The recent bank failures of Silicon Valley Bank in California and Signature Bank in New
York have raised questions regarding the safety of funds in trust accounts.
Trust Account Funds Are Insured
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the
US federal government that provides deposit insurance to protect depositors in case a
Attorneys and realtors hold funds for others in trust accounts or fiduciary accounts,
insured by the FDIC. As of March 2023, the standard insurance amount is $250,000
per depositor, per insured bank, for each account ownership category. Even though
trust accounts often hold far more than the $250,000, the funds in trust accounts are
treated as an individual’s funds, not the attorney’s or the realtor’s funds. That means
that each person’s funds are insured up to $250,000. Although land or commercial
transactions may have earnest money deposits into trust accounts as high as
$250,000, most residential transactions do not. In the case of very high earnest
money deposits going into an RMAA trust account, consult with a member of the
If a depositor of trust funds also has a personal account at the same bank as the bank
holding funds in trust, then the two (or more) amounts are aggregated for insurance
purposes. FDIC insurance coverage is per depositor, per insured bank, and not per
account. So, if a depositor with a personal account holding $225,000 also has $50,000
at the same bank held in trust for a real estate transaction, (total of $275,000) then the
$250,000 limit is exceeded by $25,000 and $25,000 would not be insured.
The Good News
Right now, the US government is backstopping all deposits, even those over the
$250,000 limit. The likelihood of loss at this time is a small risk. However, the
government may stop covering amounts over $250,000 at any time.
Many thanks to Seth Weissman of Weissman Law for the idea for this Broker Corner.
See his video “Safe Real Estate” in today’s MAX MAIL.
According to Inman News, more homebuyers are blaming their agents for their
purchases — and hauling them to court. The extreme seller’s market of 2021 and
early 2022 pushed a lot of buyers to forego inspections in bidding wars and hope for
the best. Then something bad happens. According to Victor Insurance Managers a
growing number of recent homebuyers are blaming their real estate agents — in court.
Buyers that often overpaid for the property want someone to pay.
More Lawsuits. Higher Judgments.
Victor Insurance Managers, a large underwriting firm, reports it saw a 9% rise in errors
and omissions lawsuits against real estate professionals in 2022. (Inman News) These
lawsuits have also become even higher-stakes ordeals in recent months, running an
agent or broker an average of $39,000 in a typical losing case. That’s 13 percent
higher than it was in 2021, Victor Insurance Managers reports.
Protect Yourself and Prevent Lawsuits.
Many of you used the “Disclosure to Buyers Purchasing Property in a Seller’s Market”
on the recommendation of RMAA. It includes a Buyer acknowledgment that making an
aggressive offer to purchase a property, whether it is an aggressive price or waiving an
inspection or financing contingency, involves taking greater risks. That was smart.
There are other actions that will help to insulate you against a buyer lawsuit, especially
when you do not include the Purchasing Property in a Seller’s Market disclosure.
1. Communicate risks early and clearly. Buyers will take risks when they want
something even when we are not in a hot seller’s market. Make sure buyers
know what risks they are taking.
2. Document conversations with clients in written form. Follow a conversation up
with an email that confirms the conversation. People often do not hear what
you are saying. Save that email.
3. Get a “Read Receipt” when you send the email. A “Read Receipt” will come in
very handy to prevent a lawsuit.
4. Maintain communication after the sale. Buyers are less likely to sue an agent
that is present with them. If something does go wrong, use the conversation to
remind them that this was a risk they knowingly undertook to win the property!
Document that conversation in writing too. Even if you don’t think it’s
appropriate to send a confirming email to the client after the sale, send it to
your file. It will jog your memory when you need it!
5. Be patient, helpful and kind. It goes a long way.
If prospects or their broker are injured while viewing a listed property (either
inside an improvement or on the land) because of an unsafe condition, both
the owner of the property and the broker can be sued for premises liability
damages. Most premises liability injury claims come down to proving that
the property owner failed to take reasonable steps to fix a known (or
reasonable knowable) unsafe condition or to otherwise prevent an injury on
the property. That is, the owner was negligent in its duty to make sure
invitees are safe from known dangers on the property. The law defines
"reasonable" as what a person of ordinary intelligence and judgment would
do under the same circumstances. If a premises liability case goes to trial,
it is left up to a jury to decide what is reasonable under the circumstances.
Damages can include a wide range of losses, including medical bills, time
missed at work, physical and mental pain and suffering resulting from the
injuries, and more.
The Injured Party Cannot be Careless or Negligent
In Georgia, a visitor to a property cannot be careless or negligent either. If
an injured person could have exercised ordinary care to avoid an injury on
a property, they will not be able to recover damages.
This brings us to the real world of listing property that may be dilapidated or
may have unsafe conditions.
Preventing Injury and Liability
The best-case scenario prior to listing a property with unsafe or dilapidated
conditions would be to have a professional inspection of the property and to
correct any revealed conditions.
If the owner is unwilling or unable to make such repairs, the inspection
report can be given to buyers before their tour of the property as a form of
disclosure. (Even if the repairs are made, the report should be given out.)
In the real world, owners are often unwilling to have a property inspection.
If a condition is known, reasonably knowable or even suspected, warning of
it will go far in protecting the owner and broker from liability. Remember, a
visitor to a property cannot be careless or negligent either. If visitors ignore
clear posted warnings, they are far less likely to recover damages.
If you can provide evidence that you took reasonable efforts to prevent
harm to others, you are much less likely to be found liable. Consider the
following preventive actions:
Seth Weissman offers several Special Stipulations in the Red Book to use
when selling a property with unknown or unsafe conditions. Consider the
Not Familiar with the Condition of the Property
SS: Buyer acknowledges that Seller is not familiar with the condition of the
Property. The Property is therefore being sold in “as is” condition. The
Property contains numerous conditions that are in need of repair or
replacement. While Seller is unaware of latent or hidden defects in the
Property or safety concerns, Seller has not examined the Property in
search of latent or hidden defects. Buyer agrees to have the Property
inspected by a professional home inspector, engineer, and/or other
construction experts to ensure that Buyer is familiar with the condition of
the Property. Buyer covenants not to sue Seller for any matter arising out of
or relating to the condition of the Property.
When the Seller Knows or Suspects the Property to Be in a Dilapidated or
SS: The Seller is not providing the Buyer with a Seller’s Property
Disclosure Statement Exhibit because the Seller is unfamiliar with the
condition of the Property. The Property and improvements upon the
Property may contain defects and dangerous conditions. Consequently, the
Buyer and Buyer’s Agent(s) are encouraged to use the utmost of caution
while in and around the Property to avoid injury. The Buyer is strongly
encouraged to have the Property carefully inspected by a professional
inspector because of the Seller’s lack of familiarity with the condition of the
GAR financing contingencies, including Conventional, FHA, VA and USDA-
RD, include a very specific, time limited provision regarding Loan Denial
Letters. If your buyer is denied a loan and the buyer can legitimately use
the denial to terminate and get their earnest money back, don’t forget to
timely send the Loan Denial Letter or the earnest money might go to the
These are the steps to be taken and the rules to follow.
1) The Buyer must notify the Seller (Seller’s agent) of the loan denial
within the contingency time period. Use the GAR Notice form F816
and ask for a Read Receipt.
2) The Buyer must provide the Seller with a Loan Denial Letter from the
lender within seven (7) days from the date of Notice. It’s ok if the 7
days falls outside of the contingency period, but the notice of denial to
the seller must be within the contingency time period. The reason for
the additional 7-day period to produce the Loan Denial Letter is
because lenders may not be timely. It may take days for the lender to
produce the letter. If the lender does not produce the letter within the
7-day period, the finance contingency is completed and the Buyer
can lose the earnest money. In effect, the sale becomes a “no
financing” sale and the buyer’s earnest money is at risk if the buyer
does not close.
3) A Loan Denial Letter must be for the Loan(s) described in the
Finance Contingency. If the interest rate in the contingency says Not
greater than 5.00% for a 30-year term, getting denied for a 15-year
term at 6.00% doesn’t work. A buyer may apply for different loans;
however, the denial of other loans may not be a basis for a buyer to
4) If there was an Approved Lender, the denial letter must be from that
5) A Loan Denial Letter from a non-institutional mortgage lender (private
lender) cannot be the basis for Buyer to terminate this Agreement.
6) The Loan Denial Letter may not be based solely upon one or more of
the following 4 reasons. However, even though one of the 4 reasons
may apply, if the buyer has an additional legitimate reason to
terminate, such as insufficient income, then the “solely” provision
makes the Loan Denial Letter valid and allows the buyer to terminate
o Buyer lacks sufficient funds other than the amount of the
Loan(s) to close;
o Buyer not having leased or sold other real property (unless
such a contingency is expressly provided for in this
o Buyer not having provided the lender(s) in a timely fashion with
all information required by lender, including but not limited to,
loan documentation, Official Wood Infestation Reports,
structural letters, well tests, septic system certifications, flood
plain certifications and any other similar information required by
lender (hereinafter collectively “Required Information”); or
o Buyer making purchases that adversely affect Buyer’s debt to
February 24, 2023
Real Estate News, Brokers Blog & More