Don’t get sued by Uncle Joe!

August 1, 2006

It’s natural to want to help your friends and relatives buy or sell a home. But just because you’re close doesn’t mean that you can take any shortcuts in the sales process. A transaction for a friend or relative requires the same care that you’d give any other deal. Just consider this true story.

A real estate sales associate’s nephew and his wife were about to buy a home. They were interested in a community about 30 miles from where the sales associate lives and sells real estate. They knew she would be hurt if they didn’t ask for her help, and she agreed to represent them. The MLS in which the associate participated allowed her to search for property listings well outside of her familiar work area, and she found a townhouse in a development that sounded wonderful. Her nephew and his wife loved the place, made a deal, and moved in. Sometime after the purchase, the associate realized she hadn’t heard from her nephew in awhile. When she did hear from him, it wasn’t what she expected. Instead of a thank-you, she received a subpoena. Her nephew sued her along with the seller and listing agent for mold problems with the house and won judgments from the seller, the listing agent, and his aunt. (Mertens v. Andrews, No. PC028564V, Cal. Super. Ct., 2002)

This type of scenario happens more frequently than you’d like to believe. If a relative asks for your professional help, it’s important to watch for and avoid these mistakes.

  • Sell only what you know. The aunt in this story erred by selling in unfamiliar territory. Big mistake. Earlier home owners in the development had sued the builder in a class-action lawsuit and received funds in a settlement to repair leaking windows, poor yard drainage, and resulting mold problems. But because the salesperson wasn’t familiar with the area, she wasn’t aware of the problems. And the seller hadn’t made the necessary repairs or even disclosed the prior class-action lawsuit to the agent or her nephew. As soon as it started to rain, the nephew knew he had a problem. In this case, the aunt could have avoided the problem by referring her nephew to a sales associate familiar with the area.
  • Don’t forget to exercise the same duty of care for your relative as you would for any other client. For example, that duty of care may require that you do extra work on behalf of your relative, such as researching an unknown neighborhood. Yes, the seller should have disclosed the problems with the property, but the aunt failed to learn about the material facts in a development that was unfamiliar to her.
  • Don’t expect the courts will believe you don’t have visual knowledge and information about a relative’s property that you’ve visited many times. In another case, a real estate broker listed his mother-in-law’s property and represented the buyer as a dual agent. The buyer sued when extensive mold damage was discovered in the house. The broker conceded that he’d been in the house some 120 times over 20 years but said he hadn’t seen the mold. The mother-in-law claimed the house, in which she’d lived for 54 years, had no defects.
    Apparently disregarding the testimony by the broker and the seller, the court held the broker, who had sold real estate for more than 20 years, liable and ordered the broker and the seller to pay the buyer $135,000, plus legal fees. Because court awards or financial settlements related to mold damage are no longer covered by most errors & omissions carriers, the broker and his mother-in-law had to pay the award. (Bailey v. Christensen, No. 1090213, Cal. Super. Ct., 2005)
  • Don’t hesitate to make the same recommendations that good professional practice would normally dictate. In yet another case, a husband and wife hired the wife’s sister to represent them in a property purchase. The sales associate was reluctant to insist on appropriate inspections when she encountered some resistance from her brother-in-law. Later the property was found to have water intrusion and defects in the stucco. The case was settled out of court in favor of the husband and wife. (Arjmand v. Porter, No. BC276854, Cal. Super. Ct., 2005)

No one wants to be in a lawsuit, especially with the people who matter most in our lives. The resulting family discord may linger long after the lawsuit is ended, and that’s certainly more expensive than a lost commission.

3 More tips to avoid family lawsuits

  1. Don’t hesitate to advise friends or relatives to drop out of a transaction if something doesn’t seem right. They may be disappointed, but it’s better than being named in a lawsuit later.
  2. Don’t assume more knowledge on the part of your close friend or relative in buying or selling than you would for any other client.
  3. Don’t be intimidated by the friend or relative who doesn’t want you to disclose defects you know about.

Barbara Nichols of Nichols Real Estate & General Contracting is a broker, contractor, expert witness, and author of “The No Lawsuit Guide to Real Estate Transactions.” She can be reached at 310-273-6369 or at www.barbaranichols.net.

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