September 28th, 2011 at 11:51 pm
REVISITING THE RPA:
Paragraph 3B – Increased Deposits
Paragraph 3B of the Purchase Agreement is a relatively simple clause, relating solely to an Increased Deposit. This clause is used most often when, for example, the buyer agrees to make part of their deposit at the time of contract but hold off on some portion until after their due diligence. As a result, it is common to see an Increased Deposit due upon removal of the buyer’s investigation contingency. If there is a problem with Increased Deposits it almost always relates to liquidated damages. Of course, as you know, the liquidated damages clause is only part of the contract if it is initialed by both the buyer and seller. That clause specifically says that at the time of any increased deposit, both buyer and seller also need to execute a separate clause covering that money, specifically CAR Form RID. This form is required so that the parties are undoubtedly clear that each part of their deposit, both the original and the increased amount, are subject to liquidated damages. The RID gives notice of that fact.
Of course, in many years of reviewing transaction files, I am not sure if I have ever seen an executed RID. So, in such a case, how would liquidated damages work on the buyer’s breach? Let’s assume for discussion purposes that they buyer is paying $500,000 for the subject property, meaning the maximum 3% deposit equals $15,000. Let’s also assume that the buyer is concerned about the seller and the property condition, so he agrees to deposit $5,000 at the time of contract and $10,000 upon removal of his inspection contingency. The seller agrees and escrow is opened. After performing his inspections and due diligence, the buyer is satisfied with the property’s condition and removes all of his contingencies. He also makes his Increased Deposit of $10,000, but does not sign and RID. Then, 30 days later, the buyer changes his mind and cancels the transaction. The seller wants his liquidated damages and expects $15,000. In our scenario, how much does he get? Unfortunately for the seller and the listing agent, in this case he only gets the original $5,000. At the time that deposit was made, the buyer initialed paragraph 25 of the RPA so he was on notice of the risk to that money. He did not, however, get that same notice when he deposited the Increased Deposit of $10,000 and therefore has not forfeited that amount.
Remember that when this happens, the seller looks to the listing agent for compensation. She claims that the listing agent had an obligation to make sure the RID was signed at the time of the Increased Deposit and therefore is liable to pay her the $10,000. In truth, she is probably right. It is our obligation as the seller’s fiduciary to make sure the RID was signed. That Increased Deposit is for her protection, and we need to make sure she can take advantage of it. So, the lesson from this simple clause is also very simple: if you represent the seller, and there is an Increased Deposit, make sure there is a signed RID at the time that Increased Deposit is actually paid. If you don’t, you will probably be paying the seller the amount of that Increased Deposit. And, of course, that is never something we want to do.
As always, please let us know if you have any questions.
September 21st, 2011 at 11:49 pm
Q: (Bev White) Can a beneficiary of a family trust, who is a Prudential agent, represent the trust in listing the property or, if not, can they appoint another Prudential agent to list the property?
A: Bev, as you know, our Personal Transaction Policy is designed to help agents avoid the conflict of interest involved in a transaction where are selling their own property. Obviously, in such a deal, the interests of the agent/seller may run contrary to what is required of a real estate licensee. As a result, rather than put you in that position, we have you appoint another Prudential agent to handle the listing, thereby avoiding the conflict. Since a beneficiary of a trust has an interest in the sale of the property, and how much money the seller gets, a property owned by such a trust is covered by our policy. Therefore, you need to hire another agent and act as a principal only.
Q: (Barbara Swanson) I read the article about using photos on your website that belong to other agents. If you are showing MLS listings with photos is that allowed? If I wanted to feature a home that was a “Good Buy” in a certain neighborhood or some other “Featured” home by having a link to the listing would that be allowed? I have seen other websites that link to reports that come from the MLS.
A: Barbara, in order to use pictures from another broker’s listings on your website, you need to have written permission from that broker. In almost every instance that you are referring to, that written permission is an IDX agreement signed by the broker. Based on those IDX agreements, any party to the agreement can have other broker/party’s listings on their website as long as the IDX rules are followed. Those rules require that the actual listing broker be identified by the second click made by a consumer. So, if your website is an IDX website, than you can show other broker’s listings and MLS photos. Without that written permission, however, you cannot do so.
As always, please let us know if you have any questions.
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.
