By: Lance T. Denha, Esq.
Anyone who has ever been involved with a real estate transaction understands the potential pitfalls of a deal which can occur from the inception of the deal through the closing. Buyers and Sellers have and will indeed initiate lawsuits against their brokers or agents, based upon state and federal law for a multitude of reasons. This article is intended to have those that actively represent clients in deals familiarize themselves with the potential pitfalls and the type of lawsuits that may result if one is not careful. Below are a few actions and laws which typically spawn lawsuits. Please keep in mind, this article is geared more toward residential brokers, however, make no mistake, some of these issues can and will arise for commercial brokers as well.
This is by far and away the lawsuit in which brokers and agents are most susceptible to as a result of their profession. Most commonly misrepresented are the foundation and structural features. Other misrepresentations involve property boundaries, the roof, and termite problems. Misrepresentations come in three types: innocent, negligent, and fraudulent. Negligent Misrepresentation may include failure to disclose significant property flaws out of ignorance; Fraudulent Misrepresentation is purposefully hiding a property flaw or feature to make the sale. To be sued for misrepresentation, the misstatement has to involve a material fact and not just your opinion. Material facts are those that a reasonable purchaser would rely on in making a purchase. It’s important to determine whether you were deliberately deceived by a Realtor or whether the real-estate agent failed to protect you from false claims made by the seller. While a realtor may be responsible, the difference can determine the liability in misrepresentation if, for instance, the lease information one may have received came from the seller (via the agent) or from the agent directly.
TIP to Avoid Misrepresentation: In order to limit misrepresentation liability, make sure to use and have the salespeople use Seller Disclosure Forms. Also, avoid making predictions if at all possible such as “The Value of this property will surge in the next few years”.
• FAIR HOUSING
If sellers don’t want to sell to someone of a certain ethnic background or race, you can’t afford to take on that business. In recent years, some suits have been brought against MLSs because their members included remarks in Internet listings that violated the fair housing law, such as “no children” or “perfect for empty nesters.” Publishing such information on the Internet carries the same liability as publishing it in print.
TIP to limit Agents Liability: Make sure to take educational training about fair housing laws.
These laws are intended to prevent unreasonable restraints of trade. Examples of antitrust violations that impact you are price fixing and group boycotts. Competing brokers should never engage in discussions of their commission rates or the amount of compensation they offer cooperating brokers. You must also avoid conduct that could lead to allegations that you agreed not to do business with a certain competitor.
TIP to limit antitrust liability: Adopt an office wide policy that addresses such issues as discussing commission rates with potential sellers, and education of all sales associates with respect to antitrust compliance policy. Avoid preprinting commission rates on standard form contracts or in advertising.
• REAL ESTATE SETTLEMENT PROCEDURES ACT
These violations occur when mortgage brokers, lenders, title services, or real estate brokers give or receive anything of value in return for referrals. RESPA is designed to inform homebuyers about the costs of closing and eliminate kickbacks to settlement service providers (including real estate brokers) for referrals.
Although most referral fees are prohibited, the law expressly permits referral fees between two real estate brokers. Also, you must disclose if you have ownership in another service provider, such as a title agency, lender or insurance company to which you’re referring a consumer.
To limit RESPA liability: Take continuing education and understand the law’s prohibitions and strict compliance if any referrals are made among affiliated service providers.
• UNAUTHORIZED PRACTICE OF LAW
This spawns lawsuits whenever brokers or salespeople provide legal advice. Realtors are prohibited from engaging in activities that constitute the unauthorized practice of law,” which begs the question, “What is the unauthorized practice of law?”
The courts have tried to strike a balance in their definition and take public policy into consideration. They don’t want the public damaged by unskilled practitioners, but they’ll look at whether it’s in the public interest to allow brokers to engage in certain activities, such as drafting clauses in legal documents. Generally speaking, courts have said that brokers are permitted to complete the blanks of a preprinted sales agreement that has been approved by an attorney. You may not draft documents or give legal advice.
To limit legal advice liability: Know the parameters of what you may and may not perform in your industry, and strongly urge clients to hire a lawyer if they have legal questions.