February 4, 2011
After a real estate sale went bad, the sellers sued the buyers and the buyers' agent. The buyers' agent argued that he was not negligent and, today, the Indiana Court of Appeals agreed in
Likens v. Prickett's Properties, Inc., Case No. 43A03-1008-PL-455. It concluded that courts cannot look to the common law when defining the duties of a real estate agent.
less..
The Likenses were selling their home and the Gredys offered to buy it. The Likenses had another offer on the table, but the Gredys' real estate agent contacted the Likenses personally, rather than going through their agent, to urge them to sell to the Gredys. He acknowledged that there would be some delay in the closing date, but that the Gredys would be able to pay once a couple of other real estate transactions were completed. Based on these representations, the Likenses agreed to sell the property to the Gredys. The Gredys' agent was delivered earnest money in the form of a bank letter of guarantee.
The closing never occurred and the Likenses sued both the Gredys and their agent, alleging that the Gredys committed fraud in remitting a fraudulent bank letter of guarantee of funds and in stating that closing would occur as soon as they sold two of their properties when in fact one property was an office building owned by the husband's father and the other property was in foreclosure. The Likenses alleged that the agent was negligent for failing to ensure that the $10,000 bank letter of guarantee of funds was in fact valid and failing to ascertain the ownership/status of the properties claimed to be owned by the Gredys. The agent moved for summary judgment and the trial court granted that motion.
On appeal, the Likenses argued that the agent owed them a common law duty. The Court disagreed. It held that
I.C. § 25-34.1-10-11 governed the duties that a buyer's real estate agent owes to the seller and that
I.C. § 25-34.1-10-15 prevents parties from establish a duty on the part of a real estate agent that does not exist in
I.C. chapter 25-34.1-10.
I.C. § 25-34.1-10-11 imposes a duty for the agent to "treat all prospective sellers or landlords honestly and not knowingly give them false information," but does not require them "to conduct an independent investigation of the buyer’s or tenant’s financial ability to perform for the benefit of the seller or landlord or to verify the accuracy of any statement, written or oral, made by the buyer, the tenant, or a third party." The Likenses' claims against the agent were all for the agent's failure to conduct an independent investigation of the accuracy of the Gredys' statements. Therefore, their claim failed because there was no duty. The fact that the agent contacted them directly did not matter, because he could not become an agent of both the buyer and seller without the written consent of all parties.
I.C. § 25-34.1-10-12.
It should be noted that this case leaves at least one issue open for further litigation in other cases. On appeal, the Likenses argued that the agent had voluntarily assumed a duty of care to them due to his conduct. The Court concluded that this argument was waived because it was not developed with cogent reasoning. Thus, a seller who can cogently argue this issue in the future may be able to demonstrate a duty under a similar set of facts.
Lessons:
- The duties owed by real estate agents are controlled by statutory law.
- A real estate agent representing a buyer owes the seller no duty to investigate the accuracy of any statements made to him by the buyer or a third party.
- It is an open question whether a real estate agent representing a buyer can assume a duty of care to the seller through his conduct.
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