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.

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