Duties of Brokers and Lawyers under Real Estate Transactions
Duties of Brokers in Real Estate Transactions
1. Duty to Disclose Material Facts
Brokers must disclose all material facts that affect the value or desirability of the property. This includes defects, zoning issues, environmental hazards, liens, or any conditions that could affect the buyer’s decision.
Example: If the property has a history of flooding or structural damage, the broker must inform the buyer.
2. Duty of Loyalty and Fiduciary Duty
Brokers owe their clients (typically the sellers or buyers) a fiduciary duty, meaning they must act in the best interest of their client, putting the client’s interests above their own.
They cannot engage in self-dealing or secretly profit from the transaction without the client’s knowledge.
3. Duty to Account
Brokers must account for all monies received on behalf of their clients. This means they must keep proper records and promptly deliver funds, such as earnest money deposits, to the proper parties.
4. Duty to Use Reasonable Skill and Care
Brokers must act with the skill and care expected of a reasonable real estate professional. This includes properly marketing the property, verifying information, and advising clients correctly.
5. Duty to Present All Offers
All offers received must be presented to the client promptly, regardless of their value or terms.
Duties of Lawyers in Real Estate Transactions
1. Duty to Provide Competent Legal Advice
Lawyers must advise their clients about the legal implications of the transaction, including title issues, contractual obligations, zoning laws, and risk factors.
2. Duty to Conduct Title Search and Ensure Clear Title
Lawyers usually conduct title searches to ensure the property is free from liens or encumbrances, and arrange for title insurance if necessary.
3. Duty to Draft and Review Documents
Lawyers draft or review contracts, deeds, mortgages, and other legal documents to protect their client’s interests and ensure compliance with the law.
4. Duty to Handle Closing and Escrow Properly
Lawyers often coordinate the closing process, ensuring that funds are properly distributed and documents are correctly executed and recorded.
5. Duty of Confidentiality and Loyalty
Lawyers owe their clients confidentiality and must avoid conflicts of interest, representing only one party or obtaining informed consent if representing multiple parties.
Case Law Illustrations
Case 1: Stambovsky v. Ackley, 169 A.D.2d 254 (N.Y. App. Div. 1991)
Issue: Seller failed to disclose that the house was reputed to be haunted.
Holding: The court held that the seller and the broker had a duty to disclose material facts that could affect the value or desirability of the property.
Significance: This case reinforced the broker’s and seller’s duty to disclose material defects or conditions, even if non-physical (e.g., stigma).
Case 2: Johnson v. Davis, 480 So.2d 625 (Fla. 1985)
Issue: Seller falsely denied knowledge of termite infestation.
Holding: The court ruled that the seller (and by extension the broker) had a duty to disclose known material defects.
Significance: Established the principle that silence or concealment of defects constitutes misrepresentation.
Case 3: In re Estate of Wasserman, 554 N.Y.S.2d 949 (Sur. Ct. 1990)
Issue: Lawyer failed to discover a lien on the property during a real estate transaction.
Holding: The lawyer breached the duty of competence and care.
Significance: Highlighted the lawyer’s duty to conduct proper title searches and provide competent advice.
Case 4: Matter of Kerns, 449 N.Y.S.2d 220 (App. Div. 1982)
Issue: Attorney engaged in dual representation without informed consent.
Holding: The court found a breach of the duty of loyalty and imposed sanctions.
Significance: Demonstrated the lawyer’s duty to avoid conflicts of interest and maintain client loyalty.
Summary Table of Duties
| Duty | Broker | Lawyer |
|---|---|---|
| Duty to Disclose | Must disclose material facts | Must advise on legal implications |
| Fiduciary/Loyalty Duty | Act in client’s best interest | Maintain client loyalty and confidentiality |
| Duty to Account | Properly handle client funds | Handle funds at closing properly |
| Reasonable Skill and Care | Exercise due diligence | Conduct title search, review contracts |
| Duty to Present Offers | Present all offers promptly | Draft/review all legal documents |
| Avoid Conflicts | Avoid self-dealing without consent | Avoid dual representation without consent |
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