WEEKLY PRACTICE TIP
Recently, we have dealt with a number of situations involving third parties or family members interfering with the purchase or sale of real estate. The following are some examples and recommendations for handling.
SCENARIO NO. 1: I am a listing agent of a home. The sellers are currently in contract with buyers to sell the property. Their son recently contacted us and advised that they have changed their mind and no longer want to purchase the property. The son has also directed us to only communicate with him and no longer communicate with our clients. How do I handle this situation?
RESPONSE: Unless the son has a legal right to speak for the sellers (i.e.. he becomes the successor trustee if the property is held by a trust or receives a power of attorney), the son has no standing to speak for his parents and you do not need to communicate with him. You may communicate directly with your clients. You should advise your clients that the son is interfering with the transaction and ask if his representations are accurate (i.e., the sellers want to cancel the purchase and sale agreement), recommend that the sellers retain counsel as soon as possible.
SCENARIO NO. 2: I am representing a seller in the sale of his home. The seller is elderly but appears to have no cognitive issues and easily communicates with me. Recently, his daughter contacted me and accused me of manipulating the seller and selling the property for less than fair market value. How should I address this?
RESPONSE: You should not be communicating with the daughter unless the daughter has a legal right to represent the seller or act as the seller in the transaction (see above). You should also discuss the issue directly with the seller. In addition, you should ensure that your file is fully documented, that the sales price is the fair market value. Save your comparative market analysis and MLS listings of comparable properties in your files in the event the issue arises after the close of escrow. Please note it is difficult to recreate comparables after a significant period of time post-close of escrow.
SCENARIO NO. 3: I am representing a seller. The seller’s nephew has represented that he has a power of attorney and advised that the nephew is now acting as the attorney-in-fact (that is, as seller under the POA) in this transaction. How do I proceed?
RESPONSE: Immediately ask for a copy of the power of attorney and send it to the title company as soon as possible for review. The title company will “vet” the power of attorney to see whether the power of attorney is legally effective. If so, then you should work with the nephew. If not, then work with the seller.
SCENARIO NO. 4: I am representing a buyer. The listing agent has advised me that the seller’s sister had advised that the sellers no longer wish to sell the property. How should I proceed?
RESPONSE: Advise the listing agent to immediately address whether the sister has a legal right to interfere with this transaction. If not, the parties can disregard the sister’s comments. However, if the sister becomes the successor trustee or receives a power of attorney, unless it can be proven that the seller lacked mental capacity at the time of signing the trust document, POA, listing agreement and/or the purchase agreement, the sister will be required to respect the terms of the contract. If she interferes with the contract, refer your clients to a qualified California real estate attorney.
PRACTICE TIPS:
- If a third party, whether a friend, child, or relative of your client attempts to intervene in the transaction, you do not have to communicate with them unless they have legal standing, such as a legal power of attorney or became the successor trustee in the case of a trust. Unless this person has such legal standing, you should not provide this person with any information regarding the transaction as it could be considered a breach of your fiduciary duty to your client.
- If a power of attorney is provided to you, immediately send the power of attorney to the title company with which you regularly use to have it reviewed. Title companies will advise you if there is any legal question or concern and whether the power of attorney is legally enforceable.
- If a property is owned by a trust, a power of attorney is generally not legally enforceable as the proper legal mechanism for transferring decision-making abilities is the appointment of a successor trustee. Therefore, if you receive a power of attorney in the case of a property owned by a trust, it is likely invalid. However, you should discuss the issue with your manager and title officer before taking any action.
- If a third party suggests that a party to the transaction, whether a buyer or seller, may not have legal capacity, you should immediately advise your manager, so proper precautions can be undertaken. You should also ask for evidence of any incapacity such as the form of a written medical opinion.
- If you are representing buyers and the sellers, or a third party, indicate that the sellers may seek to cancel the transaction, and if your buyers wish to pursue purchasing the property, refer your buyers to a qualified California real estate attorney to discuss their legal rights to enforce the contract.
This Weekly Practice Tip is 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