By Mark D. Kimball
Many factors shape the success or failure of real estate transactions. These include compliance with federal, state and local legislation and regulations, financing considerations and peripheral legal issues involving everything from land use constraints to title problems.
Closings can be further complicated by issues such as unrecorded easements, prescriptive rights and the somewhat arcane "merger doctrine." Hazardous waste concerns, last-minute disclosures by sellers that are inconsistent with previous Form 17 disclosures and the ubiquitous problem of pre-closing, lender closing conditions also affect outcomes.
While title policies are examined for the purpose of establishing fee-simple and unencumbered conveyances, often overlooked are unrecorded facts relating to use, easements, licenses and potential adverse possession claims. Legal description defects, encroachments and other factual matters are frequently missed altogether by title examiners. Such interests may significantly affect the value of the subject property and the expectations of purchasers. They may also result in post-closing claims against title policies, advising attorneys and escrow practitioners.
The impetus of the comments here will focus on disclosure, diligence and duty, all juxtaposed against the heuristic of the Washington Rules of Professional Conduct (RPCs).
Case Studies and Anecdotal Experiences
Excerpts from the Court of Appeals' summary in Bernhart v. Danard1 described a series of troubled real estate and business transactions. The parties met in 1999 when they were involved in the development of a condominium project. Bernhart was a dentist and a "sophisticated real estate investor." Danard was a real estate broker with significant commercial experience. The two had engaged in "many business dealings together." They also had a prior personal relationship.
One of Bernhart's properties had gone into foreclosure. Danard agreed to purchase the property and obtained financing from a commercial lender. Bernhart was not associated with the financing, other than a $130,000 deposit into Danard's account to cover the non-loan portion of the purchase price.
After a romantic encounter at Danard's home, Bernhart presented Danard with a handwritten memorandum that memorialized Bernhart's deposit and provided for its repayment. It also specified that the subject property would be sold for $650,000 upon mutual agreement. Costs, expenses and profits were all to be shared. Both Bernhart and Danard signed the memorandum.
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