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Should You Respond to the Threat of a Real Estate Lawsuit?

Seller carrybacks can be risky. Could helping a client with a carryback loan put you at risk of a real estate lawsuit? In this example it did.

Our client was the selling agent who assisted a buyer with a purchase that included an $85,000 carryback loan. The seller later contacted the selling agent, asking if she knew of someone who could purchase the carryback from the seller as the seller needed some cash.

The selling agent arranged for another party to purchase the carryback. At the time the new party purchased the carryback, the selling agent didn’t know there was a federal lien on the property.

The new party was verbally threatening to sue our client if she didn’t pay $50,000, as the federal lien would take priority over the new party’s own claim to the property, regardless if the seller carryback loan was paid in full.

Imagine how worried you’d be if you were the selling agent just trying to be helpful in that situation. Would you know what to do?

Wisely, our client called CRES ClaimPrevent® Risk Management. An attorney noted that the threat was initiated informally, not by an attorney, and that it was unlikely to become a lawsuit. (And because it wasn’t a written demand for money or service, it wasn’t yet a claim.)

The legal advice: Say nothing. Do not respond to the request at all.

This advice likely saved our client a good deal of money from the cost of settling.

The bottom line is that before you decide to respond or engage in any sort of discussion, you should talk to a lawyer. They can assess your individual situation and help you decide on the best course of action, or in this agent’s situation, non-action.

CRES Real Estate E&O + ClaimPrevent® makes a real estate legal advice team available to our clients. If you are a CRES client and receive a demand or threat to sue (verbal or written), you should report it to CRES. You’ll have access to our ClaimPrevent® Risk Management team, and if the threat does become a lawsuit, we’ll be there for you.

Have you ever received a demand for money or service to avoid a lawsuit? How did you handle it?

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