September 17th, 2011 at 11:48 pm
In our continuing effort to help you stay out of trouble, we have decided to share the stories underlying some of our lawsuits with you.? ? These true stories of transactions “gone bad” will be posted on a periodic basis to show the truly small things that have actually resulted in your colleagues getting sued.? ? Our first story arises from nothing more than an agent doing a “favor” for their uncle.? ? In this case, the uncle was selling a property without an agent, as a FSBO.? ? The uncle asked our agent for some help and, of course, she was happy to oblige.? ? As a result, by her own admission, our agent helped her uncle get a title report for the property and acted as a messenger between him and the buyer.? ? She had no listing agreement, did not advertise the property and did NOT get a commission.? ? Everything she did was for free and was truly done as a favor.? Unfortunately, when the deal closed, it turned out that the subject property was land locked and had no ingress or egress.? ? Further, the neighbors refused to allow the buyer to use their properties for access.? ? As a result, the buyer sued the uncle, our agent and Prudential.? ? The claim against us was that we were actually the listing broker on the property and therefore had disclosure obligations.? ? Plaintiff pointed to an Amended Preliminary Title Report from Chicago Title that was addressed to our agent.? ? They also pointed to the Purchase Agreement, prepared by the buyer but never corrected, which listed Prudential as the listing broker.? ? And, of course, they pointed to our agent’s contact with the buyer directly, when she acted as a “messenger.”
Our defense was fairly simple: We were not involved in the transaction in any way.? ? We prepared no documents, earned no commission, and did not advertise or list the property in the MLS.? ? In short, only documents prepared by others identified Prudential.? ? Unfortunately, when provided to the Judge, the few things our agent did do were enough to get by a Motion to Dismiss.? ? While we still could have prevailed at trial, there was enough of a question as to whether our agent created “apparent authority” to allow the case to continue.? ? This “apparent authority” justified the buyers reliance on our actions.? ? As a result, the case would continue, with the resulting fees and risk involved.? ? ? Therefore, despite earning nothing and knowing we did not do anything wrong, the right business decision was to settle the case, which we did for $25,000.? ? So, a simple favor for a relative resulted in our agent spending months as a defendant, as well as the payment of legal fees and a large settlement.? ? You have to realize that, because of your profession, anything you do related to real estate could affect your license and is done on behalf of the Company.? ? Unless the file is documented very well, with the Legal Department’s help, every real estate action you take is as a licensee and on our behalf.? ? Please remember that the next time someone asks you for a “favor.”
As always, please let us know if you have any questions.
September 9th, 2011 at 11:47 pm
The Federal Trade Commission’s Mortgage Acts and Practices – Advertising Rule took effect on August 19, 2011. The Rule is designed to protect consumers from misleading or deceptive advertising regarding mortgage products. Unfortunately, the Rule’s language is broad enough to cover our agents and their communications whenever they provide information to clients about home mortgages. Specifically, the Rule prohibits “any material misrepresentation, expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product.” Because of the Rule’s broad definitions, this prohibition can be read to cover anything an agent says to a consumer regarding a mortgage. For example, anything mentioning current mortgage rates, monthly payment information for a listed home, or specific loan products would be covered by the Rule. The Rule covers e-mails, open house flyers, marketing pieces or statements on websites and social media. Of course, we have always avoided making any kind of misrepresentation, so that prohibition will not require any change in practice. What is new, however, are the Rule’s recordkeeping requirements. Specifically, the MAP Rule requires that our agents keep all communications they make or disseminate regarding mortgage products for a period of two years after the last time the communication was made. It also requires that we keep a record of the actual mortgage products that were available during the time any communication was made concerning these products. In other words, you have to maintain both your advertisement and proof that the products you advertised were actually available. In this regard, we have spoken with HomeServices Lending and they have promised to maintain a record of the products they offer for the required time period. As a result, if our agents communicate regarding an HSL product, they only need to keep their communication, not a record of the product itself. HSL will do that for them. On the other hand, if they advertise another lender’s product, they will need to keep both the advertisement and a record of the product. So, please create a new file in your cabinet and put everything that mentions mortgage, or any term of a mortgage, in it for two years. As always, let us know if you have any questions.
September 7th, 2011 at 11:44 pm
One of the most common questions we get relates to the TDS and whether it is necessary in a trust sale. Given that the answer to this question is not always simple, I thought I would lay out the terms of the subject statute so you can fully understand the issues involved and would know how to handle this question in the context of your transactions.
First, the general rule is that a TDS is not required when the seller of property is a trust. Specifically, Civil Code section 1102.2 states that the TDS law does not apply to the following: “(d) Transfers by a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust.” So, in the normal course, your seller/trustee does not have to prepare a TDS. However, that rule has an exception. The statute above states that “[t]his exemption shall not apply to a transfer if the trustee is a natural person who is the sole trustee of a revocable trust and he or she is a former owner of the property or an occupant in possession of the property within the preceding year.” So, what does that mean? It means that if your seller is a trust, before you can tell the trustee that no TDS is required, you have to ask the following questions:
(1) Is the trustee a natural person?
(2) Is the trustee the sole trustee of the trust?
(3) Is the trust that owns the property a revocable trust?
(4) Is the trustee a former owner of the property or an occupant in possession of the property within the preceding year?
If the answer to all of these questions is “yes,” then the normal exemption does not apply and a TDS is required. The policy behind this rule makes sense. After all, a TDS is only required if the trust’s ownership of the property does not change the fact that the person representing the seller should know about the property’s condition. The law provides that this exemption does not apply when the circumstances are such that the trust’s representative is likely to have material facts about the property. This rule is consistent with the general policy that a buyer should be given all such material facts. So, if you represent a trust, remember that they normally do not owe the buyer a TDS. However, you should also remember that this rule is not universal. Rather, you need to ask the four questions above to determine if the normal exemption applies.
As always, feel free to contact us with any questions you may have.
August 25th, 2011 at 11:43 pm
Whenever the legal department gets a call or letter complaining about one of our agents, the first thing we do is ask for the subject transaction file. There are multiple reasons for that. First, the documents don’t lie. No matter what the client claims we did wrong, the documents say what they say and do not change over time. People’s memories, on the other hand, do fade over time and are affected by their interests, specifically the client’s desire that we pay them money. Further, our documents often immediately do away with a client’s claim. For example, in one instance we got a lawyer letter alleging that a prior inspection report was never given to the buyer. When we reviewed the file, , we found a Receipt for Documents signed by the buyer stating they got the report. That one document defeated the buyer’s claim. So, as you can see, documents are very important to us.
Unfortunately, it is also true that often times when we ask for documents we find that they have not been turned in. It is apparently a very common practice for agents to only turn their documents in at the end of a deal, when it is time to get paid. As a result, the office, while aware that the transaction is open, has seen and reviewed nothing. This practice creates many problems. First, it is a violation of DRE regulations and puts your license at risk. The DRE explicitly requires that all “transactions requiring a real estate license..” and “documents which may have a material effect upon the rights or obligations of a party to the transaction..” must be subject to review, oversight, inspection and management. Obviously, almost every paper we handle in a transaction materially affects our clients’ rights and obligations. Unfortunately, if they are not turned in on time, they cannot be reviewed and the DRE regulations are being violated.
Next, and as important, if documents are not turned in, we cannot review them and help you avoid the problems they may create. Please remember that both your manager and file reviewer have significant experience and will be able to spot potential problems created by your transaction documents. Of course, problems are much easier to correct early in a transaction, before something has gone wrong. However, by not turning documents in, you are not giving the reviewer the opportunity to help you avoid a problem. Frankly, it just makes no sense. As I think you all understand, when a problem arises and you get the legal department involved quickly, it helps us keep the problem small and achieve a quick resolution. The same is true for document review. If your reviewer spots a problem the day after a document is executed, it can be fixed more easily. That is not true if they first see the document one day before closing.
As a result, please remember to turn in all documents to your office as soon as possible after their execution. That is our company policy. More importantly, however, it will help protect you from DRE problems and conflicts with your clients. Thanks.
August 16th, 2011 at 11:42 pm
Over the past 6 months, I have received numerous angry phone calls from outside buyers and their agents that all arise from similar circumstances. In each case, the buyer made an offer for a property listed by Prudential. In each case, the parties negotiated regarding that offer and, at some point, the buyer or their agent was told that the seller “was going to accept the offer.” Of course, that promise was made before the listing agent ever received a signed acceptance from the seller and before they were told to deliver that acceptance to the buyer. As you can imagine, in each case the seller changed his/her mind after the promise was made and the buyer now had to be told that they were not getting the property. Of course, when the buyer received this message, they were not very happy. By making the promise in the first place, we created expectations that were not met. And, as a result, we created an unhappy consumer.
Understand that, from a legal perspective, this is not a big deal. The buyer never got a signed acceptance so they clearly have no binding contract. That, however, does not change the fact that, by having to renege on an unnecessary promise, we are creating a very unhappy consumer and significant public relations headaches for ourselves. The selling agent often believes that we really have another buyer who we are representing and suspicion and mistrust grows among everyone. The buyer usually really wants the house, and without their false expectations, may have been willing to pay more, or do whatever the seller wants in order to buy it. In either case, the promise accomplishes nothing and runs the risk of creating big problems. If anything, you can tell the buyer that you are “hopeful” but have to wait until you get the seller’s signature. That way, you are being legally accurate and don’t create any false expectations. As we have told you many times, creating real expectations in all aspects of your business will help keep everyone, including your clients and the public at large, happy.
Thanks, and as always, feel free to contact us with any questions you may have.
