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

By
Real Estate Agent with John Aaroe Group BRE #01708344
http://actvra.in/rnD

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!

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Topic:
ActiveRain Community
Location:
California Los Angeles County Studio City
Groups:
Condo Specialists
EcoBrokers
Ralph's "What-If" Legal Scenarios
Realtors®
EXPRESS WITH WORDS AT ACTIVERAIN
Tags:
ralph gorgoglione
contract addendums
real estate law

Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the flag to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Show All Comments
Rainmaker
323,024
Jon Quist
LONG REALTY - Tucson, AZ
Tucson's BUYERS ONLY Realtor since 1996

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?

Jan 17, 2012 12:56 AM #1
Ambassador
1,094,017
Melissa Zavala
Broadpoint Properties - Escondido, CA
Broker, Escondido Real Estate, San Diego County

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.)

Jan 17, 2012 11:02 AM #2
Ambassador
628,544
Doug Rogers
Bayou Properties Realty - Pineville, LA
Your Pineville Louisiana Agent

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).

Jan 17, 2012 11:21 AM #3
Ambassador
925,122
Ralph Gorgoglione
John Aaroe Group - Los Angeles, CA
California Real Estate (800) 591-6121

Melissa,

You are reading too much into it.

Jan 17, 2012 12:35 PM #4
Rainmaker
639,088
Liz Wallace
Century 21 Sherlock Homes - Rockville Centre, NY
Broker C21 Sherlock Homes, Rockville Centre, LI, N

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.

Jan 17, 2012 04:08 PM #5
Ambassador
838,940
Connie Harvey
Pilkerton Realtors - Brentwood, TN
Realtor - Nashville TN Real Estate

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.

Jan 17, 2012 04:28 PM #6
Ambassador
925,122
Ralph Gorgoglione
John Aaroe Group - Los Angeles, CA
California Real Estate (800) 591-6121

Jane represents the seller.  Steve represents the buyer.

Jan 17, 2012 04:58 PM #7
Ambassador
1,317,977
Robert (Vegas Bob) Swetz
REALTY ONE GROUP - LAS VEGAS, NEVADA 702.443.7156 - Las Vegas, NV
Commercial & Residential Real Estate Agent

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
Jan 18, 2012 01:25 AM #8
Rainmaker
579,028
DeeDee Riley
Lyon Real Estate - El Dorado Hills CA - El Dorado Hills, CA
Realtor - El Dorado Hills & the Surrounding Areas

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! 

Jan 19, 2012 08:32 PM #9
Ambassador
925,122
Ralph Gorgoglione
John Aaroe Group - Los Angeles, CA
California Real Estate (800) 591-6121

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.

Jan 22, 2012 07:12 PM #10
Rainmaker
177,868
MaryBeth Mills Muldowney
TradeWinds Realty Group LLC - Norwell, MA
Massachusetts Broker Owner

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!

Jan 22, 2012 08:03 PM #11
Rainmaker
579,028
DeeDee Riley
Lyon Real Estate - El Dorado Hills CA - El Dorado Hills, CA
Realtor - El Dorado Hills & the Surrounding Areas

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! 

Jan 22, 2012 10:16 PM #12
Ambassador
2,394,035
Patricia Kennedy
Evers & Company Real Estate, Inc. - Washington, DC
For Your Home in the Capital

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.

 

Jan 24, 2012 01:38 PM #13
Rainmaker
1,074,600
Ginny Gorman
Phillips Post Road Realty ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

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!

Jan 24, 2012 05:52 PM #14
Ambassador
2,394,035
Patricia Kennedy
Evers & Company Real Estate, Inc. - Washington, DC
For Your Home in the Capital

Hey, Ralph! 

I included this post in Last Week's Favorites.  Have a great week.

Jan 29, 2012 08:53 PM #15
Rainmaker
258,952
Steve Warrene
Keller Williams Realty - Cranberry Township, PA
The Warrene Team - Your Pittsburgh Professionals

Ralph, I also never hear of that before but will also not forget the lesson.

Jan 29, 2012 09:57 PM #16
Rainer
177,469
Rosalie Evans
Meritus Group Real Estate - Sioux Falls, SD
The Evans Group, Sioux Falls, SD Homes For Sale

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!

Jan 30, 2012 02:18 AM #17
Rainmaker
313,710
Sandy Acevedo
951-290-8588 - Chino Hills, CA
RE/MAX Masters, Inland Empire Homes for Sale

This is very interesting. I signed an addendum just last week. What if the buyer and seller signed it and not the agents?

Jan 30, 2012 11:18 AM #18
Ambassador
925,122
Ralph Gorgoglione
John Aaroe Group - Los Angeles, CA
California Real Estate (800) 591-6121

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.

Feb 04, 2012 10:20 AM #19
Show All Comments
Ambassador
925,122

Ralph Gorgoglione

California Real Estate (800) 591-6121
Ask me a question
*
*
*
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the pants to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase: