Escrow
Agents Switch Brokers During Escrow Will The New Broker Be Legally Responsible For Any Wrongdoings By The Agents
Posted by: Kenny Tan
January 28, 2012
Every once in a while an issue will come up that involves an agent who decides to leave the present broker and work for another broker.
When that happens, will the new broker or both the new and the old be legally responsible for the wrongdoings committed by the agent in an escrow transaction?
It is the law in California that though agents are treated as independent contractors of the employing brokers for income tax purposes,they are treated as employees for liability purposes. As an employer of an agent, the broker is vicariously liable for any torts committed by the agent which in plain English means that the wrongful act need not have been one that was directly committed by the broker himself, just need to be one committed during the agent's employment with the broker - this is on top of the broker's independent duty to supervise the agent's activities.
It is for this reason that a broker invariably gets named along with the agent in a lawsuit where the agent is sued for a misdeed in a transaction.
But when you have a situation where two brokers are successively involved in a transaction where one might earn a fee while the other might not from the deal or they both agreed to split a fee, how does the law allocate liability between them if they don't have a prior agreement as to risk allocation for that transaction. I've not been able to find any California appellate opinion cases on that issue.
But here's my take on that issue.
If there's an agreement as to allocation of liability between the two brokers, then there's no question that the court will most probably enforce the agreement and allocate liability accordingly.
What if there's no agreement to that effect? As a practical matter, the brokers won't necessarily discuss this ahead of the switch. So no such agreement exists. Besides, such agreement would not bind the nonparties such as the sellers and buyers anyway.
Moreover, remedy for indemnification is always going to be available to allocate responsibility between the parties involved including the two brokers and the agent even if there's no prior agreement.
Also, the sellers and buyers had to have known about the switch because the agent would invariably be corresponding using emails or letters that reference the broker's name.
When Draftng Escrow Instructions Becomes Unauthorized Practice Of Law
Posted by: Kenny Tan
January 28, 2012
Sometimes an escrow officer or real estate agent is asked to draft amended and non-routine escrow instructions to accomodate the buyers and sellers. Sometimes they are asked to do so at the request of one party only and the other party is simply asked to agree to and sign it. This practice is bound to become more often in the future as more and more non-English speaking Chinese buyers are coming over from China to buy properties in the United States. These buyers rely heavily on them for advice including legal ones in their real estate purchases.
But practice of law without a license is unlawful in California. Practice of law may include giving of legal advice or drafting of legal documents or contracts. Arguably, the drafting of eescrow instructions in and of itself is drafting of legal documents. This generally involves unusual transactions - an All Inclusive Trust Deed or AITD would be a good example.
The practice of law without a license can be prosecuted as a misdemanor which may include jail time and fines. In addition, the victim may bring a civil suit to recover actual damages and attorney's fees.
While an escrow officer may prepare a grant deed or deed of trust for an escrow transaction in acccordance with the sellers and buyers' instructions. Unless the instructions are in writing, a dispute may arise as to whether the escrow officer has prepared an escrow instruction at the request of the parties.
Filling in blanks on standard forms such as grant deeds or deeds of trust is not practice of law. But draftng nonstandard escrow intructions that significantly affect the legal rights of the parties may constitute practice of law, especially when one party didn't even request that the instructions be prepared and, due to his or her lack of understanding of the document prepared, signed an instruction that they didn't mean to sign. If a dispute arises between the parties over that instruction which the escrow officer prepared, it might be difficult for the escrow officer to avoid being involved in a subsequent lawsuit.
Escrow is in the service industry and eager to provide the best service they can in hope of maintaining a long term relationship with one or both parties for more business. But an escrow officer should always be wary of the parties' respective interests and stay neutral throughout the transaction and refrain from overly favoring one side than the other. If in doubt as to whether the preparation of an instruction may constitute unauthorized practice of law, it is always best to advise the parties to seek legal counsel to draft the instruction.
