Attorneys and Clients: Evaluate Your Real Estate Fraud Case

Real estate fraud attorneys must constantly evaluate real estate fraud lawsuits based only on the information they receive from their potential clients. Potential clients, who are trying to convince the attorney of the merit in their lawsuit and not necessarily understanding the elements of a fraud case, do not always share all of the pertinent details with the attorney. Both real estate lawyers and their potential clients must understand what information is important in a real estate fraud case and how to evaluate the strength or weaknesses of a real estate lawsuit. Here are tips for a potential real estate fraud plaintiff and the real estate attorneys who must evaluate the case.

Honesty is paramount in real estate litigation. Even if a potential client is successful in hiding information from his or her lawyer during the initial consultation, that evidence will eventually surface during the litigation. The attorney can evaluate the case better if he or she knows all of the evidence from the very beginning. Sometimes bad evidence can be successfully dealt with to lessen its impact if the client discloses it right away. If the evidence does not surface until half way through the plaintiff’s deposition, the attorney has almost no ability to control the damage.

Conversely, the real estate fraud lawyer should ask questions in the first client meeting that touch on each of the elements of a fraud cause of action. Was there an actual misrepresentation or active concealment of some material fact? Did the client know that the information was false at the time? Was the other party intending to defraud the client? Did the client justifiably rely on the misrepresentation?

One of the most common weaknesses in a real estate fraud lawsuit is whether the client knew that the other party was concealing information or making a misrepresentation. If the client knew the information was false or already knew the concealed information from some other source, the client (and his attorney) will not be able to argue that the client reasonably relied on the misrepresentation.

For example, in a fraud lawsuit premised on the purchase of a shopping center, a plaintiff may claim that he was told that all of the units were rented, the tenants were operating their businesses and all tenants were paying rent. Even though a document such as a rent roll may make this claim and look like the foundation for a meritorious fraud lawsuit, the evidence may show that the unit had already been vacated with a “Going Out Of Business” sign on the door when plaintiff did a site inspection of the shopping center. In other words, the client will have seen that the unit had been vacated and was going out of business. He would therefore not be able to rely on a representation that all units were occupied and all tenants were paying rent.

In other examples, a seller may have concealed material information from the client when selling the shopping center. However, another party in the transaction—a tenant, a real estate broker, a property manager—may testify that he or she had a long discussion with the client about the status of the tenants, the operating problems at the property, the boundary dispute with the neighboring landowner or whatever the concealed information is. A potential client may correctly tell his attorney that the seller failed to tell him that information without understanding the significance of the fact that he learned that information from another source before the close of escrow on the property. The fact that the seller may have failed to reveal the information may, in that case, be morally wrong but, if the client knew the information from another source, a real estate fraud lawsuit will fail. It is true that the client was lied to but he would not be able to establish that he was unaware of the falsity of the information.

Real estate fraud attorneys must also delve into whether the potential client was damaged or not. While a person may breach a contract or commit fraud, it does not necessarily follow that the victim is injured by the fraud. Using the example from above, suppose the seller of a shopping center represents that a tenant is paying rent when in fact that tenant has vacated the property is not paying rent. Now suppose that the client’s industrious real estate broker procures a tenant during escrow and that tenant takes occupancy on the first day of the client’s ownership. Yes, the seller lied about the vacancy problem but the client was not injured—a new tenant was found and started paying rent from day one.

There are many ways that a real estate fraud lawsuit can unravel during litigation. The best way for real estate fraud attorneys and potential clients to avoid this is to be honest in their exchange of information, to go through the elements for a fraud lawsuit, and for both the lawyer and the client to understand what evidence will make or break the case from the very beginning. While this advice applies to all real estate litigation, it is particularly important in real estate fraud litigation.

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