Case Study: Seller Sues Agent for Giving Negligent Advice

By Lisa Scoble posted 10 days ago


The Situation
After being laid off by his employer, a homeowner was no longer capable of making mortgage payments. Because he was seeking employment in an industry lacking comparable job opportunities, the homeowner was facing the certainty of foreclosure.

He sought out a real estate agent to discuss whether it would be better to rent or sell the property. The realtor advised the homeowner to sell the house and temporarily move in with relatives until he found a new job.

The Problem
The principal balance of the mortgage was more than the market value of the property.

The Mistake
While working with this struggling homeowner, the agent recommended a short sale without consideration of all other alternatives. 

The Result
Several months passed before the seller entered into a purchase and sale agreement with a buyer, but during the escrow period, the seller learned there were other available options besides selling or leasing the property, including foreclosure, deed in lieu of foreclosure, bankruptcy, and loan modification.

The seller tried to rescind the contract, leading to a lawsuit by the buyer seeking specific performance. The seller then filed a third-party lawsuit against the agent, alleging negligent advice.

To protect himself and the seller, the agent should have recommended his client see an attorney and an accountant before making any decisions. Furthermore, the agent should have documented in writing that these recommendations were made before a listing agreement with the seller was executed.

It doesn't make sense to spend time and money on a listing only to have a seller change his or her mind and refuse to close on a short sale. A decision should be made early on, with the understanding that experts like attorneys and accountants can provide worthwhile advice to clients and help facilitate the process.

This article was produced in conjunction with XL Catlin and is not to be taken as legal advice.