Even experienced Realtors are sometimes caught practicing law without a license. Florida attorney Hank Sorenson describes a case where the broker would have been better off spending $75 getting an attorney's advice than supplying his own addendum to a contract.

"The buyer entered into a preoccupancy agreement with the seller for about a month before closing because the seller was in a foreclosure scenario," recalls Sorenson. "The cost of the house was about $225,000 and the listing broker had supplied the parties with a one-paragraph preoccupancy addendum to the sale contract, and the seller and buyer signed off."

The broker included a sentence which said, "If for any reason the buyer fails to close in a timely manner, the security deposit is forfeited to the seller."

"Two days prior to closing," continues Sorenson, "the seller's parents filed a lien against the property, because they had supplied funds for improvements to the property and had never been paid back. Under the terms of the contract, the seller had 30 days to clear title, so if he can't pay the mortgage what were the chances he paid off the parents?"

Meanwhile the buyer is in the property and his property is still listed for sale. The buyer decides that he is able to get out of the contract, and he asks for his escrow deposit from the sales contract. The seller says fine, but the seller has an attorney assisting him in the foreclosing proceeding. The attorney looks at the addendum, and tells the seller not to give the buyer's deposit back.

The buyer called Sorenson. Sorenson reviewed the contract and the addendum written by the real estate broker.

"I know what the broker intended to say in the addendum, but that isn't what it says," says Sorenson. "The 'if for any reason' doesn' t exclude the circumstance that the seller can't convey title."

This is a mistake a first-year attorney would have been able to spot, says Sorenson. "The buyer says to me that his selling agent was protecting him by reviewing this preoccupancy agreement. I told him if that is your friend, I don't want to meet your enemy. This was glossed over by the Realtors because they both thought the contract would close."

The buyer was out moving costs because he had moved stuff from his other property, notes Sorenson, and he's out the $1,500 security deposit on the lease.

"He also has a six-year-old daughter who has to move again after thinking she has a new room and now she has to go back to the old house," says Sorenson, "you shouldn't do that kind of stuff to kids."

In this case, an once of prevention was worth a pound of cure.

"Pay the attorney $75 bucks to review the contract, that sure would have been worth the money. Not having an attorney review it, cost the buyer a lot, but it also cost the broker a closing," suggests Sorenson.

"Not every contract needs an attorney," advises Sorenson. "It is when Realtors go outside of the normal contract provisions that an attorney should be called and when they venture into the land of specialized addenda. Florida has forms for every conceivable addenda, and this wasn't a form used by the Florida Association of Realtors. It was drafted by the broker. It was one paragraph - it had nothing about the seller maintaining insurance, or any default provisions on either side, and it was thrown together in a haphazard way. If it is worth doing, it is worth doing right. It had none of the usual protections of a lease document."

Does the buyer have a chance at any recovery? "I told him he would be throwing good money after bad," replies Sorenson. "I could spend that getting your $1,500 back. There are times you need to cut your losses, and this might be one of them."

What about pursuit of indemnity against the selling broker who read the contract and advised his buyer that it was OK? "I don't know if there was a pursuit of indemnity against the brokers," says Sorenson. "I would say he has a good claim for negligence. That was a horrible addendum. Even though the broker is presumed to be a transaction broker, they still have a duty of fair dealing. There are some duties spelled out - skill, care and diligence, and there wasn't much skill exercised here."

Would the buyer pursue a competency claim against the brokers? "If the selling broker had properly read through the addendum, there is not a doubt that the buyer would never have agreed to it," says Sorenson. "Did the broker understand the full import? But it doesn't help this guy. In my opinion, the listing broker is at fault due to the overreaching nature of the addendum, and the buyer's broker had a duty to protect his client. The listing broker doesn't understand what he drafted, but two attorneys would understand."

The buyer ultimately decided to wash his hands of the matter, reports Sorenson. "All I know is that he is going to a different broker," says Sorenson.

Published: December 19, 2003

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