Real-Estate Law advice

[steveny]

I have a real estate question.
A buyer puts in an offer on a piece of real-estate. During the acceptance phase the sellers attorney looks over the offer before the seller signs the agreement. The sellers attorney then makes his own offer on the property because he recognizes the property as a good deal. The attorney, while in law school, was a previous tenant of the property in question. Is this legal for the attorney to make an offer?

This attorney would have no knowledge of this transaction if it had not crossed his desk. He is using his knowledge to benefit himself and steal the deal from the current buyer.

I can by PM give more specific details if they are needed to answer this question.

 

[93B18]

There may be a conflict of interest here. Not sure about the attorney being able to make an offer on the property since there is a fiduciary relationship between him and the seller. I do know that if you have a RE agent that represents you as the seller, they cannot offer to buy the property because it's considered a conflict of interest in the common types of listings (ie. open listing, exclusive agency listing, exclusive right-to-sell listing, etc). This would only be possible in an Option Listing.

 

[steveny]

This would only be possible in an Option Listing.

Not sure what you mean here. The RE agent has a option if they want to buy.

This particular deal is an option deal but more like a listed option on the exchange. The buyer pays a certain price for ownership rights over a specified period of time.
example:
Buyer gives 5k for the right to purchace at 250k for the next six months. After six months has expired hopefully the buyer sells the property for 300k pays 250k to seller and walks with 45k.

 

[White92]

From what I remember, having just gone through real estate school, there is a kind of conflict of interest. Just as if you as the agent wanted to make an offer on this house, you have to disclose that you are an agent and you are the one making the offer. If in this case it's the sellers' own attorney that is doing this, then they should know who it is that's making the offer. Doesn't the seller have the right to reject the offer from the buyer and take the offer from the attorney? I don't know the specifics of this particular transaction, but I'm not sure why the seller would sell to his attorney. I'm guessing that the attorney wants to buy it because they know it's a killer deal. Wouldn't the seller be financially better off selling it to someone else? If there is a question of is this ethical on the part of the attorney, then that's between the seller and his attorney. If the seller doesn't see a problem with it, then it should be fine. But that's just me. Like I said, I'm fresh out of school and have no real world experience yet. So if I make no sense or am completely wrong, feel free to tell me to shut up. Be nice though! :smile:

 

[RSO 34]

For informational purposes only, here is a sampling of Ethical Considerations under the New York Code of Professional Responsibility which may or may not be applicable. Ultimately, it would appear that the bidding on the property by the seller's attorney may be a conflict if it would interfere with that relationship by causing the attorney to make his judgment less protective of the client. Arguably, one may suggest that the attorney is now in a conflict situation because he has a personal stake in the ultimate sale which places his own interest above his client's interests.

However, that conflict would be between the attorney and the seller and may be waived by the seller after full disclosure. It would be preferable for the attorney to withdraw from any further representation of the seller in this transaction and be placed in the sole role of bidder on the property. This would enable the seller to retain an objective attorney to offer advice on the advantages/disadvantages of each bid and proposed contract.

These sections are taken from the New York Judiciary Law

EC 5-2
A lawyer should not accept proffered employment if the lawyer's personal interests or desires will, or there is a reasonable probability that they will, affect adversely the advice to be given or services to be rendered the prospective client. After accepting employment, a lawyer carefully should refrain from acquiring a property right or assuming a position that would tend to make his or her judgment less protective of the interests of the client.


EC 5-3
The self-interest of a lawyer resulting from ownership of property in which the client also has an interest or which may affect property of the client may interfere with the exercise of free judgment on behalf of the client. If such interference would occur with respect to a prospective client, a lawyer should decline proffered employment. After accepting employment, a lawyer should not acquire property rights that would adversely affect the lawyer's professional judgment in the representation of the client. Even if the property interests of a lawyer do not presently interfere with the exercise of independent judgment, but the likelihood of interference can be reasonably foreseen by the lawyer, the lawyer should explain the situation to the client and should decline employment or withdraw unless after full disclosure the client consents, preferably in writing, to the continuance of the relationship. A lawyer should not seek to persuade a client to permit the lawyer to invest in an undertaking of the client nor make improper use of a professional relationship to influence the client to invest in an enterprise in which the lawyer is interested.

DISCLAIMER: The foregoing is not intended to be specific legal advice to be acted upon by any person for their unique situation. It is offered as a general information discussion only. The person/persons involved are encouraged to seek local counsel in their area as laws vary from jurisdiction to jurisdiction.

 

[Hrant]

Real Estate deals in California are fraught with potential conflict of interest that hardly get challenged. I am not an attorney but here is my $0.02.

In the above case, I am assuming the "attorney" is no longer in law school and is now a licensed attorney. If he is still in law school, his advice would not fall under attorney/client privilege especially if he did not make such represantion. From what you have described, the attorney cannot represent his client in good faith yet try to outbid him "unless" he discloses his interest first to the buyer. I don't know whether the California Bar Asscociation would consider this a conflict of interest is debatable but I sure hope so - your friend can make a note to the attorney and place a call to the Bar.

As for the seller waiving such rights from an intermediary, well this is where I think California law is lacking when it comes to buyer's safeguards. Two years ago I made a bid on a house; we were the second bidder and I was represented by my Realtor. My price was competitive and we had room to move to meet or exceed the other offer. The seller's Realtor had brought the first offer and was representing both the butyer and the seller at the same time. She discouraged everyway she could to take our offer forward; she had more financial interest to get her bid go through because she would not have to split her commission with my Realtor. California considers this as good faith and professional representation.

 

[93B18]

Not sure what you mean here. The RE agent has a option if they want to buy.

An Option Listing is when a seller lists their property with a particular broker and where that broker has the option to purchase the property if they'd like to.

 

[steveny]

As for the seller waiving such rights from an intermediary, well this is where I think California law is lacking when it comes to buyer's safeguards. Two years ago I made a bid on a house; we were the second bidder and I was represented by my Realtor. My price was competitive and we had room to move to meet or exceed the other offer. The seller's Realtor had brought the first offer and was representing both the butyer and the seller at the same time. She discouraged everyway she could to take our offer forward; she had more financial interest to get her bid go through because she would not have to split her commission with my Realtor. California considers this as good faith and professional representation.

This is why I try to close most of my deals without a RE agent. I have not met one yet that is worth 7%. I usually approach the seller myself and save 7k for every 100k I spend. on this deal alone I would have made an additional ~30k by not using a realtor.

The attorney in question was asked via Email

1. Can new offers be entertained while my offer has not been formally rejected and deposit not returned?

2. If an attorney at the firm representing the seller were to make an offer on
BLANK Rd while my offer is under consideration, is that not a breach of his/her fiduciary duty to refrain from self-dealing?

To which he answered

Thanks for your reply. Yes is the answer to the first question. As to the second question, no attorney or employee affiliated with our office has made an offer on the property.

Here is the part I find hard to believe. I have not seen or heard from the attorney/previous tenant for a few years. All of a sudden he, his wife and friends are making trips to the property. There are packages being delivered to his wife at the properties address. They have been by there several times with "other people". I know this because the house is split into two sections and my girlfriends brother lives in the one half of the property and relays info to me about what is going on. I smell a RAT.

 

[steveny]

This is why I try to close most of my deals without a RE agent. I have not met one yet that is worth 7%. I usually approach the seller myself and save 7k for every 100k I spend. on this deal alone I would have made an additional ~30k by not using a realtor.

The attorney in question was asked via Email

1. Can new offers be entertained while my offer has not been formally rejected and deposit not returned?

2. If an attorney at the firm representing the seller were to make an offer on
BLANK Rd while my offer is under consideration, is that not a breach of his/her fiduciary duty to refrain from self-dealing?

To which he answered

Thanks for your reply. Yes is the answer to the first question. As to the second question, no attorney or employee affiliated with our office has made an offer on the property.

Here is the part I find hard to believe. I have not seen or heard from the attorney/previous tenant for a few years. All of a sudden he, his wife and friends are making trips to the property. There are packages being delivered to his wife at the properties address. They have been by there several times with "other people". I know this because the house is split into two sections and my girlfriends brother lives in the one half of the property and relays info to me about what is going on. I smell a RAT.

Add...The agreement sat in the buyers hand for 2-3 weeks and nothing happened or changed. As soon as the agreement was sent by the seller to his attorney things started to go FUBAR, and the attorney started to make trips to the property.