May 3rd, 2011 at 11:25 pm
I received the following call this morning. We had a listing in San Diego County. In the course of that listing, the seller provided us with two roof reports, one five years old and the other two years old. The reports both identified leakage problems with the roof, in the same general area. The seller also told us that all repairs requested by those reports had been made and that the roof had been leak free. The property eventually sold and, during the course of that escrow, a new roof inspection was prepared and the inspector declared the roof leak free and in good shape. Based on this set of facts, our agent did not turn over the two old reports to the buyer. She believed that they were too old and, according to the seller, identified defects that no longer existed. That fact was confirmed by the newest roof inspection. Of course, now, after close of escrow, the roof leaked in the same area as before. The buyer has told us that, if the existing leaks are not resolved to her satisfaction, she will file a complaint against us and the seller. The question posed by this story, very simply, is whether we should have delivered the old reports to the buyer.
Remember, my question is not whether we “must” turn over those reports, but whether we “should” do so. After all, given that the old reports were both more than one year old and the seller said all recommended repairs were performed, we could argue that the reports disclosed no presently existing material facts and therefore had nothing to disclose. Additionally, there was a new inspection performed and a new clearance given during the subject escrow. Those items should accurately describe the then existing condition of the property and should satisfy our duties. But despite that fact, the buyer is unsatisfied. They believe that we didn’t turn over the old reports because we were hiding something. They believe we were engaged in a conspiracy to defraud them with our seller. So, no matter how good our position might be, the failure to turn over reports may result in us getting sued.
So, what “should” we have done. As always, no matter how well we can excuse or defend it, the safe thing to do is turn over all reports, old or new, to the buyer. In our case, we should have given the 2 old reports to the buyer, and told her that the seller says the recommended repairs were done. That way we satisfy everyone. We turn over the reports, but relay the seller’s positive information with regard to repairs. Had we done that, the transaction would not have changed. With those facts in her possession, and the new report, the buyer still would have bought the house. Only one thing would have changed: No lawsuit.
So this is a easy example of a simple rule: No matter how old a report, or how many repairs have been performed, ALWAYS turn over all reports to the buyer. You can also talk about repairs, and make them a positive, but giving the reports always stops a lawsuit, while our defense for why disclosure may not have been necessary could be disputed. It is never worth the fight. So ALWAYS TURN OVER EVERYTHING.
As always, feel free to contact us with any questions you may have.
April 12th, 2011 at 11:20 pm
Just wanted to let you all know that I will be on vacation from April 13 through April 26, so will not be posting on the Blog during that time. I will speak to you when I get back.
April 12th, 2011 at 11:20 pm
As you are all aware, we have been in a market with significant REO activity for a couple of years now. With that experience, we are now able to see the risks and pitfalls that we have to avoid in REO transactions. Specifically, in today’s world it is not uncommon for a borrower who has lost their home to foreclosure to sue the lender over their conduct. The claims typically relate to the foreclosure itself, alleging that notice was incorrect or the sale was somehow deficient. In fact, we have been named in multiple lawsuits against banks with those types of allegations. On the other hand, we have not received any lawsuits arising from the condition of an REO property or the failure to make disclosure in that kind of deal. As a result, we know that it is most important to be very careful during the pre-list phase of an REO deal and, if possible, to stay out of that part of the transaction altogether if possible.
Of course, we know that almost every REO lender expects its listing agent to do a prelist inspection of the house. That inspection is mainly to determine if the property is occupied, if so by who, and whether that person is willing to vacate the property, for cash or otherwise. While we would prefer that the bank do all this work themselves, we know that is not possible so want to remind you of a few things. First, it is alright to view the property from the outside to see if it is occupied. Avoid going inside without the occupant’s permission since that opens you up for a trespass or theft claim. We have had those claims, where the occupant was away at the time of inspection and claims that our agent stole his belongings. As a result, if the property is full of personal belongings, but no one is home, come back a second time before deciding that the home is vacant. Next, if you find the occupant on the property, we understand you need to have contact with them. It is ok to post a Notice on the door or talk to the occupant and find out if they are willing to vacate. However, once they become combative in any way, you need to leave the property and refer them back to the lender. If the borrower or tenant says that they will not leave, or that the foreclosure was in any way improper, do not argue with them. Do not threaten them. Just thank them for their time and leave. Until any issues regarding ownership and possession are resolved, you need to stay out of it and let the bank handle the occupant. You are an agent being hired to sell the property and, while you can go beyond that in simple transactions, you need to avoid conflict. In one of our cases, our agent is alleged to have threatened the borrower if they didn’t vacate the property. Of course, once the borrower put up a fight, the bank backed down and we didn’t even get the listing. But we did get sued. So remember, you can help with prelisting inspections, or negotiate cash for keys, if the process is peaceful. Once the occupant/borrower gets belligerent, it is no longer your problem. It is the bank’s. You back away and wait for the bank to resolve the problem. Then you can do what you do best, sell the property.
As always, please let us know if you have any questions.
April 6th, 2011 at 11:19 pm
We have received a number of calls recently about scams related to lease listings. Apparently, it is not uncommon for our agents to advertise their leases in both the MLS and on Craigslist. The Craigslist entry often results in a phone call from an alleged tenant, stating that he wants to rent the property and oftentimes purchase the furniture or other personal property in the home. Unfortunately, when the check for the tenant’s deposit, etc., arrives it is often a fraud. In one particular instance, the “tenant” claimed he wanted to buy furniture and sent us a check for $12,500. We called the bank to confirm and learned that while the routing number was real, the account number was not. The Federal Express package we received apparently came from Berkeley, California, despite the fact that the tenant told us he was coming from Wisconsin. It is our understanding that these people are trying to accomplish a few things: 1) Some of these criminals want to move into the property and live for free; and 2) Others hope to get control of the property, rent it out and collect rent while paying nothing to our landlord. Regardless, without extra due diligence on our part, our landlord has given possession of her property to a “tenant” but received nothing in return. As a result, please make sure to be extra careful in lease transactions. Be skeptical of your proposed tenant, and make sure to recommend that your landlord double check everything they are told by the tenant. Most importantly, make sure the landlord takes nothing at face value. After all, a little extra investigation up front can save you months of hassle and expense on the back end. As always, feel free to contact us with any questions you may have.
March 30th, 2011 at 11:19 pm
As you know, paragraph 2 of the RPA now relates to the agency disclosures we are required to give to our clients. These disclosures used to be in the back of the contract, but have recently been moved up to page 1. The reason for that move, according to our people at CAR, is that the disclosures were often ignored or filled out incorrectly when they were on page 8. Given how important agency disclosures are in lawsuits against brokers, CAR thought they might be handled better if they are put up front.
With that in mind, what should you know about paragraph 2? First, section B of that clause makes the same substantive disclosures as CAR Form DA, the Disclosure Regarding the Representation of More Than One Buyer or Seller. As a result, and given the fact that this disclosure is also in the Listing Agreement, we no longer need Form DA for our files.
Most Importantly, section C of this paragraph contains the actual disclosures regarding which broker represents which principal. Remember, this is the only place that this disclosure is made. It is not part of the Agency Disclosure form and, with regard to agency, is really the only important disclosure we make. As importantly, this section is one of the first looked at by plaintiff’s lawyers. As you know, our duties to our client are defined, in large part, by who we represent. Therefore, if this section is filled our incorrectly, it may give the wrong impression to the parties and create extra duties on our part. It may also, as a result, give arguments to a plaintiff’s lawyer that they should not have. For example, if we only represent the buyer, but the RPA says otherwise, or is not clear, the seller’s lawyer can argue that we also represented her client and therefore owed the seller a fiduciary duty. Obviously, that type of mistake would have significant liability consequences. So please recognize the reason that CAR moved this paragraph up front. They did it because the paragraph and its disclosures are real important to your clients and their lawyers. And, with that in mind, please take the time to fill it out carefully and correctly. There is no telling how much future time and money you will ultimately be saving yourself. As always, please let us know if you have any questions.
