Grace is an affiliate broker in Tennessee representing a seller. The seller's home is under contract with a financing contingency that expires in 14 days. On day 12, the buyer's affiliate broker calls Grace and says 'I think we'll be fine on financing, but I haven't received the official commitment letter yet.' Grace does not follow up in writing and does not advise her seller client to request an extension or take any protective action. On day 16, the buyer formally terminates the contract citing failure to obtain financing and demands return of the earnest money. The seller believes Grace failed in her duties. Which of the following best describes Grace's potential liability under Tennessee law?
Correct Answer
B) Grace may have violated her fiduciary duties to her seller client by failing to advise the seller to take protective action when the contingency deadline was approaching without confirmation of financing
Under Tennessee law, a seller's affiliate broker owes fiduciary duties to the seller client, which include the duty of loyalty, disclosure, and reasonable care. When Grace learned on day 12 that financing had not been confirmed and the contingency deadline was approaching, she had a duty to advise her seller client of the situation and the potential risks—including the possibility that the contingency might expire without action or that the buyer might invoke it after the deadline. Failing to advise the seller to consider requesting a written extension or taking other protective action could constitute a breach of her duty of reasonable care under Tenn. Code Ann. § 62-13-401 et seq. and expose her to TREC disciplinary action.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
Contract termination occurs when a contract is ended or discharged, releasing both parties from their obligations. A contract can be terminated through performance, mutual agreement, operation of law, or breach.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
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