Should you hire a lawyer when buying or selling a home? Depends – do you want to reduce your risk?

As long-time readers know, I have been promoting the idea that attorneys should be involved in real estate transactions for about eight years (boy, time flies!). And it took me a looooong time to understand the difference between blogging and shameless self-promotion. I think I’ve learned, and hopefully I strike the right balance and tone here, but if not please let me know in the comments!!

While my messaging has matured, my underlying message has not: Consumers – both buyers and sellers – benefit when an attorney represents them in a real estate transaction. But that’s not an easy message to get across because it is inconsistent with what people generally understand about real estate and lawyers.  They know that real estate is bought and sold all the time without an attorney being involved. And everyone knows that lawyers are just plain bad people who complicate things and make everyone suffer!! ;-)  So I face some serious headwinds in trying to get my message out.

Lately, though, I’ve come up with eight simple words, in two sentences, that really get my message across:

Every transaction has risk. A lawyer reduces it.

Those two statements are simply not debatable.  And as a long-time practicing attorney, I have lots of examples of the risks associated with buying or selling a home, and how a lawyer will reduce those risks. Here is one such example.

THE ENCROACHING GARDEN: AN ILLUSTRATIVE STORY IN TWO PARTS

A young married couple signed a contract to purchase a home. As closing approached, the seller told them that a neighbor’s garden crossed over the common boundary.  But the garden and the boundary were both uphill from a retaining wall, so the buyers had no concerns about this encroachment.

Their agent, though, recognized this encroachment as a legal issue that needed to be addressed. The agent decided that the solution was a statement from the neighbor promising never to claim “adverse possession” to the portion of his garden that encroached over the boundary. Sadly, the agent was mistaken.

Adverse possession is a legal doctrine that allows one person to take ownership of land formally owned by another. To do so, a person must use another person’s land in an open and obvious fashion and must exclude the true owner.  If the person uses the land in this fashion for 10 years, the user takes legal ownership of the area being used.

The seller talked to the neighbor and got a terse note, apparently signed by the neighbor, stating that he would never claim ownership to the portion of his garden that encroached over the boundary (i.e., he would never make a claim of adverse possession).  The seller provided this note to the buyers. The couple’s agent thought she had solved the problem. The sale closed.

RISK NO. 1 TO THE  YOUNG COUPLE

The allegedly signed document might not be sufficient to defeat a future claim of adverse possession by the neighbor. Accordingly, the problem might not be solved, and the couple could end up losing ownership to that portion of their property.

HOW A LAWYER WOULD HAVE MADE A DIFFERENCE

A lawyer would have known that simply getting a statement from the neighbor would not resolve the problem, particularly where the statement was merely signed but not acknowledged (i.e., no notary signature). The buyers needed to take immediate legal action to resolve the issue.  They could have done so before closing, or after.  But a lawyer would have known that further action was necessary and would have made sure the couple did what was necessary to fully resolve the issue. Instead, the problem lingered, and festered….

THE FACTS, PART TWO (THE SALE)

The couple lived happily in the home for 11 years before they decided to sell it. When they sold it, the couple (no longer so young) transferred title to the new buyer by a statutory warranty deed (the most common form of deed, used in most transactions).

In a statutory warranty deed, the seller makes several promises to the buyer.  One promise is that the seller is the true and legal owner of the entire lot being sold. If, after closing, it turns out the seller is not the true and legal owner of the entire lot, then the seller has breached that promise and is liable to the buyer/new owner for the loss.  Another promise is that the buyer will have full possession of the entire lot being sold. If it turns out the buyer doesn’t have complete possession, then the seller can be held responsible for restoring the buyer to full possession.

Unfortunately for the young couple, the neighbor’s encroaching garden hit the ten year mark during their 11 years of ownership.  So when they sold their lot, they may not have been the legal owners of the entire lot. They may not have owned that portion of their lot encompassed by the neighbor’s encroaching garden. And the buyer certainly did get full possession of the entire property, again because of the encroaching garden.

RISK NO. 2 TO THE YOUNG COUPLE

They will be liable to their buyer under the statutory warranty deed by which they transferred title. First, the couple failed to provide the buyer will full possession of the entire property. Second, the allegedly signed note might not be sufficient to defeat the neighbor’s claim of adverse possession. In other words, the couple could very easily be forced to incur legal fees in seeking to have the encroaching garden removed. If the garden cannot be removed because the neighbor now owns it by adverse possession, then the couple would also owe the buyer/new owner money as compensation for the loss of that portion of the lot.

HOW A LAWYER WOULD HAVE ELIMINATED THAT RISK

A lawyer would have identified this very significant potential liability and would have taken steps to eliminate it. Specifically, when the couple sold the property to the new buyer, the lawyer would have made sure this encroachment was both disclosed to the buyer and excluded from the promises in the statutory warranty deed. Disclosure alone would not be sufficient. The deed needed to be made “subject to” the encroachment or else the couple would be liable to the buyer after closing.

HOW IT ALL TURNED OUT (not good)

A year after closing, the buyer/new owner got a survey and discovered the neighbor’s encroaching garden. The buyer informed the couple, who by now had long since “moved on” in their lives, that the couple was in breach of the promises they made in the statutory warranty deed. The buyer told the couple – correctly – that as a result they needed to take the legal steps necessary to have the encroachment removed. If they refused to do so, the couple would be responsible for the lawyer’s fees incurred by the new buyer in seeking to have the encroachment removed. And if the neighbor in fact took ownership to that portion of the lot by adverse possession, then the couple would also be liable to the new buyer for the loss.

Having no other choice, the couple agreed to hire an attorney to get the encroaching garden removed. Soon thereafter, when presented with the note he had signed some 12 years earlier, the neighbor claimed he had never seen or signed the note. He claimed that the original seller had forged his signature on the note. The neighbor made it clear that he believed he had taken ownership to that portion of his garden that encroached over the boundary.

In other words, the couple was in a terrible spot. They were now looking at a complicated lawsuit, with no guarantee of victory.  But they were over a barrel and had no other choice. The couple’s attorney initiated the necessary legal action and  eventually settled the claims.  Total costs incurred by the young couple, between legal fees and sums paid in settlement? About $40,000.

Every transaction has risk. Lawyers are trained and paid to identify those risks and to reduce or eliminate them. So should you hire a lawyer the next time you buy or sell a home?  If you want to identify and reduce your risk and minimize your chances of suffering a loss, then the answer is an unequivocal “Yes”. Don’t mind assuming risk?  Not worried about potential liability? Then no need to hire an attorney.

About Craig Blackmon

I am an attorney in Seattle with a practice focused on residential real estate. I am also an owner and the designated broker of Quill Realty, a new model real estate firm. Quill provides its clients with both an agent and an attorney, so you can Sign with Confidence. And Quill charges less than a typical agent, so the client saves money as well. Craig on Google+

Comments

  1. All this mess over a garden. The troubles people get into these days. I do have to agree with you that an attorney was needed to make sure that the legal bases were correctly covered. But, if the original agent was knowledgeable and experienced, they should have known that a simple signature without a notary or recording the document is not legal protection. That simple change in the story would have solved the problem as well.

  2. Well, Simon, I disagree.

    It is an attorney’s job, and not a broker’s, to recognize and adequately address a potential adverse possession claim. So had you said, “Boy, too bad the original agent didn’t refer the young couple to an attorney, as required by law,” then I would be in complete agreement (RCW 18.86.050(c) requires an agent to refer the client to another for matters beyond the agent’s expertise).

    But to suggest that this agent could and should have done a better job addressing this complex legal issue? No way. I have zero doubt that in doing so the agent would be going well beyond his licensed authority. It was never his job in the first place to try and resolve the problem.

    Moreover, even if the statement had been notarized (I don’t see any benefit to recording it) it would not have solved the problem. It would have made the neighbor’s claim of forgery harder to prove, but he could still make the claim. And once the neighbor asserted ownership to the garden (and disavowed his prior signature), the young couple as sellers under a standard statutory warranty deed were in deep doo-doo. So even if the agent had taken the step you suggest, I don’t think the story would have turned out any differently.

  3. I mean, if you can afford it safely there is no reason why you shouldn’t to reduce as much risk as possible.

  4. According to me it’s a great idea of hiring a lawyer when buying or selling a home. It’s works like a safe cover of us……..thank you for sharing this helpful information.

  5. Hi Craig, while this certainly seems like a rare situation, I think it points to the fact that one really doesn’t know what is going to come up when buying/selling real estate. This comes back to your point of simply reducing the risk. Similar to buying insurance, as someone participating in a real estate transaction, you have to weigh the risks and determine if they are enough for you to mitigate those by hiring a lawyer.

    • Thanks Lois. But if the attorney was included in the fee paid to the broker – and if that fee was only 2% in the first place – wouldn’t that be a factor to consider as well? Or, to continue with your analogy, if you could buy a home for a price that included insurance, why would you skip the insurance? Even if there is minimal risk, if the insurance is included in the fee paid why wouldn’t you take it?

      All rhetorical questions, of course, thanks again!

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