This case involves a licensed Alabama real estate broker who listed a property for sale. An appraisal of the property indicated a $4,000,000 valuation. The broker showed the property to a couple who were prospective buyers. The broker did not mention that there were any encumbrances or liens on the property. The property was actually subject to three deeds of trust totaling $3,550,000. When the couple signed the purchase documents, they did not know that the property could not be transferred to them free and clear of all monetary encumbrances and liens because the existing debt on the property far exceeded the purchasing price. The couple eventually sued the broker for negligent misrepresentation and deceit based on misrepresentation and failure to disclose.
Question(s) For Expert Witness
- Does a real estate broker owe a duty to disclose to a buyer prior to escrow that there is a risk that the seller could not transfer title free and clear of monetary liens and encumbrances?
Expert Witness Response
In general, a real estate broker only owes a fiduciary duty to their client, the seller. A fiduciary duty means that the real estate broker must act with loyalty, reasonable care and diligence, good faith and obedience to the seller who they represent. This type of fiduciary duty owed to the seller by a real estate broker is the highest type of duty recognized by law. A real estate broker also usually owes a certain duty of disclosure to the buyer in a transaction. This means that a real estate broker owes a duty to a buyer to disclose relevant facts about the property to the buyer. Although this is not a fiduciary duty, a real estate broker generally has a duty to act with care, honesty, and good faith towards a buyer and this includes a duty to engage in fair dealing and with total disclosure. In this case, the real estate broker is probably guilty of breaching his duty to the buyer because he failed to reveal known risks with the property created by the encumbrances and monetary liens on it. The real estate broker probably breached his duty of good faith because he failed to act fairly towards the buyer even though he knew the property was very encumbered and the transaction would be a risky proposition for the buyer. The real estate broker is this case is probably guilty of misrepresentation because he failed to disclose material information that probably would have caused the buyer to not enter into the transaction.