Escrow period and post-closing disputes
This is the third episode of our new video series covering Risk management principles. The previous installment covers the business risk of a dispute with a client or other participant during the enrollment period and agency termination to eliminate the broker’s exposure to future claims.
This episode digests the agency disputes that arise between the agent and his client after the conclusion of a purchase contract, and the main disputes between the buyer and the seller.
Escrow Period Disputes
After the opening of an escrow-sale for the purchase of real estate, disputes under two types of conditions can arise. Either type of dispute may ultimately require termination of the agency relationship.
A series of conflicts are classified as agency disputes. Agency Disputes arise between the agent and his client after the client has entered into a purchase contract. If the dispute cannot be resolved and the representation continues, the agency is terminated in the same manner as the registration period disputes discussed in the previous section.
The other set of disputes is categorized as main disputes. Main disputes develop between the buyer and the seller and result in a refusal of one or the other to act following the closing of the receivership. A party’s refusal to proceed with the transaction may be excused, justified or constitute breach of the purchase contract.
Negotiations to resolve misunderstandings and close the escrow may not be successful. If the escrow dispute becomes unresolved, the agent should consider recommending that both buyer and seller terminate the purchase agreement. At the same time, the buyer and the seller cancel the transaction, they must mutually release themselves from any claims they may have against each other, by concluding a Cancellation, Release and Waiver Agreement. [See RPI Form 181]
The Cancellation, Release and Waiver Agreement concluded between the buyer and the seller free everyone involved in the transaction. Thus, all exposure to liability that the agents and the client may have as a result of the transaction is eliminated.
The expectations of a buyer in a purchase transaction are always high. Also, the condition of a property is almost never as rosy as it appeared before you took possession.
Thus, after the closing of a transaction, brokers and their agents are sometimes required to boring arguments by buyers. These buyers may be unhappy with the condition of the property, its improvements, the neighborhood, the vagaries of location, zoning, easements held by neighbors, location of fences, operating expenses, tenant issues, etc.
Buyers, thinking they got less than they bargained for, often try to shift the responsibility for the payment of the expenses they incurred to remedy the obsolescence or apparent deterioration. Worse, they may seek to recover part of the purchase price on a claim that the value of the property received was measurably less than the price they paid.
However, the seller’s broker, although responsible for his services, is not the guarantor of any obligation that the seller may have towards the buyer for defects in ownership. As the custodian of the real estate property, it is usually the broker who is the first person an unhappy buyer calls on to “solve the problem”.
Brokers and agents often pay some of these claims to permanently back out of a disputed purchase. In any settlement of a dispute over a closed trade, the broker shall require a release and waiver settlement agreement. Once the shopper has “raided the cookie jar” for a few bucks, they can come back for more. The release and waiver provisions in a settlement agreement to end it. [See RPI Form 526]
A mutual cancellation agreementwho does not understand release of claims and waiver of rightssimply serves to end any other activity under the existing agreement or agency relationship. Thus, all parts are excuse to continue its performance since the end of the agreement and the relationship.
Essentially, the cancellation “deletes” the remainder of the purchase agreement that has not yet been performed. A cancellation, by itself, does not affect the responsibilities of the buyer, seller, brokers or agents, for their activities leading up to the cancellation.
Conversely, a release and waiver of rightscommonly called a termination and restoration agreementreturns the parties to the respective positions they held prior to entering into the terminated agreement. [See RPI Form 526]
A release agreementsigned by all parties to a transaction under a rescission agreement, retroactively extinguishes all known complaints in disputes between the parties. Thus, the General Release terminates all liability between the parties for such claims. actually known the parties to exist in the dispute.
However, a general release does not affect unknown claims discovered later. [Calif. Civil Code §1542]
Thus, under a general release, one category of claims remains unresolved, i.e. those that may exist, arise or be subsequently established and which are unknown to the parties when entering into a release. general. These claims are called unknown and unsuspected claims. To eliminate these unknown claims, a waiver of the right to pursue these claims later should be included in a general release and form part of the mutual cancellation agreement. [CC §1542]
A written and signed release agreement does not require the payment of further consideration for the cancellation, release and waiver to be enforceable as a bar to further claims. [CC §1541]