Sellers Lawyer Steals Deal

[Matthew Wright]

Anyone ever have a great deal (verbal) going with a seller and have the seller consult their attorney about the upcoming transaction and have the attorney steal the deal? I did and it isnt a good feeling. Its what I would consider the deal of a lifetime. The property was off market and he responded to one of my mailers, the seller was extremely enthusiastic about selling me the property for pennies on the dollar, until his lawyer found out and started offering the property to other investors he knows. And of course the sellers going to listen to every word his lawyer says. I'm thinking the lawyer is going to be part of the deal on the purchase side.

[Odie Ayaga]

VERY interesting thread. I'm glad @Paul Cleveland chimed in as I thought he was the only one getting at what I was thinking the whole time. I'm still a newbie so my opinion can only matter so much, but why did he go to his lawyer instead of a real estate agent, as the opposition to the deal is more what I would expect if I were consulting an agent for a valuation. Is it common that investors go to their lawyers for valuations on a deal they have been offered rather than a licensed agent? Is there some kind of disclosure that accompanies that to say "I'm not a licensed agent but here's my opinion as a person in the field of real estate? Or did this individual go to their "lawyer" more in a capacity of a trusted friend than a lawyer and receive the advice offered by the OP and act on it as such? I pose these questions strictly out of curiosity.

[Odie Ayaga]

@Ned Careyas a newer investor who has been retained in legal matters by @Jessica Zolotorofe I will say that she has been incredibly helpful and insightful in guiding me on my path. I think we (as a forum) naturally will find differences in opinion and interpretation, but your closing statement on her is an attack on her livelihood and entirely unnecessary. There are thousands, if not more, attorneys who could present their opinions here and elsewhere who won't for fear of potential backlash. To vilify and potential harm the livelihood of one that does is unfair and counterproductive to say the least for a common user of the site but ESPECIALLY true of a moderator and I would expect more of someone who carries the weight of such a tag. There are many who would take note of your position and perceive it as an endorsement or not on the part of Biggerpockets as to whether or not they should retain the services of particular vendors who may appear on the site.

[Mike Reynolds]

Originally posted by @Mike Cumbie:

@Jessica Zolotorofe,

My interest is purely in discussion and continued education so it is not "attacking in any manner". The OP had stated the seller did not sign an agreement so it was strictly a verbal discussion between them. The seller went to his lawyer and provided the offer (verbally) to the lawyer, there was nothing on paper. The lawyer would then not be "shopping anything". Of course assuming the above is all accurate if a client came to you with a discussion about a very low priced verbal offer would your recommendation be to take it then?

 I was always of the understanding that verbal contacts are binding too. Some states anyway not sure about the OP's. Of course I'm not sure this would go under that category because the home owner didn't fully commit yet. 

[Billy Smith]

I had a new agent do the same thing, gave away A deal I found to A different client while he was supposed to be working for me.

I fired him right after that told him his behavior was not appreciated. I could not prove it so I let the dogs lay.

[John Thedford]

I don't know about TX, but in FL there is the Statute of Frauds. Verbal offers are NOT enforceable in the sale or purchase of real estate. "Buyer" did not have a contract if nothing was signed by both parties. 

[John Thedford]

@Mike Reynolds

Verbal "contracts" as you call them are not enforceable in FL for the sale or purchase of real estate. Buyer or seller is free to change their mind. There is the governing statute called the "Statute of Frauds". This may or may not be similar in TX. 

[John Thedford]

@Jessica Zolotorofe

Hello my friend. As you may or may not have noted, there was no signed contract but simply a verbal "agreement". Are verbal agreements for the sale or purchase of property in TX enforceable? I am sure you may have heard of the Statute of Frauds in Florida which states verbal agreements for the sale or purchase of real estate are not enforceable. This deal had not been signed by both parties. One party states the agreement was filled out with the exception of price. That sure leaves anything open for interpretation including the possibility the price had not been agreed to. Regardless of that, the agreement had not been signed. Thoughts?

[Jessica Zolotorofe]

I don't think it's Texas, I think it's Maine, but in any event, I never questioned the invalidity of the contract. There certainly was no meeting of the minds, as far as I can tell from the original post, so you are definitely right as to that point. It wasn't an issue of illegality, just an ethical or moral question for the attorney. 

[Jessica Zolotorofe]

Oops! Sorry, meant to tag you @John Thedford!

[John Thedford]

Originally posted by @Paul Cleveland:

Wow, this is an interesting discussion.  Just for fun, I looked up TRELA Sec 101, which @Jessica Zolotorofe suggested, because I'm curious by nature.  I'm not a lawyer, but I can read, and according to this definition, among the list of definitions for a 'broker' of real estate, it lists:

"procures or assists in procuring a prospect to effect the sale, exchange, or lease of real estate;"

I'm not a lawyer but it sounds like the lawyer met this definition and therefore acted as a 'broker'.  So, that begs the question, "Does this lawyer have a license to broker real estate?"  Is a license required to broker real estate?  Depending on the answers to these questions, one might conclude that the law was indeed broken.  But I'm not a lawyer, so don't listen to me. 

Perhaps it all hinges on whether the lawyer received a "commission or other valuable consideration" for this service?  Isn't the lawyer's client paying him for his services?  Was the lawyer just doing his a 'client' a favor, pro bono?  Are they buddies or what?  Hmmm.  What would Perry Mason do?

 I believe you just defined unlicensed brokers (I KNOW, I KNOW...that belongs on the unlicensed brokering forum!!)
Is it possible this attorney also has a RE license?
Even if not the case, if I hire an attorney for advice, I expect them to give me the pros and cons of my situation. If I am being taken advantage of and am not aware of that fact, I would expect my attorney to inform me of this. If an attorney has no knowledge of the value of the RE, his best advice might be to get an appraisal and then decide if they want to proceed. 

[John Thedford]

Originally posted by @Matthew Wright:

No, he didnt look out for his best interest, if he did he would have had his client ask me for my highest and best, instead he did the total opposite and is keeping the deal for himself and probably paying less than I would have.

 If the attorney kept his client from selling for pennies on the dollar HE DID look out for his client! 

[Mike Reynolds]

Originally posted by @John Thedford:

@Mike Reynolds

Verbal "contracts" as you call them are not enforceable in FL for the sale or purchase of real estate. Buyer or seller is free to change their mind. There is the governing statute called the "Statute of Frauds". This may or may not be similar in TX. 

 Honestly, I'm not sure either. As far as real estate it would be crazy to buy on just a verbal. But I do remember a case back when I was a kid about a construction verbal agreement and the contractor won. I am totally not sure if that is the case anymore of of even that read an exception then. 

I just find the other stuff here fascinating so don't mind me lol. 

[Russell Brazil]

@Mike Reynolds A contract for services performed in under a year would not be subject to the statute of frauds, and thus would not need to be in writing.  A contract for the sale of land is subject to the statute of frauds, and thus always has to be in writing.

[Benjamin Barredo]

@Matthew Wright Sucks you lost the deal, bro but since you didn't have the signature I wouldn't get too upset about it, however, as far as the attorney is concerned, @Jessica Zolotorofe gives some really great information and, if you're feeling vindictive or even like justice is absent in this situation, I'd report that lawyer if I were you. And I'd do it with a smile. 

[Gregg Willich]

I'm not an attorney in Texas, but I decided to look up TRELA 1101 for fun. Sure enough, that chapter doesn't apply to attorneys, and also appears to allow attorneys to act as brokers without any additional licensing. So there is that.

TRELA 1101.005: This chapter does not apply to an attorney licensed in this state.

TRELA 1101.806(b): A person may not maintain an action to collect compensation for an act as a broker or salesperson in this state unless the person alleges and proves that the person was: 

(1) a license holder at the time the act was commenced; or

(2) an attorney licensed in any state.

Also, if a client came to me with a deal that looked like he or she was being taken advantage of ("a deal of a lifetime" to the prospective buyer), I would have also advised my client to stay away. We also don't know if the attorney called around to other brokers to get insight. Perhaps the lawyer is not the one calling the investors. All we can do is speculate, just like the OP did when he said, "I'm thinking the lawyer is going to be part of the deal on the purchase side."

This is provided as general information only, and should not be construed as legal advice.

[John Thedford]

@Gregg Willich

The bottom line is there was NO deal. No signed contract means NO deal. 

[Gregg Willich]

@John Thedford 

I agree, there was no deal, but a lawyer's ethical duties, and other laws, apply before a deal is in place. Also, a lot of my comment was really addressing a side argument related to Texas law, which isn't relevant to the OP, but it still addresses comments made by others. 

[Account Closed]

FYI in the future you need to get a signed contract. When you do you can file a "Notice of Contract" at the recorder of deeds office to 'cloud the title' so that does not happen. But again unless you have it under contract move on.

[Jesse Burrell]

Originally posted by @Matthew Wright:

Anyone ever have a great deal (verbal) going with a seller and have the seller consult their attorney about the upcoming transaction and have the attorney steal the deal? I did and it isnt a good feeling. Its what I would consider the deal of a lifetime. The property was off market and he responded to one of my mailers, the seller was extremely enthusiastic about selling me the property for pennies on the dollar, until his lawyer found out and started offering the property to other investors he knows. And of course the sellers going to listen to every word his lawyer says. I'm thinking the lawyer is going to be part of the deal on the purchase side.

 Next time have the seller sign the contract and put an contingency stating "subject to lawyers review." The lawyer cant say anything about the price and maybe only make you change some verbiage of the contract, which isn't a big deal

[Jessica Zolotorofe]

Gregg Willich it's in the 650's, I believe. And someone quoted above, it says something like the lawyer can only act as both lawyer and broker if the lawyer in good faith believes there is no conflict of interest. And that's unique to Texas, most states say there is no way to have no conflict if you act as both within the same transaction. Either way, we digress, this whole Texas law stuff is not really relevant. You made some really good points in your second post!

[Art S.]

Lawyers will almost always kill any creative deal. Why? If you were a lawyer and your client came to you to review a deal, then they are paying you to protect them from anything bad that could potentially arise from the deal. If the client told you they were getting quite a bit less then fair market value, how could you advise your client to go ahead with the sale. If the client later gets sellers remorse, or a relative convinces the seller that the deal was too opportunistic, then who is to blame? The lawyer. There could be a civil suit, a bar complaint, discipline, etc. No lawyer would let their client proceed without strongly suggesting they first seek other options.

The same goes with low down payment deals or creative deals. If any complications or defaults arose, the client could recover from the lawyer because no other lawyer could defend the client lawyer's recommendation that the creative deal was sufficient, particularly in hindsight when the client has now suffered a loss and made a bar complaint. Of course, there are exceptions, but don't get your hopes up when a client wants to run it by his lawyer.

Regarding the lawyer stealing the deal to acquire the property himself, the general rule is that a lawyer cannot engage in business dealings with a client. However, it can still occur if many hoops are jumped, like a professional neutral appraisal, fair market value being paid (or pretty close to it), and full disclosure along with another attorney representing the client through the deal, and full disclosure of all conflicts and issues. But this is a lot of trouble to buy a property where the lawyer can't ethically "gain" much from it because he has to pay close to FMV. It's likely the lawyer did not buy it himself.

Having the client sell to the lawyers friend or relative, or a straw man, has the same issues. I would suspect that if the lawyer did not instruct the client to get an appraisal, nor to talk to a realtor, nor list the property for sale, then this may be exactly what occurred. It's an ethical violation.

It would be interesting to ask the seller what she was told. And interesting to find out from a title company who eventually buys the property, and then see if you can determine how the buyer knew the lawyer.

But none of this will help you. It's a numbers game. Find another property but keep this one in mind for a time being to see if it ever transfers. If it doesn't after two solid months, then maybe re-approach the seller. If she's still willing to sell, she likely won't talk to the attorney the second time around. However, you may want to offer just a bit more.

[John Casmon]

So the home owner gets a flyer to sell his/her house from a random wholesaler. Home owner meets with random wholesaler who offers much less than market value. Seller wants to sell, but feels the need to consult with his attorney. After consulting with his attorney, seller decides not to sell to random unlicensed wholesaler and realizes he can make a better deal selling to someone else (anyone else). 

And we're trying to make the attorney out to be the bad guy here? If the wholesaler could have SOLVED the seller's problem better than anyone else, he would have closed the deal. 

What evidence did the owner provide that suggests the lawyer is stealing the deal? This is more of the concern, if this isn't just speculation.

[David D Painter]

@John Casmon Well said.

[Account Closed]

I agree completely with @Joseph B. Davisson The State Bar of Texas, would expect the lawyer to try to get their client to do something besides dump the property at pennies on the dollar.  I can tell you in Dallas there have been criminal prosecution where lawyers helped their elderly clients to sell properties for pennies on the dollar.

[Pavel Yurevich]

@John Casmon

Spot on, sir. I love the verbiage that you used over here, gives great perspective from an outsider's point of view.