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Agency Highlights: 1Q 2014

A. Cases

  • Saffie.The plaintiff bought undeveloped property in California believing it was possible to build on it; his broker told him it was “ready to build.” The MLS listing stated: “This parcel is in an earthquake study zone but has had a Fault Hazard Investigation completed and has been declared buildable by the investigating licensed geologist. Report available for serious buyers.” The seller provided an outdated geological report, which the buyer’s broker gave to the buyer without reviewing it. After closing, the plaintiff discovered that the property would need significant changes that made the planned building unfeasible, as the county had made changes to its requirements since the preparation of the original report. He sued the seller, the seller’s broker and his own broker alleging breach of
    fiduciary duty and misrepresentation claims against both brokers for not disclosing the presence of the fault hazard zone. After a bench trial, the court determined that the buyer’s broker had not undertaken adequate due diligence about the report before the closing and so awarded $232,147.50 against the buyer’s broker. The court determined that the seller’s broker was not liable because the MLS listing was not inaccurate, and also the seller’s broker had given the buyer the original report, which should have alerted the buyer that additional due diligence was required. The buyer only appealed the ruling in favor of the seller’s broker, and this ruling was affirmed on appeal.
     
  • 9826 LFRCA, LLC.2 This case involves beach access from an architecturally significant property on the coast of California, the “Razor Residence,” designed by Wallace Cunningham. The buyer believed from the MLS listing and other marketing materials that the property had a private right of access to the beach and that he paid more as a result. In fact, the access was only a “fully revocable license” from the University of California at San Diego. The buyer sued the listing broker and the listing broker in turn sued the buyer’s representative, contending that the buyer’s representative failed to do due diligence, which would have detected the true nature of the right of access. The listing broker also sued the assignor of the purchase agreement (who was legally related to the plaintiff). Upon the assignor’s motion to dismiss, the trial court concluded it had jurisdiction over the assignor of the purchase agreement. The case is still in its early stages.
     
  • Hubbard Family Trust.3 The plaintiffs bought a lakeshore house that was settling and the soil around it was slowly sliding down a hill toward the lake. A prospective buyer gave the broker a “contingency addendum” and asked for a price reduction after an inspection revealed settling in several places, condensation around the windows in a turret, and other signs of structural damage. The seller declined the reduced offer. The plaintiffs looked at the house while repairs of the various defects pointed out in the contingency addendum were being done, but the inspection did not discover the true problem with the house. The listing agent also represented the buyer, contending that repairs were intended to conceal the structural issues. The plaintiffs sued the seller for fraud, negligent misrepresentation and related claims, contending that the repairs were intended to conceal the structural issues. They also sued the broker for breach of fiduciary duty and negligence. A jury returned a verdict for the buyer and awarded damages on the claims against the seller. It also found the broker liable on the breach of fiduciary duty and negligence claims, but did not award damages. On appeal, the court concluded that although the purchase agreement had an “as is” clause, the broker’s knowledge of the settling issues set forth in the prior buyer’s contingency addendum gave rise to a duty  to disclose them, and the vague information she provided was insufficient to meet her fiduciary duty to the buyers. The case was sent back to the trial court so damages could be determined on the breach of fiduciary duty and negligence claims against the broker.
     
  • Woodson. In Woodson, prospective buyers sued the seller, the seller’s broker, and an agent for the seller’s broker for fraud and misrepresentation because the sellers accepted a competing offer. The Woodsons and seller exchanged offers, and after the last exchange, the Mr. Woodson called the seller’s agent and stated that he had forgotten to include a term relating to a “tap fee” for water and sewer service. The agent was not sure that the seller would accept that change to the offer. She later called the buyer and stated that the seller agreed to the change and instructed the buyer to note and initial the change and deliver the offer to her with an earnest-money payment. The agent received the change and the payment on a Saturday, but because the seller was not available to initial the change, the change was not immediately accepted. The parties agreed to meet on Monday to finalize the agreement. In the meantime, however, another buyer made an offer to buy the property for cash with an earlier closing date. The seller instructed the agent not to inform the Woodsons about the competing offer. On Wednesday, the seller accepted the competing offer. The Woodsons claimed the broker and agent had a duty to communicate truthful information and breached that duty by failing to disclose the existence of the competing offer and the fact that the seller had not signed the Woodsons’ offer. This alleged duty was based on a statute requiring a seller’s broker to treat prospective buyers honestly, giving them a right to put their trust and confidence in the  broker and agent.5 The court concluded that the buyers were not “clients” of the broker and agent and the Woodsons’ dealings with the seller’s broker and agent did not imply a relationship of “trust and confidence” that would require the disclosure of the competing offer.
     
  • Lerner.6 In Lerner, the buyers learned that they had moved in next to a Level 1 sex offender and sued the listing broker, who acted as a dual agent, and the sellers. The trial court dismissed the complaint. The appellate court affirmed the dismissal of the broker,  but reversed in part with respect to the sellers. The appellate court determined that the broker’s fiduciary duty could be, and was, limited by contract; the purchase agreement specifically stated that under Arizona’s stigmatized property law,7 the broker was not required to disclose that the property was in the vicinity of a sex offender. Further, although the Arizona statute also excused the sellers from an obligation to disclose the sex offender, the court concluded that a claim of fraud could proceed against them  because the sellers allegedly told the buyers that they were moving to be closer to friends, when, in fact, they wanted to move away from the sex offender.

B. Statues and Regualtions

  • Wyoming has modified a statute relating to in-house real estate transactions. 8 Previously, a real estate company could designate a licensee to handle in-house transactions if the licensee was directly supervised by a responsible broker and the responsible broker was not a party to the transaction or a transaction manager. The amendment provides that the designated licensee must be under the direct supervision of either (1) the responsible  broker, who is not a party to the transaction; or (2) a transaction manager.
     
  • Maryland’s Real Estate Commission and Commissioner of Financial Regulation have issued Guidelines for Real Estate Licensees in Real Estate Transactions. 9 The Guidelines state that Maryland licensees must comply with Maryland’s Mortgage Relief Assistance Act (“Maryland MARS”) for activities that are beyond the scope of the real estate licensing act. Specifically, compliance with Maryland MARS is required if the licensee (1) collects money from a short-sale owner beyond his or her real-estate commission; (2) helps an owner avoid a foreclosure proceeding (e.g., negotiates with the owner’s
    lender or lienholder to obtain approval for a short sale, release of the lien, modifying the note, the waiver of the deficiency between the note and the short-sale price); (3) provides advice to an owner about stopping a foreclosure, obtaining a short sale; and (4) predicts the outcome of a short sale. The Guidelines also set forth the activities that do not violate Maryland MARS, even when done in the context of a possible short sale. Finally, the Guidelines set forth three tasks a licensee must do:
    • refer the seller to a tax advisor to explain the tax consequences of a short sale;
       
    • refer the seller to a housing counselor to discuss alternatives to foreclosure; and
       
    • inform the seller if the lender or mortgage servicer requests a reduction in the licensee’s commission (these requests are to be referred to the licensee’s broker).

C. Volume of Materials Retreived

  • Agency issues were identified thirteen times in eight cases. (See Table 1.) (Some cases addressed more than one Agency issue.) Most of the cases addressed Breach of Fiduciary Duty. This result is consistent with the prior updates. Dual Agency, Buyer Representation and Agency: Other were also addressed in the case law. (See Table 2.) One statute and one regulatory guidance addressing Agency issues were retrieved. 10 (See Table 2.) These  items addressed Designated Agency and Agency: Other (i.e., what a licensee may do and must do when the licensee is involved in a short sale).
     

1 Saffie v. Schmeling, 224 Cal. App. 4th 563, 168 Cal. Rptr. 3d 766 (2014).

2 9826 LFRCA, LLC v. Hurwitz, No. 13 cv 1042L(JMA), 2014 WL 925457 (S.D. Cal. Mar. 10, 2014).

3 Hubbard Family Trust v. TNT Land Holdings, LLC, 2014-Ohio-772, 2014 WL 858363 (Ct. App. Feb. 25, 2014).

4 Woodson v. DLI Props., LLC, 406 S.C. 517, 753 S.E.2d 428 (2014).

5 Id., 753 S.E.2d at 434 (citing S.C. Code Ann. § 40-57-137 (2011); Jacobson v. Yaschik, 249 S.C. 577, 585, 155 S.E.2d 601, 605 (1967)).

6 Lerner v. DMB Realty, LLC, No. 1 CA-CV 11-0339, 2014 WL 560922 (Ariz. Ct. App. Feb. 13, 2014).

7 See Ariz. Rev. Stat. § 32-2156 (bars liability against transferor or licensee who does not disclose presence of a sex offender in the vicinity of property).

8 Wyo. Stat. Ann. § 38-28-302(h) (2014) (Ch. 118; SF 80).

9 Md. Real Estate Comm’n & Md. Comm’r of Fin. Reg., Guidelines for Real Estate Licensees in  Real Estate Transaction (Aug. 29, 2013).