I recently worked with a listing agent on an unexpected legal headache.
Her buyer had discovered a defect in the property during inspection… just before closing. Because there wasn’t time to fix the problem, the agent recommended negotiating for a credit at time of closing. But during the negotiation, attorneys got involved.
Here’s what happened: The buyer’s attorney accused both of the agents of colluding to commit fraud against the lender by offering a closing credit in lieu of full disclosure. Such a closing credit is common practice in such cases, as it saves the lender from having to re-underwrite the entire loan.
In this case, the buyer’s attorney was being more than a little melodramatic. He was working in an industry out of his normal practice and didn’t seem to understand the way these issues were typically handled. But technically, he was right. The failure to disclose a material fact could be seen as fraudulent, despite the best of intentions. As a fellow attorney, I was able to communicate with the now oppositional counsel, and smooth over the disconnect so that the closing could proceed.
This story reinforces what every good agent knows:
Always be transparent.
Never be party to a plan that fails to disclose a material fact to anyone, including a lender. If your client makes a statement, “I don’t want to disclose this fact to others,” you know what you need to do. Disclose, disclose, disclose.