How Big A Deal Is Misrepresentation In Real Estate Law?

Posted on: 15 June 2020

One of the reasons for hiring a real estate attorney is to take a close look at potential misrepresentations. These can occur while buying or selling a property, and they can come up during appraisals and valuations, too. Both sides in a transaction should be aware of the ramifications of misrepresentations, and here are four reasons why this topic is a big deal.

Contracts and Transfers Can Be Nullified or Modified

A major problem that arises from misrepresentations is that they present grounds for nullifying contracts and transfers. Someone who wants out of a deal can retain real estate attorney services and bring the matter before a court. If they can point to a meaningful misrepresentation, the judge may even toss out the original arrangement.

Courts do frequently seek in-between remedies, especially if both parties would like to keep the sale on the books. An injured party in such a case might instead ask the court for repayment of part of what they paid or a reduction of what they currently owe. That can create an odd situation where the seller ends up paying significant amounts of money to the buyer.

Financing May Collapse

Suppose a property owner decided to take out a loan they hold a clear title to. The bank may have some questions about the asset that's supposed to back up the mortgage they're planning to issue. Also, the bank may have a professional inspection performed to verify the state of the place. Even if the inspection provides a clean bill of health for the property, a material misrepresentation by the debtor can still be used as grounds for canceling the loan.

A collapse in financing can occur even during a project. There are scenarios where you could end up halfway through a remodel or build only to see the money dry up because the financing was withdrawn. You may also end up repaying the portion of the loan that was shelled out before the cancellation. Fees and commissions may have to be refunded, too.


Willful misrepresentations might be seen as acts of fraud. In the least-worst scenario, the party accused of misrepresenting the state of the property might end up on the wrong end of civil fraud allegations. In the very worst scenario, they may face criminal charges.

Reputational Harm

Although a lesser concern than civil and criminal penalties, every representation means a lot in the real estate world. Misrepresentations will haunt a seller for years to come.