It never ceases to amaze me when someone engaging in a real estate transaction or a loan agreement prefers to write up their own documents without the benefit of a licensed and experienced real estate attorney. Instead, they’ll buy a building, buy a home, lease retail space, or even buy into a business for hundreds and thousands of dollars without taking the time to sit with an attorney to draft their real estate purchase agreement, their loan agreement or their business agreement. They’re doing so at their own peril.
An excellent example is when a business owner was expanding his store front. He and his contractor got into a dispute related to the quality of the workmanship that was performed. Both parties ended up going to court. The contract they drafted contained not one, but two provisions dealing with the awarding of attorney fees. They drafted this contract on their own and just so you know, most contracts usually have only one provision that addresses attorney fees. That’s normal; one provision. But in this case, both parties were feeling very generous when they created their own document without the benefit of counsel and they inserted two provisions. These provisions were in conflict.
The first provision that addressed attorney fees—basically, meaning who gets the attorney fees if they win a lawsuit—does the loser pay. That’s what the attorney fees provision addresses. So this example, the attorney fee provision said that only a prevailing party could collect attorney fees. The judge said that for either party to have prevailed, they would’ve had to be right on all counts in the lawsuit. Because this was just a typical lawsuit, both parties were right, but not on all issues. So no attorney fees were awarded under that provision. Maybe both parties won under this provision, they won the battle, but they didn’t win the war. Neither party had to pay the other party the attorney fees under that provision.
But there was the other provision regarding attorney fees (if you recall, they had inserted two attorney fee provisions) and it was kind of ridiculous. Basically, in the contract that they wrote up, the provision said that whoever brought the legal action was entitled to his attorney fees. Again, not only is this ridiculous, but what it really does is it awards one party for bringing the lawsuit first. The court decided to read this literally, and it didn’t matter if either party was right or wrong, but whoever brought the action first was awarded their attorney fees. So with this type of provision, there’s always going to be a loser because the provision encourages filing a lawsuit first. So this provision cost one of the parties mid-$30,000 to $40,000 in attorney fees, which is really unfortunate.
So remember, contracts have many provisions, and if you fail to go to an attorney, if you write your contract without one, and you don’t put in the right provisions or you fail to recognize the nuances in the contract language, it could and will cost you. Take the above example as a warning. You’re going to thank me later.
About the Author: Since 1990, David Soble has been a real estate and finance attorney in Ohio and Michigan. He advises national banks, lenders, loan servicers, consumers and business owners on residential and commercial real estate, financial disputes and mortgage compliance issues. He has been involved in thousands of real estate transactions, being responsible for billions in real estate loan portfolios throughout his career.