Can You Sue a Real Estate Lawyer for Malpractice?

Real estate work is document heavy and deadline driven, and that is where most claims come from. Typical problems include a title search that misses a recorded lien or easement, a contract missing a protection the client asked for, a deed with the wrong legal description, a lease clause that does not do what the client wanted, and closing or escrow funds that are misdirected.

In the ABA's Profile of Legal Malpractice Claims covering 2020 to 2023, real estate accounted for 13.19 percent of claims, second among all practice areas and up 0.81 percent from the prior study. The same study found that preparing, filing, and transmitting documents was the activity behind 35.66 percent of all claims, more than any other.

If the problem is closing money that disappeared, you may be looking at stolen client funds rather than negligence, which opens up the client protection fund. If the problem is contract language, see drafting errors.

Before anything else, figure out whose lawyer it was. In many home purchases, the lawyer at the table was hired by the lender or the title company. Ordinarily you cannot sue someone else's lawyer for negligence because you lack privity with them. Our guide on suing the other side's lawyer covers the general rule.

Some states make narrow exceptions. In Flaherty v. Weinberg (Md. 1985), a couple bought a home without hiring their own lawyer. The lender's law firm handled the closing and assured them the house and well were within the property lines, and they paid $60 for a survey at closing. A new survey five years later showed the well was not on their land and the pool, driveway, and a retaining wall encroached on a neighbor's lot. The Maryland high court held their negligence count failed because they never hired the firm, but the Maryland Court of Appeals held in Flaherty v. Weinberg (1985) that a buyer can proceed against the lender's closing lawyer on a third-party beneficiary theory if the buyer alleges that benefiting the buyer was a direct purpose of the lawyer's engagement.

That is a limited opening, not a general rule. If you did not sign an engagement letter with the lawyer, have a malpractice lawyer in your state look at who hired whom before you spend money on experts.

A lawyer who misses a recorded lien, ignores your instruction to include a contingency, or lets a contract deadline pass without telling you has likely fallen below the standard of care. A lawyer is not liable for a real estate deal that simply turned out badly, such as a falling market, if the lawyer competently explained the risks. A lawyer is not responsible for a falling market, a buyer who walks away, or a price you agreed to after being advised of the risks.

Title insurance is also part of the picture. If a title insurer is responsible for a missed defect, your first claim may belong under the policy. A lawyer's error can still matter if it caused losses the policy does not cover.

You must prove the lawyer owed you a duty, breached it, and caused you a loss. For transactions, courts have debated whether the client must show what would have happened without the mistake. California settled it. In Viner v. Sweet (2003), the California Supreme Court held that a client suing over transactional work must show that, but for the malpractice, it is more likely than not the client would have obtained a more favorable result.

That can mean showing the other side would have accepted a better term, or that you would have walked away from a bad deal. The court said you can use circumstantial evidence and do not need the other party to admit it would have agreed. In Viner, the jury had awarded $13,291,532, the Court of Appeal cut that to $8,085,732, and the Supreme Court reversed the appellate ruling that the but-for test did not apply to transactional work and sent the case back.

Expect to need an expert witness on what a reasonable real estate lawyer would have done, and often an appraiser or title expert on the loss. The guide to the case within a case explains the general approach.

Common real estate claims and who may pay

Real estate problems often involve several possible sources of recovery, not just the lawyer. Money you recover from a title insurer, surveyor, or seller for the same loss will usually reduce what you can collect from the lawyer, so identify every source early. Sorting out who is responsible helps you avoid suing the wrong party or missing a faster claim.

Dual representation deserves a warning. Some lawyers represent both buyer and seller, or both borrower and lender. A lawyer who represents both sides has to handle that conflict openly, and one who quietly favors one client over the other can face a claim for breach of the duty of loyalty. Rules on when dual representation is allowed at all vary by state. See conflict of interest for how those claims work.

Wire fraud is another growing problem in closings. If closing funds were wired to a criminal who impersonated the lawyer or title company, the question becomes whether the lawyer or settlement agent followed reasonable procedures. Those cases turn heavily on the facts and the parties' agreements. Report the fraud to your bank and law enforcement immediately, then look at whether anyone at the closing failed to take reasonable steps.

Commercial deals raise the same issues at larger scale, plus lease terms, zoning, and financing conditions. The same but-for rule from Viner applies in California whether the deal is a house or a shopping center.

Real estate malpractice damages are usually measured by the cost to cure the defect or the property's lost value, plus related losses the error caused. They usually fall into a few categories:

• Cost to cure. What it costs to clear the title, buy an easement, or move an encroaching structure.
• Lost value. The difference between the property's value as promised and as delivered, often shown by appraisal.
• Lost deal benefit. A deposit forfeited or a better deal lost because of the error.
• Fees to fix it. Legal costs of a quiet title suit or other cleanup, in states that allow them.

Courts generally will not let you recover twice, so money from a title insurer or the seller may reduce what you can get from the lawyer. For typical case values, see how much a legal malpractice case is worth.

Real estate mistakes often stay hidden for years. In Flaherty, the closing was in 1977 and the bad survey came to light in 1982. Many states apply a discovery rule, but some also have a statute of repose that cuts off claims a fixed number of years after the lawyer's work regardless of discovery. In California, you generally have one year from discovering the mistake, and never more than four years from the act, to sue a lawyer for malpractice. Check your state on the statute of limitations page.

1. Find your engagement letter and confirm who the lawyer represented.
2. Pull the title commitment and policy and notify the title insurer if a covered defect exists.
3. Get a current survey or appraisal if the problem involves boundaries or value.
4. Request the lawyer's client file.
5. Write down the date you learned of the problem.

If you think your real estate lawyer's mistake cost you, a free case review takes about two minutes and can connect you with an independent attorney who handles legal malpractice claims in your state.