7 Common Real Estate Legal Issues to Lookout For
Updated: Jul 17
Are you buying or selling a property?
If this is the case, you need to be aware of the legal aspects of real estate involved. The wrong move could cost you thousands of dollars.
In this article, we've rounded up the top legal issues in the real estate industry that can arise during transactions.
What happens if you buy a house and something is wrong?
Check the property disclosure statement that the seller provided if you recently purchased a home and discovered a problem or damage. Any known defects should be listed there. If you find the defect listed on the disclosure statement, there might not be much you can do. However, if the defect is not listed, you may be able to sue the seller for misrepresentation or failure to disclose.
Second, you should have the property inspected by a qualified professional. This inspection will help you identify defects that may not have been listed on the disclosure statement. If the inspection reveals any, you may be able to negotiate with the seller to have the defect repaired or to reduce the purchase price of the property.
If you cannot resolve the issue with the seller, you may need to file a lawsuit. In a lawsuit, you would need to prove that the seller knew about the defect and that they failed to disclose it to you. You must also confirm that the defect has caused you some harm.
Luckily, there are buyer rights when buying a house that provides the necessary legal support so you can be protected in contract disputes or the home-buying process.
Home Buyers' Rights or Protection Laws
In real estate transactions, a fiduciary is entrusted with another person's interests. This could be a real estate agent, a title company, or a mortgage lender. A fiduciary may be liable if they fail to act in their client's best interests.
There are several ways that a fiduciary can breach their duty. For example, they could fail to disclose a material fact to their client or negotiate on behalf of both the home buyer and the seller in the same transaction.
This can result in damages equivalent to the cost of the property, the cost of the transaction, and the cost of legal fees.
The National Association of Realtors (NAR) requires dual agency disclosure in the United States. Thus, if an agent represents both the buyer and the seller in the same transaction, they must disclose this to both parties. However, state laws on fiduciary liability can vary. While some jurisdictions do not have statutes defining fiduciary liability, others do.
Understanding the risks of fiduciary liability is crucial if you're participating in a deal.
Take into account the following tips to assist you in avoiding fiduciary liability:
Choose a licensed and insured real estate agent.
Read and understand the contract carefully.
Ask questions and get everything in writing.
If you have any concerns, consult with real estate attorneys.
False or Misleading Advertising
Brokers must abide by different laws and rules when advertising properties. These laws cover different topics, including:
For Sale sign bans: Some cities and towns have laws that prohibit placing For Sale signs in certain areas.
Affinity programs: Real estate agents are prohibited from participating in affinity programs that give preferential treatment to specific buyers or sellers.
Internet advertising: Real estate agents must abide by the Federal Trade Commission's (FTC) guidelines on advertising on the internet.
A real estate agent may receive fines or other penalties if they violate these laws. Additionally, the buyer or seller who was affected by the false or deceptive advertising may have legal choices, such as suing the agent or going through with mediation.
Here are some instances of false advertising that may give rise to legal action:
Stating that a property has specific features like a pool or garage when it actually does not.
Misrepresenting the condition of a property, such as failing to disclose known defects like infrastructure instability.
Using deceptive pricing tactics, such as listing a property for a low price and increasing the price after a buyer has expressed interest.
Take into account the following advice to avoid falling for false or misleading real estate advertising:
Become familiar with the real estate rules and laws that apply to advertising in your area.
Do your research before you contact a real estate agent.
Ask questions about the property and the agent's fees.
Get everything in writing
Americans with Disabilities Act
The Americans with Disabilities Act (ADA) is a federal law that forbids discrimination against anyone who has disabilities in all spheres of public life, including housing. This means that brokers must make reasonable accommodations to work with people with disabilities, whether as clients or employees.
Some examples of reasonable accommodations that a broker may need to make include:
Providing accessible office space with ramps, curb breaks, and bathroom grab bars.
Providing accessible transportation to and from property showings.
Providing accessible marketing materials, such as Braille brochures and audio recordings.
Modifying the terms of a contract to accommodate a person's disability.
A real estate broker may be held accountable for discrimination under the ADA if they neglect to provide a person with a handicap with reasonable accommodations.
For brokers who desire to adhere to the ADA, here are some extra suggestions:
Understand what is required by the ADA.
Consult with a real estate lawyer who specializes in disability law.
Work with a disability-related organization to get advice on making reasonable accommodations.
Be proactive in making accommodations.
Fair Housing Act
The Fair Housing Act is a law that prohibits housing discrimination based on a person's race, color, national origin, religion, sex, marital status, or disability. The Fair Housing Act may be expanded by municipal, regional, or state statutes to cover other protected classes, such as sexual orientation or gender identity, making it challenging to prove law violations.
Examples of discriminatory housing practices include:
Rejecting a person's rental application because they have children.
Race, religion, or national origin discrimination.
Refusing to show a property to a person because they are disabled.
Advertising a property as "no children allowed" or "perfect for empty nesters."
You can register a complaint with the U.S. Department of Housing and Urban Development (HUD) if you've been a victim of housing discrimination. HUD might investigate your complaint and take legal action against the person or business that wronged you.
Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act (RESPA) governs how real estate transactions are settled. RESPA prohibits kickbacks and referral fees between settlement service providers, except for referral fees between two brokers.
Paying someone to refer business to another person or business in return for something of value is known as a kickback. On the other hand, referral fees are payments paid to people who recommend clients to other people or businesses; however, the referral fee is unrelated to the services or goods the recommending party ultimately purchases.
RESPA requires settlement service providers to provide certain disclosures to consumers, including:
A good faith estimate of the closing costs
A HUD-1 settlement statement that itemizes all of the closing costs
A disclosure of any known conflicts of interest
Environmental issues are a common source of litigation in real estate transactions. These may involve:
Asbestos: Asbestos is a mineral that was formerly used in a variety of building supplies, such as insulation, roofing, and flooring. However, it was linked to diverse medical issues, such as lung cancer.
Lead: Children that are exposed to lead may experience developmental delays, learning impairments, as well as other health issues.
Other toxins: Mold, radon, and mercury are just a few of the toxins that can be found in real estate. Depending on the toxin type and exposure level, they might result in various health issues.
Brokers are required to disclose known environmental hazards to potential buyers. If a broker fails to disclose a known environmental risk, they may be liable for damages if the buyer is harmed.
Misrepresentation/Failure to Disclose
Misrepresentation of the facts or failure to disclose information about a property's detrimental value accounts for 57% and first pick of all legal issues related to real estate.
Misrepresentation is when a seller or agent makes a false or misleading statement about a property. Failure to disclose is when a seller fails to disclose a material fact about a property. If a buyer can prove that the seller misled them, they may be able to sue for damages. Make sure you thoroughly research the property you're purchasing.
By understanding these critical real estate legality issues, you can ensure that your real estate transaction goes as smoothly as possible. If your agent isn't managing these issues properly, consider obtaining legal counsel before proceeding. Bay State Law Group's real estate attorneys can provide you with legal advice for buying a house. We are proficient in real estate law matters and can tackle any challenge, regardless of size.