Typically a hold harmless agreement is between a buyer and seller.  The intent is to pass on any liability associated with the property to the buyer. It is important to read the agreement thoroughly before signing it.  You need to understand what you could be getting yourself into after you own the property.

These agreements are usually between a seller and his buyer.  They can also be between a seller, buyer and the closing agent. In this case the closing agent, often an attorney, wants a hold harmless to cover him from any liability in the future – even if he was at fault. This may indicate an attorney who is more interested in his covering his butt than the best interests of his clients.

Most often the hold harmless is used to actually transfer responsibility from the seller to the buyer with both parties being aware of the reason for the agreement. The reason that is most common is a code or lien issue that will take weeks or months to resolve.  The new buyer will have to pull new permits or resolve the issue after he is on title.

This is important that the new buyer actually talks to the city or county and understands what his liabilities actually are.  Otherwise he will bolt from the closing. Most new investors will run from these properties.  They lose probably millions of dollars in profits every year with no reason that it should happen. If you are faced with a Hold Harmless signing, do your research on the property.  Know the specific reason for the agreement.

In most closings of foreclosed properties (REOs), the closing agent not only represents the former lender but also actually did the foreclosure. The closing agent will have you sign a hold harmless agreement nearly all the time. The reason is that they don’t want to be liable for procedural mistakes in their foreclosure proceedings.  Mistakes could give the property back to the foreclosed homeowner. There are too many famous cases where the courts granted the lenders final judgments but whereby clerical error the lender never had a mortgage on the property. The reason it slipped through the court system is the property owner never staged a foreclosure defense.

So if you are presented with a hold harmless agreement that has to be signed at closing, read it thoroughly.  More importantly ask for the specific reason you are signing it. What is there in the chain of title that you will have to assume and fix before you can sell the property? A hold harmless agreement is not necessarily a deal killer. If for any reason you are uncomfortable, have an attorney “shadow” your closing to give you peace of mind.  That way you don’t lose a great deal unnecessarily.

If something happens after you close, you can always sue and claim a “material misstatement of facts” that intentionally withheld information necessary for a reasonable person to make an informed decision. Get legal advice as quickly as possible.  Don’t assume that you can’t win.

To your limitless success,
Dave Dinkel

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