The Best of the Legal Hotline: CYA — Call Your Attorney and Cover Your Assets

 Tracy Rucka  |    May 07, 2015

There is a line in the sand between a REALTOR® giving a client or customer general information about the transaction and giving legal advice. Both the law and Code of Ethics prohibit REALTORS® from giving legal advice. When asked to give legal advice, stay on the right side of the fine line and use these three letters: “CYA” or “Call Your Attorney.” 

The secondary benefit, and possibly more familiar value, of “CYA” is “Cover Your Assets.”

What does the seller have to include in the RECR?

The seller’s disclosure responsibility on the Real Estate Condition Report (RECR) is to disclose defects: conditions that would (1) have a significant adverse effect on the value of the property; (2) significantly impair the health or safety of future occupants of the property; or (3) if not repaired, removed or replaced, would significantly shorten or adversely affect the expected normal life of the premises. 

When the seller asks the licensee, “Do I need to disclose ‘X’ on my report?” the right response from the licensee is, “CYA — Call Your Attorney,” because the completion of the seller’s RECR has legal implications, and the licensee should not provide the seller legal advice.

Although the licensee may refer the seller to the definition of defects in the RECR, the licensee must stay on the right side of the line and not complete the RECR for the seller or tell the seller which items to include in the RECR.

Is this a defect? 

Scenario: the parties have an accepted offer with a home inspection and no seller right to cure. After the inspection, if the buyer sends a notice of defects based on defects contained in the home inspection report, will the offer become null and void? 

Although “defect” is a defined term in the offer, the buyer may ask the agent to draft a notice with items that may or may not be defects as defined in the offer. To stay on the right side of the line, the agent working with the buyer may suggest “CYA — Call Your Attorney” to the buyer. Likewise, when the seller receives the notice, the listing broker may recommend “CYA — Call Your Attorney” to the seller if the seller challenges the notice, claiming the items listed by the buyer are not defects. If the parties do not see eye to eye on whether an item in the inspection report is a defect as defined in the offer, the brokers cannot make the determination, and attorneys may need to be consulted to resolve the dispute. 

What if a seller claims to have repaired a defect? 

Whether the seller discloses information about a repaired property condition should also trigger the “CYA — Call Your Attorney” response. While a seller may believe an item that has been repaired is no longer a defect, the buyer's attorney may argue in court that all past and present defects should be revealed. Thus, sellers may benefit from more liability protection in the long run by disclosing in the RECR corrected defects or by explaining the corrective measures taken. But in the end, what needs to be disclosed should be decided by the seller or the seller's attorney — not the agent. 

What is the broker's disclosure duty?

A seller’s disclosures may be questioned by the broker for a variety of reasons. A seller may choose not to disclose defects, may make a partial disclosure, or may make a disclosure based on advice from legal counsel. When a broker believes the seller-provided information is inaccurate, incomplete or inconsistent with the broker’s knowledge and constitutes a material adverse fact or information suggesting a material adverse fact, then the broker has a duty to promptly disclose it in writing. Admittedly the definition of defect — which is the seller’s disclosure standard, and the definition of material adverse fact — the broker’s disclosure standard, are similar. However, in the event of future litigation, the liability for failing to make adequate disclosures rests on the individual who fails to make adequate disclosures. When the broker is concerned about the duty to disclose, it’s time for “CYA — Call Your Attorney” for the broker to seek protection for the broker and firm. Legal counsel for the broker or firm will determine what disclosure the broker makes depending on the broker’s knowledge compared to the content of a seller’s RECR or amended RECR. In this scenario, “CYA — Call Your Attorney” can keep you on the right side of the disclosure line.

Is this a protected buyer? 

The listing contract includes multiple ways for a buyer to become a protected buyer. Buyers are automatically protected if they have submitted a written offer to purchase or negotiated directly with the seller. If a buyer attended an individual showing or negotiated with a broker during the term of the listing, that buyer’s name must be submitted to the seller within three days of the listing expiration to become a protected buyer. The line may not be as clear when a buyer attends an open house and talks exclusively with the listing agent or a buyer makes inquires about the property but has not viewed the property. Per the listing, if the buyer engaged in negotiation, the buyer may be protected by proper delivery of the buyer’s name. Negotiation per the listing can occur when a buyer discusses the potential terms for acquiring an interest in the property.

If a seller asks if any buyers are protected buyers from the previous listing, “CYA — Call Your Attorney” should be the second listing broker’s response. The second broker cannot give the seller legal advice about whether any buyer is a protected buyer for the purposes of any former listing contract. The second broker entering into the listing may refer the seller to legal counsel and the former broker to discuss the protected status of any buyer, explaining to the seller how the seller has seven days from entering into the new listing to provide the new listing broker the list of buyers who will be excluded from the new listing.

Tracy Rucka is Director of Professional Standards and Practices for the WRA.

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