Key Takeaways

  • A hold harmless agreement in real estate protects one party from legal liability, often used in property sales, rentals, inspections, or foreclosures.
  • These agreements may be unilateral or reciprocal and commonly appear in foreclosures, short sales, and investor transactions.
  • Real estate agents, property sellers, and contractors often use hold harmless clauses to reduce their risk.
  • Buyers should review title issues, disclosure history, and indemnity clauses with legal help before signing.
  • Properly drafting and understanding the scope and limitations of a hold harmless clause is essential to avoid unintended legal exposure.

A hold harmless disclosure is used when one party agrees not to hold the other party liable for any damage or injuries it suffers as a result of engaging in particular activities.

A hold harmless agreement is usually instituted between buyers and sellers. They could also be between a buyer, seller, and a closing agent. In such cases, the closing agent, usually an attorney, wants coverage for any future liabilities that may occur— even if the closing agent is at fault.

In real estate transactions, the buyer should talk to the county or city to understand the nature of liabilities before signing a hold harmless agreement. The buyer should undertake a thorough research of the property and know the reason for signing such an agreement.

When it comes to foreclosed properties, closing agents not only represent the former lender, they are often the ones who undertook the actual foreclosure. Such agents usually require buyers to sign hold harmless agreements in order to prevent liabilities resulting from procedural mistakes during foreclosure proceedings.

Such mistakes could result in foreclosed homeowners getting back their property.

When confronted with a hold harmless agreement during a real estate closing proceeding, buyers should read through the clauses thoroughly. They should also find out of if there are issues with the chain of title that require fixing.

If you're uncomfortable completing a deal that requires the signing of a hold harmless agreement, you should have an attorney do a review. Even if issues arise after the deal has been closed, you can always sue for “material misstatement of facts” where the other party intentionally withheld information that was necessary for making an informed decision.

Uses of Hold Harmless Disclosures

Indemnity and hold harmless provisions are used to shift risk and liability from the contracting party to the signing party. Depending on how they are used, they could prove harmful or beneficial. Let's take a look at areas where such provisions are used.

  • Governing Documents: CC&Rs usually contain provisions that shift blame/liability for all negligent acts committed by volunteers to the association. Without such a provision, getting volunteers to sign up could be extremely difficult.
  • Contracts: If drafted or used improperly in contracts, a hold harmless agreement could be harmful to any or all contracting parties.
  • Covenant: Maintenance covenants between homeowners and associations (where the former modifies some common area elements) usually contain indemnity and hold harmless provisions to prevent liability for damages or injuries caused by the modifications.
  • Facility Rental Agreements: Rental agreements for common areas such as pools, clubhouses, or open space area where individuals can hold private events usually contain indemnity and hold harmless provisions that protect the association from all liabilities in the event of an injury.

The major aim of indemnity, exculpatory and hold harmless clauses is to help reduce the risk of liability. However, they can be quite costly if there are mistakes in drafting such provisions. As such, you should have a legal counsel review all contracts containing such clauses before you append your signature.

An organization's governing documents usually indemnifies its directors and officers against settlements, fines, judgments, attorney fees and other expenses that are reasonably incurred in connection with actual or threatened criminal or civil proceedings.

In civil proceedings, directors and officers can be indemnified if their actions were in good faith or if they acted in the best interests of the organization. In criminal proceedings, they can be indemnified if they believed that their actions were not unlawful.

After due consideration, many legal commentators are of the opinion that the hold harmless aspect of the couplet “indemnify and hold harmless” should be dropped. Other commentators suggest that indemnify only applies to third-party claims and not to direct claims between contracting parties.

Since most courts interpret hold harmless and indemnify as synonyms, entities should clearly draft out their indemnification provisions to say exactly what they intend. If they intend the meanings of “hold harmless” and “indemnify” to be synonymous, it's best to drop the hold harmless to prevent opposing counsels from trying to attach other meanings to the phrase.

If the meanings are different, it's best to use a phrase other than “hold harmless” to avoid a synonymous connotation.

Key Components of a Real Estate Hold Harmless Agreement

An effective hold harmless agreement in real estate should contain the following elements:

  1. Identified Parties: Clearly name the party offering protection (e.g., seller or agent) and the party assuming the risk (e.g., buyer or tenant).
  2. Scope of Protection: Specify what liabilities are being waived—property defects, third-party claims, injuries, etc.
  3. Duration of Agreement: Define how long the protection lasts (e.g., until closing, post-sale, or indefinite).
  4. Indemnification Clause: Some agreements also include indemnity language, requiring the signing party to reimburse the protected party for legal expenses or damages.
  5. Governing Law: State which jurisdiction's laws govern the agreement.
  6. Severability Clause: Ensures the remainder of the agreement remains valid if one part is unenforceable.
  7. Signature and Date: Both parties must sign and date the agreement for it to be enforceable.

Limitations and Legal Considerations

While hold harmless agreements can limit liability, they are not absolute:

  • Not a Shield for Gross Negligence or Fraud: Courts often refuse to enforce these agreements if a party engages in willful misconduct or intentionally hides material facts.
  • State-Specific Enforceability: Some jurisdictions limit or restrict the use of such agreements, particularly where consumer rights are at stake.
  • Ambiguity Risks: Vague or poorly worded clauses can lead to disputes or render the agreement unenforceable.

Parties are encouraged to consult with an experienced real estate attorney to ensure the agreement aligns with local laws and clearly reflects their intent.

Sample Language for a Hold Harmless Clause

A sample clause often found in a hold harmless agreement for real estate might read:

"The Buyer agrees to hold harmless and indemnify the Seller and Seller’s agents from any and all claims, damages, or losses arising out of or related to the Buyer’s use, inspection, or purchase of the property, including but not limited to injuries occurring on the premises before closing."

This language can be tailored depending on whether the agreement is unilateral (protecting one party) or mutual.

Common Situations for Hold Harmless Agreements in Real Estate

In real estate, a hold harmless agreement is frequently used to protect a party—often the seller, agent, or contractor—from liability during transactions or property-related activities. Here are several situations where these agreements typically arise:

  • Foreclosures and Bank-Owned Properties: Buyers of foreclosed homes may be asked to sign hold harmless agreements to protect lenders and closing agents from liability related to title defects, prior ownership disputes, or errors in the foreclosure process.
  • Short Sales: Sellers and agents may include hold harmless clauses to avoid liability if third-party approval causes delays or cancellations.
  • Property Repairs or Inspections: Contractors or inspectors may ask clients to sign agreements releasing them from liability for certain risks related to their work or findings.
  • Real Estate Investors and Flippers: To expedite transactions involving distressed properties, investors often use hold harmless agreements to assume risk knowingly.
  • Rental and Lease Agreements: Landlords might use hold harmless clauses to protect themselves from tenant-caused damages to third parties or common areas.

These agreements can vary in scope. Some are limited to physical injury or damage on the premises, while others may extend to legal claims involving property defects or disputes.

Frequently Asked Questions

  1. What is a hold harmless agreement in real estate?
    It's a legal contract where one party agrees not to hold the other liable for losses, injuries, or legal claims related to a real estate transaction or property.
  2. When is a hold harmless agreement typically used in real estate?
    Commonly in foreclosures, short sales, property inspections, or repairs, where one party assumes certain legal or physical risks.
  3. Is a hold harmless clause enforceable?
    Generally yes, but not if it covers intentional misconduct or violates state public policy. Legal enforceability depends on wording and local laws.
  4. Can a hold harmless agreement protect against all liabilities?
    No. It may not cover gross negligence, fraud, or liabilities not clearly described in the agreement.
  5. Should I sign a hold harmless agreement without a lawyer?
    It's not advisable. A real estate attorney can help you understand the risks and ensure the agreement is fair and enforceable.

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