In 2009 the Kentucky Supreme Court substantially revised the Kentucky Rules of Professional Conduct.
Articles in this index written before 2009 citing Kentucky Rules of Professional Conduct must be checked for any changes to the rule cited.

The Three Most Important Words in Real Estate Malpractice! Malpractice! Malpractice!

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Real estate malpractice claims are plaguing Kentucky lawyers. We continue to experience an increasing number of claims in that practice area. Improper disbursement of sale proceeds is proving especially costly. As we wrote in our Fall 2001 newsletter it is essential to understand the difference between escrow agent and client trust account management. An escrow agent is a neutral party with fiduciary obligations to all involved in the escrow arrangement. A lawyer holding the proceeds of a real estate transaction in a client trust account represents the client and has third party responsibilities for others with a claim on the proceeds. Kentucky Rule of Professional Conduct 1.15 Safekeeping Property provides:

“Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.”

Under no circumstances disburse the proceeds of a real estate transaction until the title search is updated, the transaction documents recorded, and all checks providing funds for disbursement have cleared. Tell clients up front that they will not receive funds until these things have occurred and never make exceptions. Finally, no lawyer should ever deliver such funds to a third party (real estate broker, mortgage broker) for ultimate distribution.

Real Estate Malpractice Errors

  • Erroneous description in deed of property to be conveyed
  • Misstated date to which interest was to be computed
  • Failure to fill in blank on form
  • Failure to reserve mineral rights
  • Failure to advise on impending change in law
  • Unauthorized delay or failure to strictly enforce closing time limits
  • Failure to discover encumbrances on the property:
    • mortgage lien
    • vendor’s lien
    • tax lien
    • mechanic's lien
    • contract for deed
    • right-of-way
    • mineral lease
  • Failure to assure that clients received or conveyed title as represented:
    • remainder
    • dower
    • outstanding life estate
    • lease
  • Errors in the description of the property
  • Failure to perfect security interest:
    • failure to prepare mortgage document
    • failure to update title search at time of closing
    • failure to record or timely record a mortgage
    • filing in the wrong county
    • failure to obtain releases of other encumbrances
  • Failure to collect or protect security interest
  • Failure to attend commissioner’s sale
  • Failure to know other applicable law, e.g., probate, tax
  • Failure to disburse sale proceeds properly

 


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Disclaimer: The contents of this Web site are intended for general information purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. It is not the intent of this Web site to establish an attorney’s standard of due care for a particular situation. Rather, it is our intent to advise our policyholders to act in a manner which may be well above the standard of due care in order to avoid claims having merit, as well as those without merit. In the event any statement on the Web site differs from a statement in an issued policy the policy will control.

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