Ralph's Weekly Legal What-If Scenarios: Contract Addendums - Who Signs What And Why?

Each Monday, I'm going to post a "What If" Scenario that presents a legal issue in a real estate hypothetical situation.

Each Sunday, either the correct legal answer (or most likely legal resolution) to the situation will be posted.

These are great opportunities to keep your real estate legal chops honed and tuned as a real estate professional.  And I'm sure there will be some interesting discussions going on related to these hypothetical situations.  Some of you may also have had identical situations in the past that will bring some interesting light to the answers.

Here is this week's scenario:

Jane is the listing agent, and is representing her seller, Adam, in an escrow.  Steve is the buyer's agent, and he is representing his buyer Carol.

Things are going fairly well with the escrow, and the loan approval took a little longer than expected, thus creating the need to close escrow a few days later than what the contract states.  Carol is using her brother-in-law Derek as the loan broker to obtain the loan.

An addendum is drawn up to extend the closing date out 5 more days than the original contract states.  The addendum is drawn up using ZipForms C.A.R. form ADM (see sample below), and the principles and agents sign the form in the designated signature lines on the addendum.

About a year later, Carol, during her plans to add on a new wing to the home, discovers via her contractor that there was an old underground septic tank that was never disclosed to her by the seller.  The seller was aware of the septic tank, but did not disclose it, not even to Jane his listing agent.

It will cost Carol approximately $20,000 to excavate the septic tank and fill in the soil properly for the type of renovations she is making.

Carol is considering litigation to recover the damages she must pay to remediate the old septic tank.

If Carol decides to file a lawsuit, will anyone be be responsible for the damages?  And if so, why?

(Hint:  The answer may surprise you.....)

Post your definition of what the answer is, and the correct answer along with the relative laws that apply will be posted on Sunday.

Good luck!

 
This post has been included in California Real Estate News Los Angeles County, CA Real Estate News Studio City, CA Real Estate News
Post is included in group: Condo Specialists
Post is included in group: EcoBrokers
Post is included in group: Ralph's "What-If" Legal Scenarios
Post is included in group: Realtors®
Post is included in group: EXPRESS WITH WORDS AT ACTIVERAIN

19 Comments on Ralph's Weekly Legal What-If Scenarios: Contract Addendums - Who Signs What And Why?

JAN
17
2012
264,405 Points 1 Featured Post Outside Blog Called Shot Master

Sounds like a dual agency deal, with side problems, is going to bite the agent in the butt. And it should. Get greedy, double dip, and expose yourself to all sorts of problems.

Was it worth it?
12:56am • #1
939,762 Points 94 Featured Posts Outside Blog Attended Rain Camp

Are you providing all of the details here for us that we need in order to respond? I ask because I am also curious as to what the extension has to do with the other details. How long was the escrow? Was their an inspection? What happened to the 17 day period? Did she waive her right to an inspection? How can you prove that the seller knew that there was a septic? Maybe I am reading too much into it, but I am curious as to the answers to these questions before I move forward. Also, there is a statute of limitations, but since the buyer is only a year into the home, the statute does not apply (to the best of my knowledge.)
11:02am • #2
535,758 Points 71 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

This post made may appreciate two things, 1) that i'm not a lawyer, and 2) I have great E&O insurance.

In Louisiana a failure to disclose is considered fraud. Thus, AS-is, inspections, etc, have no bearing. The Agent would be off the hook (but probably be sued anyway), the seller will declare bankruptcy and move to Mexico, and the buyer will have a spare septic system (non-functioning).
11:21am • #3
784,263 Points 85 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Melissa,

You are reading too much into it.

12:35pm • #4
479,745 Points 22 Featured Posts Outside Blog Called Shot Master

I'm really confused because I think they are two buyers but if Carol is the only buyer than she sues Steve her agent, here in NY if you are a buyers agent, litigation stops at you and your broker.  She also gets a shot at Adam the owner because he did not disclose.
4:08pm • #5
679,430 Points 51 Featured Posts Localism Sponsor Outside Blog Called Shot Master

I'm not sure I"m following where Adam fits in. He and Carol are both Buyers? Steve has a dual relationship with his Seller and his Buyer Carol? Not disclosing is always a lawsuit. The agent usually gets drug into it having knowledge or not. He should be able to be cleared without using his E and O insurance.
4:28pm • #6
784,263 Points 85 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Jane represents the seller.  Steve represents the buyer.
4:58pm • #7
JAN
18
2012
1,156,673 Points 17 Featured Posts Localism Sponsor Attended Rain Camp Called Shot Master

Hello Ralph ... Jon might have the answer and VB is to busy right now to read the whole post, running short on time featuring posts like your ...

I will come back and look at the answers later, until then your post has been featured at one of my favorite groups at AR ...

EXPRESS WITH WORDS AT ACTIVERAIN


  
Bgpic09212009022557_l
1:25am • #8
JAN
19
2012
515,813 Points 5 Featured Posts Outside Blog Called Shot Master

Ralph,

I would think that the Seller for sure would have some blame for now disclosing it.  As agents we are not required to do more than a visual inspection and it doesn't sound like they would have know otherwise without digging around manually.

Carol might have some responsibility in that if she released inspection contingencies but not sure if that is negated by the seller's lack of discloure.

Tough one! 
8:32pm • #9
JAN
22
2012
784,263 Points 85 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

OK.

Here's the answer to this weeks' legal scenario.

The parties that may be responsible for damages if the buyer pursues litigation are the seller AND the listing agent AND the buyer's agent.

Why? Not because someone is suit happy and wants to name everyone they can in a lawsuit.  Because they all signed an addendum to the contract!

It doesn't matter what kind of addendum the agents sign, once they sign an addendum to the contract, that makes them a party to contract.

This week's lesson:  AS AN AGENT, DO NOT SIGN ADDENDUMS TO THE CONTRACT.  Even if there is a signature line, do not sign addendums to the contract.

If there is an issue that needs to be addressed between buyer and seller, find the appropriate form for that with signature lines for buyer and seller only.  Most of the time, there is already a pre-existing form for that so that you do not need to use an addendum that requires a broker's signature.
7:12pm • #10
133,242 Points Outside Blog Attended Rain Camp

Excellent, I am on the East Coast half way between Cape Cod and Boston and I always say to agents if there is a line for the Broker to sign that does not mean the realtor involved in the sale, bring it to me first before any signatures are initiated!  Cant wait for next weeks!
8:03pm • #11
515,813 Points 5 Featured Posts Outside Blog Called Shot Master

Wow Ralph!  I have never heard of that before but will not forget it now!  Thanks so much for the heads up!!!

 

Have a great week! 
10:16pm • #12
JAN
24
2012
1,908,368 Points 384 Featured Posts Localism Sponsor Outside Blog Attended Rain Camp Called Shot Master

Ralph, this is a great series.  And my guess is there is a different answer for each jurisdiction. 

In DC, the seller would be on the hook, but our local laws pretty much releive the agents of responsiblity for non disclosure - unless they knew.

In Virginia, you don't even have to disclose. And the agents are also held blameless unless they knew about the defect or condition. 

Which makes me glad I'm not a lawyer and have a great one I can refer my clients to for stuff like this.

 
1:38pm • #13
795,134 Points 80 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Ralph, i think this series will educate many of us...i have seen agents get sued even if they don't know about it..so the litigator doesn't win against them but they are out $5 k in legal expenses...thanks!
5:52pm • #14
JAN
29
2012
1,908,368 Points 384 Featured Posts Localism Sponsor Outside Blog Attended Rain Camp Called Shot Master

Hey, Ralph! 

I included this post in Last Week's Favorites.  Have a great week.
8:53pm • #15
239,242 Points Outside Blog

Ralph, I also never hear of that before but will also not forget the lesson.
9:57pm • #16
JAN
30
2012
177,169 Points 7 Featured Posts Called Shot Master

And this is a good reason to have insurance over the regularly required E&O insurance. Isn't this litigious world great! Maybe if you are a lawyer!
2:18am • #17
299,908 Points 7 Featured Posts Outside Blog Attended Rain Camp

This is very interesting. I signed an addendum just last week. What if the buyer and seller signed it and not the agents?
11:18am • #18
FEB
04
2012
784,263 Points 85 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

Sandy,

The binding agreement would be between buyer and seller, which is how it should be.  Your signature as a broker is not necessary even though there is a signature line.

For example, we can put a signature line on there for the President of the United States to sign, but that doesn't make it necessary for him (or her) to sign to make the document binding.

Also, the only time you want to sign an addendum, specifically form ADM as I have given an example of above, is when it accompanies the listing agreement if you are making special terms as part of your listing agreement.

Other than that, DO NOT SIGN this form if it pertains to terms having to do with the contract between buyer and seller.
10:20am • #19

Login or register to leave a comment