Fiduciary relationships promote fair play and protected interests in the real estate market. We trust professionals to walk us through real estate transactions. But what happens when you suspect a broker is breaching fiduciary duty?
At Richman Law Firm PLLC, we work on cases where brokers and real estate agents misrepresent property details, fail to disclose crucial information or act negligently. Other common issues include conflicts of interest, failure to follow client instructions, and dual agency. Contact us today for a free consultation.
Breach of Fiduciary Duty in Real Estate
Fiduciary duty is a must in any real estate profession, where agents and brokers are required to act in their clients’ best interests. The fiduciary relationship is built on trust and comes with many obligations to establish fair and ethical performance in all real estate transactions.
In real estate brokerage, fiduciary duties include:
The Duty of Loyalty: Agents and brokers must prioritize their client’s interests above their own, avoiding conflicts of interest and ensuring their actions align with their client’s goals. This means putting the client’s needs first, even if it means sacrificing personal gain.
The Duty of Care: Real estate professionals must act with reasonable care in representing their clients. This includes providing accurate and on-time information, following due diligence, and avoiding negligence.
The Duty of Confidentiality: Agents and brokers must not disclose sensitive information without full authorization, as doing so could compromise the client’s interests.
The Duty of Disclosure: Full transparency is required in all decisions. Agents and brokers must disclose all material information to their clients, including any potential conflicts of interest or limitations on their representation.
Breaching these fiduciary obligations can lead to costly consequences, including liability for damages, legal fees, and loss of license. Consequently, real estate professionals should comply with their fiduciary duties in all aspects of their practice.
Understanding Fiduciary Duty Claims
Fiduciary duty is the legal obligation that real estate agents and brokers have to act in the best interest of their clients. It consists of several responsibilities:
- Keeping high standards while managing the client’s affairs
- Acting in the client’s best interest
- Act in good faith and deal fairly
- Protect the client’s confidential information
Breaches can happen when a fiduciary fails to fulfill responsibilities, such as self-dealing, conflicts of interest, or not acting with the caution and diligence expected of them. Those making claims can seek compensatory damage if they prove a breach of fiduciary duty.
Proving a Breach of Fiduciary Duty
Proving a breach of fiduciary duty involves demonstrating that a fiduciary relationship existed, that the fiduciary failed to uphold their duties and that this breach caused loss to the beneficiary.
To establish a breach of fiduciary duty, claimants must show that the agent or broker:
Failed to Disclose Material Information: This could include not informing the client about a conflict of interest or a limitation on their representation.
Acted in Self-Interest: If the fiduciary acted in their own interest rather than the client’s, this constitutes a breach. For example, if an agent prioritizes a deal that benefits them financially over one that is in the client’s best interest.
Neglected Their Duty of Care: Failing to exercise reasonable care, such as not providing accurate information, can lead to significant harm or damage.
Breached Confidentiality: Unauthorized disclosure of client information, such as financial details or negotiation strategies, can severely disadvantage the client.
Examples of Breach of Fiduciary Duties
Breaches of fiduciary duty happen in many situations involving real estate agents, brokers, property managers, and other professionals who owe a duty to their clients or others. In proving a breach of fiduciary duty claim, a plaintiff must prove that a number of factors exist in the claim.
The prudent person standard requires fiduciaries to act with the same care, skill, and diligence that an ordinarily prudent person would exercise in similar circumstances. This standard is often used to evaluate whether a fiduciary has breached their duty.
Below are some common examples of breaches of fiduciary duty that can result in legal liability. If you’ve experienced any of these, you should consult a NYC breach of fiduciary duty attorney.
Misrepresentation of Property
Misrepresentation involves providing false or misleading information about a property. This could include overstating the property’s value, understating its defects, or providing wrong information about its features. Misrepresentation can also be considered a form of professional negligence.
A fiduciary is required to provide accurate and complete information about a property. If they knowingly or negligently misrepresent the condition, value, or any other aspect of the property, this can lead to financial losses and legal complications for the client.
Failure to Disclose Relevant Information
The fiduciary role requires that agents disclose all relevant information about a property. This includes known defects, potential legal issues, or other pertinent facts affecting the client’s decision to buy or sell. Failure to disclose such information is a breach of fiduciary duty. Fiduciary duties may also apply to corporate directors, who must disclose relevant information.
For instance, if a real estate agent is aware of a structural defect in a property but fails to inform the potential buyer, the buyer could face significant repair costs after the purchase. This lack of disclosure could be grounds for a lawsuit against the agent for breach of fiduciary duty.
Negligence
Negligence refers to the failure to exercise the care that a prudent person would exercise in similar circumstances. In real estate transactions, negligence can take many forms, such as failing to use adequate due diligence, properly documenting transactions, or failing to advise clients of potential risks.
If negligence results in financial loss or harm to the client, this could constitute a breach of fiduciary standards. For instance, if a real estate broker fails to review a contract before advising their client to sign it, and this oversight leads to negative consequences for the other party, the broker could be held liable for breach of fiduciary duty.
Conflicts of Interest
A conflict of interest happens when a fiduciary’s obligations go against their duty to act in their client’s best interests. For example, a conflict of interest could occur if a real estate agent fails to disclose that the seller is a family member. Cases where agents are self-dealing are also problematic.
Such conflicts can compromise the broker’s ability to provide unbiased advice and representation, potentially harming the client.
Failure to Follow Client Instructions
A fiduciary is required to follow the client’s instructions. This includes sticking to the client’s preferences and carrying out transactions following the client’s directions. Managing members of limited liability companies also have fiduciary duties to their members.
For instance, if a client instructs their real estate agent to list their property at a specific price, but the agent lists it at a higher price without the client’s consent, this could be considered a breach of fiduciary duty. The client may have grounds for legal action against the agent for any financial loss or other harm resulting from this breach.
Dual Agency
Dual agency happens when a real estate agent or broker represents the buyer and seller in the same transaction. In such a case, the agent has a fiduciary duty to both clients and has to balance these duties impartially.
However, this can be challenging as the interests of the buyer and seller often conflict since the seller wants to sell at the highest possible price while the buyer wishes to buy at the lowest possible price.
While dual agency is not legal in some states, it is legal in New York. Yet, it comes with risks that should be carefully considered. It must be disclosed and agreed upon by all parties involved. If dual agency is not properly disclosed and managed, it can lead to conflicts of interest and breaches of fiduciary duty.
Contact Us for a Free Consultation
A fiduciary breach in real estate transactions can lead to financial losses and other complications. We may help you file a claim and seek compensation for your losses. At Richman Law Firm PLLC, we provide personalized, client-focused representation to seek the best possible outcome for our clients. Contact us today for a free consultation.
FAQ
What should I do after a broker discloses my information to third parties?
A fiduciary should not disclose confidential information about their client without express permission. Disclosing such information can harm your interests and constitute a breach of fiduciary duty. Disclosing confidential information can also lead to legal malpractice claims.
If your real estate agent has disclosed a financial situation or negotiation strategy to a potential buyer or seller, contact a breach of duty attorney as soon as possible.
What are some examples of fiduciary relationships?
Common fiduciary relationships include:
- Attorney-client
- Trustee-beneficiary
- Corporate director-shareholder
- Guardian-ward
- Partner-partner in a business partnership
How does the “business judgment rule” relate to fiduciary duty?
The business judgment rule is a legal principle that protects corporate directors from personal liability for business decisions made in good faith, with reasonable care, and in the best interests of the corporation. It’s a defense against claims of breach of fiduciary duty.
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Meet Mr. Richman
SCOTT B. RICHMAN, ESQ.
Mr. Richman is the Managing Member and Founder of Richman Law Firm PLLC. In his role as Managing Member, Mr. Richman oversees the day-to-day operations of the firm and handles the litigation of the most complex legal matters across a vast array of practice areas and disciplines.
