NAR LegalScan Report 2013 05 23 PDF

2013 Legal Scan: Legal Issues Facing Real-Estate Professionals
NATIONAL ASSOCIATION OF REALTORS
TABLE OF CONTENTS Page 2013 Legal Scan Introduction and Summary .................................................................. 1 I. AGENCY ISSUES REMAIN THE TOP-RANKED ISSUES IN THE SCAN ........... 2 A. B. C. D. E. II. State Legislatures and Real Estate Commissions Have Adopted a Variety of Provisions Relating to Agency Relationships ............................. 2 Breach of Fiduciary Duty Continues to Be a Common Source of Licensee Liability ....................................................................................... 8 Dual Agency Remains an Area of Concern ............................................. 11 Buyer Representation .............................................................................. 12 Other Notable Verdicts............................................................................. 14
PCD ISSUES AND "AS IS" CLAUSES CONTINUE TO BE SIGNIFICANT ........ 15 A. B. C. D. E. F. Short Sales Are Again the Most Significant Individual Issue Identified in the Survey ............................................................................................ 16 REOs and Bank-owned Property via Foreclosure Is Another Highly Important Issue ........................................................................................ 18 Structural Defects Will Continue to Cause Disputes ................................ 19 Mold and Water-Intrusion Claims Can Result in Substantial Legal Exposure.................................................................................................. 20 Disputes Involving "As Is" Clauses May Increase as a Result of the Increase in Short Sales and Sales of Bank-owned Property.................... 21 A Variety of New and Amended Statutes and Rules Affect Licensees' Duty to Disclose Information about the Condition of Property ................................................................................................... 22
III.
DISPUTES INVOLVING STATE DECEPTIVE PRACTICES AND CONSUMER PROTECTION STATUTES REMAIN A SOURCE OF LIABILITY ........................................................................................................... 24 RESPA ISSUES ARE STILL AN AREA NEEDING TRAINING. ......................... 26 A. Affiliated Business Arrangements Are Likely to Be a Source of Increased Disputes .................................................................................. 27
IV.
Copyright 2013 National Association of REALTORS
B. C. V. VI. VII.
Respondents Are Moderately Concerned About Kickbacks..................... 28 While There May be Disputes About Disclosure of Settlement Costs, They Are Not Likely to Lead to Liability Under RESPA ............................ 30
FRIVOLOUS LAWSUITS ARE COSTING BROKERS TIME AND MONEY, LEADING THEM TO SETTLE. ........................................................................... 31 COMMISSION DISPUTES AND PROCURING CAUSE CONTINUE TO BE SIGNIFICANT SOURCES OF CONFLICT. ........................................................ 32 THERE IS A SIGNIFICANT NEED FOR ADDITIONAL TRAINING ON TECHNOLOGY ISSUES .................................................................................... 35 A. B. Social Networking Has Emerged as a Top Area of Concern. .................. 35 Respondents Believe that Compliance with State Internet Advertising Rules Is Difficult to Police and Suggest More Training to Prevent Violations .................................................................................... 36 Privacy and Anti-solicitation Laws Also Need Additional Training ............ 37
C. VIII.
ANTITRUST ISSUES ARE NOT A SIGNIFICANT SOURCE OF DISPUTES, BUT ADDITIONAL TRAINING ON ANTITRUST ISSUES IS NEEDED. ........................................................................................................... 38 THIRD-PARTY LIABILITY, ESPECIALLY THE LIABILITY OF APPRAISERS, IS AN AREA OF GROWING CONCERN. .................................. 39 A. B. Appraisers................................................................................................ 39 Inspectors ................................................................................................ 41
IX.
X. XI.
FAIR HOUSING ISSUES ARE NOT SEEN AS AREAS OF INCREASED LIABILITY, THOUGH THEY ALL WARRANT ONGOING TRAINING ................ 42 SURVEY RESPONDENTS' CONCERNS ABOUT EMPLOYMENT ISSUES FOCUS ON INDEPENDENT CONTRACTORS AND PERSONAL ASSISTANTS ..................................................................................................... 44 A. B. The Issue of Personal Assistants Is Another Area Where More Training Is Needed .................................................................................. 44 A Salesperson's Status as an Independent Contractor Does Not Preclude Suits Against Sponsoring Brokers ............................................ 45
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C. XII. XIII. XIV. XV.
Wage and Hour Claims Under the Fair Labor Standards Act Are an Emerging Area of Liability for Brokers...................................................... 46
RESPONDENTS REPORT A MODERATE OR HIGHER NEED FOR TRAINING ABOUT ETHICS. .............................................................................. 46 LICENSING ISSUES MAY NEED ADDITIONAL TRAINING. ............................. 47 MORE TRAINING ON RELATIONSHIPS BETWEEN AFFINITY GROUPS AND REAL ESTATE BROKERAGES IS SUGGESTED ..................................... 49 LICENSING OF RELOCATION COMPANIES IS NOT AN AREA OF CONCERN ......................................................................................................... 49
Appendices ................................................................................................................... 51
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2013 LEGAL SCAN: LEGAL ISSUES FACING REAL ESTATE PROFESIONALS The National Association of REALTORS conducted a study of the current legal environment faced by real estate professionals. NAR undertakes this comprehensive research project, or "Scan," every two years. It analyzes current legal liability issues and identifies emerging risk management issues. The Scan is based on legal research into statutes and cases affecting real estate professionals as well as surveys of key people in the real estate industry. This report discusses developments in several major topic areas, including the legal research and the survey results, emerging issues, and the need for training. The results of the legal research and the survey data are set forth in tables in Appendix 1. Lists of the cases, statutes, and regulations, organized by issue, are provided in Appendices 2 and 3. The research technique is described in Appendix 4. This last Appendix describes the scope of the project, and how the legal research and survey data were collected. Breach of Fiduciary Duty is the most prominent issue in the 2013 Scan, based on the survey and legal research data. The most important emerging issue in the 2013 Scan is Social Networking, a form of internet advertising. Disclosure relating to Short Sales and REO property, i.e., bank-owned property after foreclosure, are also top areas of concern identified in the Scan. Looking at the main subject areas collectively,
Agency issues remain an important area of concern for real estate professionals, along with Property Condition Disclosure issues and the liability of third parties, such as appraisers and inspectors. The four Technology issues were identified as the most
important training needs. These issues include State Internet Advertising Rules, Social Networking, Privacy, and Anti-solicitation Laws.
I.
AGENCY ISSUES REMAIN THE TOP-RANKED ISSUES IN THE SCAN. Agency remains one of most important topics in the Scan. While only about 10%
of the survey respondents reported that Agency issues were a significant source of current disputes, about 37% reported a moderate or higher level of current disputes involving Agency issues, and 22% believe there is a significant need for training on Agency issues in general. (See Tables 10, 14.) Significantly, however, more
respondents ranked various Agency issues among their top three current issues than any other group of issues in the Scan. (See Tables 11, 16.) In addition to various statutory and regulatory developments (see A below), this topic generated a large number of court decisions. The main issues in this area are breach of fiduciary duty, dual agency, and buyer representation. Some notable verdicts also are discussed.
A.
State Legislatures and Real Estate Commissions Have Adopted a Variety of Provisions Relating to Agency Relationships.
Statutes and regulations relating to the relationship between licensees and the consumers they serve were abundant. Approximately 145 statutes and regulations
were located addressing agency issues, a 34% increase from the number collected for the 2011 Scan. (See Table 3.) States continue to define, by statute or regulation, the relationship between licensees and their customers or clients as well as the specific duties the licensees owe to their customers or clients, replacing the common law duties. Oklahoma, for example, no longer defines or provides for transaction brokerage and it has abrogated the Copyright 2013 National Association of REALTORS
common law agency duties in favor of specific statutory duties.1 A broker may provide limited services, but he or she must disclose that fact to the party or parties.2 A broker also may agree to provide brokerage services other than those set forth in the statute, as long as the agreement complies with the statute and rules of the Oklahoma Real Estate Commission.3 The same Oklahoma law amended the statute outlining a broker's duty of confidentiality.4 Confidential information generally may not be disclosed without the party's written consent. Protected information includes (1) that the party is willing to pay more or accept less than is being offered for the property; (2) that the party is willing to accept financing on different terms than those offered; (3) the party's motivations; and (4) other nonpublic information the party specifically designates as confidential. Significantly, this duty of confidentiality remains in place even when the broker is working with both parties.5 Arkansas has also enacted a statute describing agency relationships and duties.6 The statute provides that the common law of agency applies to relationships between licensees and clients as supplemented by the statute. The licensee has a "primary duty
1
See Okla. Sess. L. ch. 251, 1-6, 8; HB 2524 (2012) (amending Okla. Stat. tit. 59, 858-351, et seq.).
2
Id. 3. Id. 6.
See Okla. Sess. L. ch. 251, 2; HB 2524 (2012) (amending Okla. Stat. tit. 59, 858353(A)(6)).
5
Id. (amending Okla. Stat. tit. 59, 858-353(A)(8)). Ark. Code 17-42-109 (2011) (Act 877; HB 1615).
of absolute fidelity to protect and promote the interests of the client or clients," which arises when the client accepts the licensee for employment. The enumerated duties cannot be waived. Other provisions set forth the duties owed to sellers or lessors7 and those owed to buyers and lessees.8 These duties may be waived. The North Dakota Real Estate Commission has amended its rule addressing the duty of loyalty by adding a provision requiring a licensee to explain that the knowledge of a second licensee affiliated with the same real estate agency with respect to a particular property is not imputed to other licensees affiliated with the same agency.9 The licensee also must explain that licensees are not obligated to discover defects in the property, verify ownership, or verify the accuracy of statements made by third parties. Agency disclosure has been another area of activity. Virginia has amended its agency disclosure statutes.10 The law distinguishes between disclosed dual agency in a residential transaction and disclosed dual agency in a commercial transaction.11 Residential dual agency is more restricted than commercial dual agency. Generally, it is not permitted. It is permitted, however, when (1) the licensee represents one party
7 8
Ark. Code 17-42-110 (2011) (Act 877; HB 1615). Ark. Code 17-42-111 (2011) (Act 877; HB 1615).
N.D. Admin. Code 70-02-03-15.1(7)(d) (2012). The licensee must disclose material adverse facts about the property that the licensee actually knows and must obtain a signed acknowledgement that the disclosure was made. Id. 70-02-03-15.2 (2012).
10
See Va. Acts ch. 750, 1 (2012) (H.B. 206). This statute revisits and makes extensive revisions to a similar statute passed in 2011. See Va. Acts ch. 461 (2011) (H 1907) (amending Va. Code 54.1-2139 to -2139.3).
11
Va. Code 54.1-2139, -2139.01 (2012) (Ch. 750, 1; H 206).
and that party wishes to engage in a transaction with another of the licensee's clients; or (2) the licensee wishes to represent a new client in the same transaction.12 The
licensee must have the clients' written consent to residential dual representation. Dual representation in a commercial transaction, in contrast, is generally permitted. Here,
too, the licensee must have the written consent of all parties to the transaction. 13 Both statutes also provide for the withdrawal of a dual agent without liability. 14 Virginia also distinguishes between "disclosed dual agency" and "dual representation": "A dual agent has an agency relationship under the brokerage A dual representative has an independent contractor
agreements with the clients.
relationship under the brokerage agreements with the clients."15 North Dakota's agency disclosure regulations require a licensee to explain to clients that he or she may represent two different sellers or lessees with competing properties and owe fiduciary duties to both.16 A similar provision applicable to licensees representing two buyers or lessors has been amended. The licensee must explain that he or she may represent two parties who want to make an offer for the same property
12
Id. 54.1-2139. Id. 54.1-2139.01.
13
14
Id. 54.1-2139(G), -2139.01(E). The law also amends definitions of "agency," "brokerage agreement," "commercial real estate," "dual agent," and "limited service agent." See id. 54.1-2130. A "limited service agent" must disclose dual agency pursuant to 54.1-2139. Id. 54.1-2138.1.
15
Id. 54.1-2139(A), -2139.01(B). The definition of "dual agent" or "dual representative" now states that "[a] dual agent has an independent contractor relationship under brokerage agreements with the clients. . . . A dual representative shall only act as an independent contractor." Id. 54.1-2130.
16
N.D. Admin. Code 70-02-03-15.1(7)(a) (2012).
without breaching any fiduciary duty, and must disclose the fact that a competing offer is being made.17 A North Dakota licensee also has a duty to disclose to a "customer" (as opposed to a "client") that the licensee is not the persons salesperson and owes only limited legal duties, such as honesty and good faith.18 In Illinois, an exclusive brokerage agreement must be in writing and must set forth the minimum services required by statute.19 If the agreement contains a waiver of those minimum services, the agreement is deemed to be nonexclusive. The brokerage agreement, whether exclusive or nonexclusive, must clearly state that the broker does not discriminate on the basis of protected classes, including sexual orientation, unfavorable military discharge or order of protection status.20 Illinois also has promulgated a rule relating to contemporaneous offers on the same property made by offerors represented by the same designated agent. 21 When an agent is acting as a designated agent for two or more parties with respect to the same property, the parties make contemporaneous offers on the property, and the agent knows or has reason to know that the owner will consider both offers at the same
17
Id. 70-02-03-15.1(7)(b) (2012). Id. 70-02-03-15.2 (2012). See 225 Ill. Comp. Stat. 454/15-75. Id. Ill. Admin. Code tit. 68, 1450.830 (2011).
18 19
20
21
time, the agent must: (1) provide written disclosure of the situation to the parties making the offers; and (2) refer the parties to other designated agents, upon request.22 Alaska has promulgated a rule addressing situations in which a licensee acts as an assistant to a broker or another licensee.23 A "licensed real estate salesperson" or "licensed associated real estate broker" may act as a licensed assistant to another licensed salesperson or associate broker if (1) both licensees are employed by the same broker; (2) the licensee acting as a licensed assistant is not performing activities that require a license for more than one real estate broker; (3) the employment arrangement between the two licensees is in writing and meets state and federal employment regulations; and (4) the broker who employs the two licensees approves the arrangement in writing. The statute also states that the broker who employs both licensees must agree to be liable for the actions of the licensed assistant. States continue to regulate the concept of "team" representation. For example, Maryland permits the use of "intracompany agents" from a team to represent the buyer and seller in the same transaction, provided the principals consent in writing to what is, essentially, a dual agency.24 Ohio has addressed team advertising.25 The term "team" has been defined,26 and a team advertisement is permitted if: (1) it includes the name of
22
Id. See 225 Ill. Comp. Stat. 454/15-15(b) (licensee generally does not violate duty to client by showing same property to other clients, but must provide written notice of contemporaneous offers).
23 24
Alaska Stat. 08.88.398 (2012) (Ch. 37, 2; HB 267). Md. Code Ann., Bus. Occ. & Prof. 17-546 (2011). Ohio Admin. Code 1301:5-1-21 (2012).
25 26
Id. (team is defined as "any group of two or more associated real estate licensees affiliated with the same broker or brokerage and/or other non-licensed professionals, Copyright 2013 National Association of REALTORS 7
at least one of its licensees; (2) the name of the licensee's broker is included and displayed in equal prominence to that of the team name and the salesperson's name; and (3) it identifies as non-licensed any unlicensed persons whose names are included in the advertisement. Washington's regulations address licensees making referrals to home
inspectors.27 A designated broker must set a policy for licensees making referrals to home inspectors. The policy must "address the consumer's right to freely pick a home inspector of the buyer's or seller's choice and prevent any collusion between the home inspector and a real estate licensee." Further, if licensees refer a buyer or seller to a home inspector with whom they have or have had a relationship, such as a business or familial relationship, the relationship must be fully disclosed in writing before the buyer or seller uses the inspector's services.
B.
Breach of Fiduciary Duty Continues to Be a Common Source of Licensee Liability.
Breach of Fiduciary Duty is among the top issues identified in the survey. (See Tables 16, 18.) Almost 20% of the survey respondents indicated that Breach of
Fiduciary Duty was the basis for a significant number of current disputes, and more than 55% ranked the issue among their top three current issues. (See Tables 15, 16.) It is among the top-ranked potential future issues, with nearly 80% of the respondents ranking it among their top three future issues. (See Table 18.) Thirty percent of the
such as administrative assistants and other professionals specializing in real estate related fields that advertise together and that group is not licensed pursuant to the licensing statute").
27
Wash. Admin. Code 308-124C-125(9)(a) (2012).
respondents believe there is a significant need for training on this issue. ( See Table 19.) The respondents' comments make three points. First, respondents noted that licensees simply do not know what their duties arewhether fiduciary or statutory. For example, "[a]gents do not understand that [the fiduciary duty] extends past the transaction into the future." Another respondent referred to "misconceptions" about licensees' duties.28 Second, respondents noted that some agents put their own interestsclosing the deal and getting a commissionfirst. Conversely, an improving market may lead consumers to expect more from their representatives. Third, several respondents, as in past Scans, noted that the issue tends to be a "catch all" claim and is the "most often cited" duty in lawsuits. More than one
respondent suggested that a claim of breach of fiduciary duty is asserted in order to trigger E&O coverage. The survey of case law and jury verdict reports collected 94 items involving breach of fiduciary duty. This number is 29% higher than the number collected for the
28
A case from Louisiana illustrates the "misconceptions" a survey respondent alluded to. In Rangel v. Denny, 104 So. 3d 68 (La. Ct. App. 2012), the broker refused to draft a purchase agreement for his client, the seller. The seller drafted the purchase agreement himselfinartfully. The transaction did not close and the sellers had to sell some of their mineral rights to cover living expenses. The broker apparently misunderstood his role: he thought he was only required to advertise the property and present offers if any were made. The appellate court reversed a judgment of dismissal on a breach of fiduciary duty claim. The opinion discusses Louisiana agency statutes and customs. Note that in Wisconsin, a licensee may not refuse to prepare or withhold a written proposal. Proposals must be presented and must be presented fairly. The licensee also must provide a written statement to another broker that the proposal has been presented to his or her client. Wis. Admin. Code RL 24.13 (2012).
2011 Scan. (See Table 2.) In the 60 cases in which liability was determined, the licensee was found not liable 60% of the time. Notable verdicts include the following cases: Yong Sik Kye.29 Sellers and a dual agent made false representations about the profitability of a restaurant, its ground rent and its taxes. The buyer sued the dual agent for breach of fiduciary duty. A jury returned a verdict for the plaintiff and awarded lost profits of $4.2 million and out-of-pocket damages of $2.6 million. An additional $100,000 was awarded for the fact that the b uyers $100,000 deposit was treated as a payment of a brokerage fee and went into an account of an unlicensed person. One defendant said it was "under the table" and could not say where it went. A total of $2,350,000 was awarded. Gebhard.30 The listing broker changed a sales contract while the vendor was out of the country and told the vendor's attorney-in-fact that the vendor had approved the changes. The attorney-in-fact relied on that representation and signed the amended contract. When the buyer defaulted on the payments, the vendor sued the broker alleging breach of fiduciary duty, common law fraud, and statutory fraud. A jury awarded $139,023.84 in actual damages and $69,285.08 in punitive damages, for a total of $208,308.92. The appellate court affirmed the verdict. Arin.31 Claims of elder abuse arose in a California case involving a complicated family dispute in which a former wife was given a life estate in her former husband's ranch and received regular payments with which to repair and improve the ranch to prepare it for sale. The former wife was a real-estate agent who agreed to market the property. There was a dispute as to the amount spent on the ranch and whether the wife communicated offers to the husband. There was also a dispute as to whether the wife held a valid life estate. The wife sued for breach of contract, constructive fraud, elder abuse and other claims. The husband counterclaimed for fraud, misrepresentation, breach of contract, breach of fiduciary duty, professional negligence, elder abuse and conversion. At trial, the wife was awarded $281,400 for constructive fraud and obtained a declaratory judgment that she had a life estate in the property. No damages were awarded on her elder-abuse claim. For his part, the husband was awarded $316,000 on
29
See Yong Sik Kye v. EAS Capital, Inc., No. B218281, 2011 WL 947083 (Cal. Ct. App. Mar. 21, 2011).
30
Gebhard v. Laxmi-Vishnu Enters., Inc., No. 04-11-00086-CV, 2012 WL 131415 (Tex. App.San Antonio Jan. 18, 2012).
31
Arin v. Applequist, No. A126245, 2011 WL 3684810 (Cal. Ct. App. Aug. 23, 2011).
10
several of his claims, but not the elder-abuse claim. The husbands net recovery was $34,600. Appellate opinions frequently discuss licensees' fiduciary and statutory duties. In Ford,32 for example, a real estate professional represented two prospective buyers, but allegedly told one buyer confidential information obtained from the other buyer. (The precise nature of the information is not revealed in the opinion.) In reversing a
dismissal, the opinion discussed the duty of loyalty, common law fiduciary duties and statutory duties. At issue was whether the same buyers' representative can write and present competing offers without breaching fiduciary duties. The court reversed the dismissal of the breach of fiduciary duty and negligence claims, but affirmed the dismissal of the breach of contract and negligent-hiring claims.
C.
Dual Agency Remains an Area of Concern.
Dual agency continues to be an important area of concern for the survey respondents. More than 37% of them stated that the issue is the basis for a moderate or higher number of current disputes, and 74% placed the issue among their top three current issues. (See Tables 15, 16.) Most (73%) respondents believe that the level of disputes will stay the same during the next two years; about 17% believe the number of disputes will increase in importance over the next two years. More than 71% ranked the issue among their top three potential future issues, and 63% believe there is a moderate or higher need for training on Dual Agency. (See Tables 17-19.) The respondents' comments address several problems. respondents simply object to dual agency on principle.
32
First, several
Survey respondents also
Ford v. Brooks, 2012-Ohio-943, 2012 WL 760741 (Ohio Ct. App. Mar. 8, 2012).
11
believe that licensees simply do not understand dual agency. "unintended representation."
Some embark on
Twenty-one cases addressed dual agency issues in some manner. Liability was decided in 13 of those cases; eleven cases ended in a determination that the licensee was not liable and two ended in a plaintiff's verdict. The first case was Yong Sik Kye,33 discussed above in I.B. In the second case, Barts,34 the listing broker was the sellers' neighbor and was representing both the sellers and the plaintiff. The transaction was conditioned, in part, on the transfer of a strip of land for the driveway from the seller to the broker. The offer also had an attorney-modification clause which allowed the
seller's attorney to make good-faith changes to the offer. The attorney made changes to the plaintiff's offer, but because the plaintiff did not accept them within a specified time, the seller's attorney believed there was no binding contract. Meanwhile, a
licensee sponsored by the listing broker found another buyer who submitted a back-up offer that was, in the end, accepted. In affirming a $300 verdict for the disappointed buyer, the appellate court noted that disclosure could have been made without breaching the confidentiality of the back-up offer.
D.
Buyer Representation.
Buyer Representation is not a major source of current disputes, but it is nevertheless an important issue, according to the survey respondents. Specifically,
only 13% of the survey respondents indicated that Buyer Representation was the
33
Yong Sik Kye, No. 218281, 2011 WL 947083. Barts v. Domanskis, No. 1-09-1998, 2011 WL 9699102 (Ill. App. Ct. July 26, 2011).
34
12
source of a significant number of current disputes, and about 37% stated the issue had moderate or higher current significance. Nevertheless, all fourteen respondents who ranked the issue ranked it either first or second as a source for current disputes. (See Tables 15, 16.) Similarly, only 23% of the respondents believe the issue will increase in importance over the next two years, but nearly 89% of those who ranked it placed the issue in their top three future issues. (See Tables 17, 18.) Thirty-one percent of the respondents indicated that there is a significant need for training on the issue. ( See Table 19.) The comments emphasize two principal points. First, many licensees do not understand their responsibilities when representing buyers; some even work without a representation agreement in place. Second, several respondents believe buyer
representatives do not do a good job for their clients. Several states have adopted statutes and regulations relating to buyer representation in addition to the items discussed in I.A above. For example,
Montana's list of unprofessional conduct includes disclosing to a client the name of another client making an offer on the same property or disclosing the amount of the competing offer.35 North Dakota regulations provide that a licensee must explain that an agency may, without breaching a fiduciary duty, represent two buyers who want to make an offer for the same property; the agency retains fiduciary duties to both buyers.36 One of the cases addresses this type of situation.37 Note also that the
35
See Mont. Admin. R. 24.210.641(5)(t) (2012). N.D. Admin. Code 70-02-03-15.1(7)(b) (2012).
36
13
Colorado Real Estate Commission has adopted a position statement addressing the need to advise buyers about inspection contingencies and how they can affect lending decisions and other issues.38 Case law research retrieved 21 cases addressing buyer-representation disputes. Twelve of these cases determined whether the licensee was liable, but only one ended with a small judgment for the plaintiff.39
E.
Other Notable Verdicts
Agency issues were the subject of several large verdicts. Defterios.40 A jury verdict of $12 million was reduced to $4,385,754.45 in a case in which the prospective purchaser of several apartment complexes held himself out as the beneficiary of a massive trust fund who was having difficulties getting his trustees to release funds to him. The vendor and several investors sued the broker for fraud in the inducement, fraud and negligent misrepresentation on the grounds that the broker stated he had verified the existence of the funds. The broker was cagy about his client and the trust fund. The prospective purchaser was actually a truck driver from Massachusetts and was not a trust beneficiary. The brokers did not contest liability on appeal, but focused instead on the amount of damages.
37
See, e.g., Ford v. Brooks, 2012-Ohio-943, 2012 WL 760741 (reversing dismissal in case in which agent represented two prospective buyers, but agent allegedly told one buyer confidential information about the other buyer; case discusses the duty of loyalty and whether agent can write both offers without breaching fiduciary duties to either prospective buyer).
38
See Colo. Real Estate Comm'n, Position Stmt. 43Property Inspection Resolutions (2012).
39
McKenzie v. Eleven Group, Inc., No. C064337, 2011 WL 1435012 (Cal. Ct. App. Apr. 14, 2011) (awarding $1184.77 in dispute arising from purchase of land for timber; buyer representatives stated that clearing the land and subdividing it would be a "slam dunk").
40
Defterios v. Dallas Bayou Bend, Ltd., 350 S.W.3d 659 (Tex. App.Dallas Aug. 19, 2011), review denied (Tex. Aug. 17, 2012). Copyright 2013 National Association of REALTORS
14
Fazio.41 An appellate court reversed a court-ordered verdict for a group of defendants, including the real estate broker. The plaintiff was an investor who relied on brokers to find properties with a single tenant under a triple net lease, to do due diligence as to the tenant's business, rent, taxes, and lease terms and to determine if there were any other problems that might affect the income stream from the property. The broker was an entity related to the vendor and acted for the vendor. The broker misrepresented the financial stability of the property's tenant. Although the broker disclosed that the tenant was reorganizing and restructuring its debt, it did not disclose that the tenant was trying to negotiate a 30% reduction in all its leases, or that its bank required its president to personally guarantee a $5.7 million loan. After the purchase closed, the tenant paid rent for two months. The rent check for the third month bounced, and the tenant never sent another one. The tenant filed for chapter 11 bankruptcy and rejected its lease. The plaintiff sold the empty building at a loss. The jury concluded that the vendor was 100% responsible for the broker's representations and awarded $3,961,524.60 in compensatory damages and $667,000 in punitive damages. The verdict totaled $4,628,524.60. The trial court rejected the jury verdict and entered judgment for the defendants, but the appellate court reinstated the jury verdict. The appellate opinion includes a long dissent arguing that a disclaimer of reliance on information relating to the tenant's financial condition precluded claims of fraudulent inducement. Hanks.42 The Washington Court of Appeals held that an exculpatory clause in a rescission contract, in which the vendor released claims against her salesperson, violated public policy. The salesperson did not tell the vendor that the offer was contingent on the sale of the buyers' house. The vendor ended up having to relist the house and the market declined precipitously. A jury awarded $365,000 on the negligence claim.
II.
PCD ISSUES AND "AS IS" CLAUSES CONTINUE TO BE SIGNIFICANT. Property Condition Disclosure is an ongoing source of disputes. Taken together,
62% of the survey respondents report that disclosure issues are the source of a moderate or higher number of current disputes, and 72% rank disclosure issues among their top three current issues. (See Tables 10, 11.) More than 66% of the respondents
41
Fazio v. Cypress/GR Houston I, L.P., No. 01-09-00728-CV, 2012 WL 159929 (Tex. App.Houston [1st Dist.]), opin. withdrawn & superseded on rehrg., 2012 WL 352484 (Tex. App.Houston [1st Dist.] Aug. 15, 2012) (no apparent substantive change).
42
Hanks v. Grace, 273 P.3d 1029 (Wash. Ct. App.), review denied, 290 P.3d 133 (Wash. 2012). Copyright 2013 National Association of REALTORS 15
believe the topic's importance is likely to stay the same over the next two years, and 65% believe there is a moderate or higher need for training. (See Tables 12, 14.) Almost 66% ranked disclosure issues among their top three future issues. (See Table 13.)
A.
Short Sales Are Again the Most Significant Individual Issue Identified in the Survey.
Disclosure issues arising in Short Sales is the top area of concern identified in the survey. More than 34% of the survey respondents indicated that a short sale was the basis of a significant number of current disputes; 76% indicated it was source of a moderate or higher number of disputes. (See Table 15.) Nearly 65% of the
respondents who ranked this issue placed it among their top three current issues and 80% placed it in their top three future issues. (See Tables 16, 18.) The level of
disputes is likely to increase over the next two years, according to nearly 41% of the respondents; more than 43% believe there is a significant need for training about disclosure issues relating to short sales. (See Tables 17, 19.) The respondents' comments did not focus on property condition disclosure in short sales. Instead, they commented on the mechanics of arranging a short sale. They noted that lenders take a long time to decide whether to accept an offer and do not state in the listing what portion of the proceeds will be applied to the debt. Buyers' representatives, in turn, do not explain the process adequately. Another respondent believes that some licensees get "overinvolved" and "beyond their scope" when working on a short sale. There is "no clear-cut direction or 'rules' and too many agents
16
[are] just doing what they want." Two respondents suggested that sellers will cause disputes as well. The problems described in the comments are not yet reflected in the legal research data. One case, Bevans,43 was located involving a disclosure in a short sale. In that case, the seller's representative reported, after the buyer apparently accepted the seller's counteroffer, that the price would not provide sufficient funds to cover closing costs and commissions. The buyer sued her representative and the seller's representative for breach of contract, a claim under the state consumer fraud statute, and specific performance. The court affirmed a summary judgment on the grounds that the parties had not formed an enforceable contract. The contract referred to a "short sale addendum," a form provided by the state real estate commission, but the addendum had not been attached to the purchase agreement. The addendum
provided that the purchase agreement was contingent on all third-party creditors agreeing to accept a payment "less than the balance due on the mortgage and/or liens after payment of the seller's expenses and real estate commission."44 The defendants contended that the addendum was part of the agreement because the body of the agreement clearly referred to the addendum; the plaintiff contended that the addendum was not in fact part of the agreement. Because there was no meeting of minds as to what the short sale terms were to include, there was no enforceable agreement.45
43
Bevans v. Burgess, No. M2011-02080-COA-R3CV, 2012 WL 952097 (Tenn. Ct. App. Mar. 19, 2012).
44
Id. at *2. Id. at *3. 17
45
B.
REOs and Bank-owned Property via Foreclosure Is Another Highly Important Issue.
Sales of bank-owned property via foreclosure is closely related to short sales, and the survey results indicate that the respondents think the issue is somewhat significant. Over 71% of the survey respondents indicated that the issue was the basis of a moderate or higher number of current disputes. (See Table 15.) About 50% of the respondents believe the level of disputes will stay the same over the next two years. Thirty percent believe there is a significant need for training about disclosure issues relating to REOs, and 77% believe there is a moderate or higher need for training. (See Tables 17, 19.) Some of the survey respondents' comments about REO property are similar to comments relating to short sales. For example, banks and foreclosure agents are not responsive, and listing brokers impose "unreasonable rules and demands." Several comments discuss the condition of the property. The use of "as is" clauses does not solve the disclosure problem. Two cases involved disclosure issues for bank-owned property. In Fleck,46 a flood damaged the property shortly after the buyers moved in. The court granted
summary judgment to the seller's representative, finding there could be no justifiable reliance on information from the seller's representative. The property had been sold "as is," and the buyers were told they needed flood insurance. Further, it was clear that the seller had never lived on the property and was not in a position to disclose anything about flooding.
46
Fleck v. Loss Realty Group, 2011-Ohio-152, 2011 WL 282352 (Ohio Ct. App. Jan. 13, 2011).
18
In Bell,47 structural additions were made to the property without proper permits, apparently during the lender's ownership. permission to replead the plaintiffs' fraud claims. The complaint was dismissed with
C.
Structural Defects Will Continue to Cause Disputes.
Disclosure of structural defects is another perennial "catch all" claim brought against salespersons and brokers. While 29% of the survey respondents indicated that structural defects formed the basis of a significant number of current disputes, 77% indicated that the issue formed the basis of a moderate or higher number of current disputes. (See Table 15.) About 78% of the Respondents who ranked this issue placed it among their top three current and future issues. (See Tables 16, 18.) The level of disputes is likely to stay the same over the next two years, according to nearly 78% of the respondents; nearly 70% believe there is a moderate or higher need for training about disclosure of structural defects. (See Tables 17, 19.) Respondents from all over the United States noted that disputes involving structural defects are extremely common. They noted, among other things, that sellers are not always truthful on the disclosure statement. Buyers, for their part, do not take responsibility for learning about the home's actual condition. Some salespersons "lack . . . knowledge about homes [and] just know selling techniques." The economic
downturn and accompanying decrease in maintenance, as well as "global warming" were cited as causes of deterioration of structural integrity. Case law research located 10 cases involving structural defects. Liability was
47
Bell v. Federal Home Loan Mtge. Corp., No. 11-CV-2514-MMA(RBB), 2012 WL 1581075 (S.D. Cal. May 4, 2012). Copyright 2013 National Association of REALTORS 19
determined in 7 of those cases, and they all ended in a successful defense of the real estate professional.
D.
Mold and Water-Intrusion Claims Can Result in Substantial Legal Exposure.
Mold and Water Intrusion is the source of a significant number of current disputes, according to more than 31% of the survey respondents; 89% of the respondents who ranked the issue placed it among their top three current issues. (See Tables 15, 16.) Seventy-five percent of the respondents believe the level of disputes will stay the same over the next two years, and about 62% ranked it among their top three potential future issues. (See Tables 17, 18.) Over 70% believe there is a
moderate or higher need for training on this issue. (See Table 19.) Issues relating to mold and water intrusion come up frequently and can subject licensees to significant liability. The problems can be hard to detect and frequently are not disclosed. Consumers are aware of, and concerned about, mold issues as they have received "a great deal of publicity." A respondent from Pennsylvania predicts that Superstorm Sandy will cause an increase in mold cases as surviving homes are put up for sale. Mold and water intrusion was an issue in 12 cases retrieved for the Scan. Of the 9 cases in which liability was determined, 7 were decided in favor of the salesperson or broker and the other two were decided in the buyer's favor. In Winters,48 a licensee was liable for failing to disclose the presence of mold in a vacant property. The property had been vacant for about 18 months before it was put on the market, where it languished
48
Winters v. Fiddie, 716 S.E.2d 316 (S.C. Ct. App. 2011).
20
for about 3-1/2 years. The sellers and their salesperson failed to disclose the mold to the buyer, even though at least three prior deals had fallen through because of the mold. In fact, the salesperson had a report from a lab that identified the mold, but did not provide it to the buyer or disclose its existence. The jury awarded the buyer The
$50,000 in compensatory damages and $75,000 for punitive damages.
salesperson argued on appeal that the provisions of the state's Residential Property Condition Disclosure Act should not apply, because a vacant building is not a "dwelling unit." The appellate court rejected the argument. Note also that the purchase was "as is," but the buyer contended that the seller's representative added the language "[b]uyer acknowledges the presence of mold in the house" to the purchase agreement after the buyer signed it. The jury also heard evidence that the salesperson had been
sanctioned by the state licensing authority. In Betty White Jewelers,49 the broker representing an owner of commercial property did not provide a property condition disclosure statement to the buyer and misrepresented the condition of the property, including its water problem. A jury
returned a plaintiff's verdict, but the court's opinion does not state the amount of damages awarded.
E.
Disputes Involving "As Is" Clauses May Increase as a Result of the Increase in Short Sales and Sales of Bank-owned Property.
The issue of "As Is" Clauses is closely linked to Property Disclosure issues. The issue is not as significant to the survey respondents as short sales or REOs, however.
49
Betty White Jewelers, Inc. v. Sea Hawk Indus. Inc., No. 2010 CA 0574, 2011 WL 2448133 (La. Ct. App. June 17, 2011).
21
Only about 70% of the survey respondents indicate that "As Is" Clauses have moderate or higher current significance, and about 27% believe the issue will increase in importance over the next two years. (See Tables 15, 17.) About 32% of the
respondents indicate there is a significant need for training on this issue. ( See Table 19.) Several respondents commented on the issue; most noted that salespersons do not know what "as is" really means. Sellers continue to hide defects, and "the lack of disclosure puts us all at risk" for disputes. Additionally, salespersons do not draft the clauses correctly. Ten cases involving "as is" clauses were retrieved; twoFazio and Wintersare discussed above.50
F.
A Variety of New and Amended Statutes and Rules Affect Licensees' Duty to Disclose Information about the Condition of Property.
While the survey questionnaire sought information about a limited number of Property Condition Disclosure issues, the legal research followed 23 separate disclosure issues. (See Appendix 4.) The new statutes and regulations address a variety of matters subject to disclosure:
50
Private transfer fees51 Water-conserving plumbing fixtures52
See supra I.E, II.D.
51
Ky. Rev. Stat. 382.792.796 (2012); Neb. Rev. Stat. 76-3111 (2011); Nev. Rev. Stat. 111.840, .845; 113.085 (2011); N.Y. Real Prop. Law 475 (2011); Pa. Cons. Stat. 68-8106 (2011); S.D. Codified Laws 43-4-44, -47 to -57 (2011). Cf. Wyo. Stat. 34-28-101 to -103 (2012) (requiring disclosure pre-existing private transfer fees in deed; otherwise private transfer fees are prohibited).
22
Presence of liquid-gas pipelines53 Flood-zone classification54 Chinese drywall55 Earthquake damage56 Square-footage information57 Vacant land58 "Wind estate"59 Three additional states have statutes or regulations that protect licensees from
liability arising from disclosure issues. Missouri has enacted a statute providing that real estate licensees are generally immune for statements from third-party experts about the condition of the property.60 Ordering an inspection is deemed not to be "selecting or engaging" the third-party expert, which could expose the licensee to liability. Nebraska passed a statute providing that a licensee who works for an "asset
52
Cal. Civ. Code 1102.6 (2011). Cal. Civ. Code 2079.10.5 (2012). La. Real Estate Comm'n, Prop. Cdn. Discl. Stmt. (rev. 1/1/2013).
53
54
55
La. Real Estate Comm'n, Prop. Cdn. Discl. Stmt. (rev. 1/1/2013); Va. Code 54.12131(B), 2132(B), -2133(B), -2134(B) (2011).
56
Okla. Admin. Code tit. 605, ch. 10 appx. A (July 2012) (PCD Stmt.). Okla. Stat. tit. 59, 858.515.1 (2012), 858.516.2 (2011). Wis. Stat. 709.001, 033 (2011); Wyo. Stat. 34-1-151 (2012). Wyo. Stat 34-1-151 (2012). Mo. Rev. Stat. 339.190 (2011).
57
58
59
60
23
management company"selling bank-owned propertiesand represents either the buyer of the seller, is exempt from the requirement to disclose "all material adverse facts."61 Virginia passed a statute providing immunity to real estate licensees who
repeat false information provided by a client, governmental entity, or a third party who obtained the false information from a governmental entity, provided the licensee does not have actual knowledge that the information was false.62
III.
DISPUTES INVOLVING STATE DECEPTIVE PRACTICES AND CONSUMER PROTECTION STATUTES REMAIN A SOURCE OF LIABILITY. Over 50% of the survey respondents identified DTPA/Fraud as having a
moderate level of current disputes (see Table 15), and nearly 72% believe the number of disputes will stay the same over the next two years. More than 73% of the
respondents think there is a moderate or higher need for training on the issue. ( See Table 19.) Comments on this topic tended to focus on the fact that plaintiffs' attorneys bring claims under consumer fraud statutes. The claim may be brought "to scare us into settling," or because the statute may allow for vicarious liability. specifically mentioned flipping and short sales as sources of claims. The case law research located 92 cases addressing DTPA and Fraud, a slight decrease from the 2011 Scan. (See Table 2.) Fifty-three of these cases ended with a determination of liability, and twelve were decided in favor of the plaintiff. Respondents
61
Neb. Rev. Stat. 76-2422.01(10) (2011). See id. 76-2404.01 (defines "asset management company").
62
Va. Code 54.1-2142.1 (2011).
24
Many cases were property condition disclosure cases in which a DTPA claim was alleged. In a nationally reported case, Milliken,63 a court concluded that a claim based on a failure to disclose a recent murder-suicide in the house could proceed. The Pennsylvania Association of Realtors filed an amicus brief arguing that the incident was not a material defect, but the superior court concluded that it was and reversed a summary judgment for the defendants. The opinion was subsequently withdrawn and replaced over a year later by an opinion reaching the opposite result, with a vigorous dissent.64 Other situations giving rise to DTPA/Fraud claims include disputes between brokers and salespersons,65 predatory lending schemes,66 and RICO (racketeering) claims.67
63
Milliken v. Jacono, No. 2731 EDA 2010, 2011 WL 5936748 (Pa. Super. Ct. Nov. 292, 2011), superseded, 2012 WL 6684757 (Pa. Super. Ct. Dec. 26, 2012).
64
Id. 2012 WL 6684757 (Bender, J., dissenting). See also DePompe v. Weichert Realtors, No. A-4912-0972, 2011 WL 2566132 (N.J. Super. Ct. App. Div. June 30, 2011) (seller stated property was not in flood zone based on information from third party; buyer later discovered updated report placing property in flood zone; summary judgment reversed, as broker could be liable under consumer-fraud act); DeWolfe v. Hingham Centre, Ltd., 956 N.E.2d 1228 (Mass. App. Ct. 2011) (reversing summary judgment, despite exculpatory clause in purchase agreement, in case alleging vendor's agent did not inform buyer that property was not zoned for intended use; court concluded agent had duty to determine correct zoning and put wrong information in MLS listing), review granted, 963 N.E.2d 728 (Mass. 2012).
65
Allen v. Burnet Realty, LLC, 801 N.W.2d 153 (Minn. 2011) (agent sued broker alleging broker unlawfully sold insurance to him and other associates in violation of state insurance law and DTPA; court concluded that brokers indemnification program was not "insurance"); Hennes v. Shaw, 725 S.E.2d 501 (S.C. Ct. App. 2012) (agent sued another agent alleging numerous claims arising from co-listing properties and loans between them).
66
See, e.g., Rose v. Seamless Fin. Corp., No. 11cv00240 AJB (KSC), 2012 WL 3985964 (S.D. Cal. Sept. 10, 2012) (elder-abuse claim against designated broker of mortgage lender by 90-year-old homeowner who was placed in 15-year refinanced loan; Copyright 2013 National Association of REALTORS 25
In all, 41 cases (77%) were resolved in favor of the defendant and 12 (23%) ended in verdicts for the plaintiffs.
IV.
RESPA ISSUES ARE STILL AN AREA NEEDING TRAINING. RESPA remains an important area of concern for survey respondents. While
only about 15% of respondents indicated that RESPA issues were a significant source of current disputes, almost 59% of the survey respondents indicated that RESPA issues were the basis for a moderate or higher number of current disputes. (See Table 10.) Similarly, while only about 24% believe these issues will increase in importance over the next two years, respondents believe that the RESPA topic is the third most significant training need, with more than 35% of the survey respondents indicating a significant need for training on these issues. (See Tables 12, 14.) Note also that RESPA is now administered and enforced by the new Consumer Finance Protection Bureau.68
court concluded broker did not have a legal duty to supervise lending officers and did not personally owe plaintiff a fiduciary duty; plaintiff nevertheless given permission to replead DTPA claim).
67
See, e.g., Fremont Reorg. Corp. v. Duke, No. 10-11923, 2011 WL 4357637 (E.D. Mich. Sept. 12, 2011) (plaintiffs alleged massive real estate fraud scheme involving numerous defendants; complaint included RICO and civil-conspiracy claims); Anderson v. Coastal Communities at Ocean Ridge Plantation, Inc., No. 09 CVS 1042, 2012 WL 1948767 (N.C. Super. Ct. May 30, 2012) (action arising from sale of over-valued vacant lots; RICO allegations based on allegedly inflated appraisals and steering plaintiffs to preferred lenders); Pollman v. Swan, 723 S.E.2d 290 (Ga. Ct. App. 2011) (plaintiffs included RICO allegations in case based on undisclosed defects in condo; court concluded plaintiffs' injury was not proximately caused by licensees and granted summary judgment).
68
The RESPA regulations ("Regulation X") are now found at 12 C.F.R. pt. 1024. See 76 Fed. Reg. 78978, 78981 (Dec. 20, 2011).
26
A.
Affiliated Business Arrangements Are Likely to Be a Source of Increased Disputes.
Affiliated Business Arrangements (ABAs) were the source of a moderate or higher number of current disputes according to nearly 59% of the survey respondents. Thirty-one percent believe the issue will increase in importance over the next two years. (See Tables 15, 17.) The issue is one of the top training needs, with more than 44% of the respondents indicating there is a significant need for training about ABAs. (See Table 19.) Comments on the issue diverged. One respondent stated that there is "[t]oo much government regulation and not enough education on the relationships and what is not a violation." Another stated that issue of affiliated business arrangements, along with Kickbacks, "is an issue [for] continued enforcement." Two state statutes and two state regulations were located addressing ABAs. Virginia enacted a statute requiring a person making referrals to an affiliated service provider to disclose any ownership interests in the other provider, if the person making the referral is receiving "return on investments" from its ownership interest in the service provider.69 A broker also must disclose an ownership interest in an affiliated provider if the interest is greater than 1%; when the ownership interest exceeds 50%, the broker also has to acknowledge that the affiliate is a subsidiary.70
69 70
Va. Code 55-525.12(c) (2011).
Id. 55-525.13 (2011). See also 4 Colo. Code Regs. 725.1, E-46 (2012) (Colorado requires brokers to disclose the existence of an affiliated business arrangement); Colo. Real Estate Comm'n, Position Stmt. on Disclosure of Affiliated Business Arrangements (Apr. 5, 2011) (supplements Rule E-46).
27
Twelve cases addressing Affiliated Business Arrangements were located. (See Table 2.) Three cases were dismissed at the initial stages. One case, Pass,71 rejected an "economic coercion" theory based on an allegedly "required use" of an affiliated business. A clause in the form sales contract stated that if the borrower used the "Sellers Designated Settlement Company" to close the transaction, the seller would pay the transfer tax, but if a different closer were used, the borrower would have to pay the tax. The buyer contended that the local custom and practice was to split the tax, and by not using the designated company he would have to pay a "penalty" of $4015, the amount of the tax. The district court noted that offering various discounts of this sort is perfectly acceptable and dismissed the case.
B.
Respondents Are Moderately Concerned About Kickbacks.
While only about 13% of the survey respondents identified Kickbacks as a significant source of current disputes, more than 51% identified it as an issue with moderate or higher current significance, and more than 67% believe the issue's importance will stay the same over the next two years. (See Tables 15, 17.) Nearly 72% of the survey respondents believe there is a moderate or higher need for training about Kickbacks. (See Table 19.) Hardly anybody ranked the issue in their top three. Here, too, comments were sparse. One respondent referred to "small companies bending the rules to gain market share" as a source of future disputes. Another stated: "[M]ultiple offers on listings will cause an increase in kickbacks in order to get an agent's offer accepted in lieu of [other offers]."
71
Pass v. Capital City Real Estate LLC, 842 F. Supp 2d 36 (D.D.C. 2012), appeal dism'd (D.C. Cir. Dec. 5, 2012).
28
The case law research retrieved 64 cases addressing Kickbacks, a substantial decrease over the 2011 Scan. (See Table 2.) Liability was determined in 24 of these cases, and 23 were decided in the defendants' favor before trial. Perhaps the most significant case, however, is Freeman,72 in which the United States Supreme Court concluded that a plaintiff in a kickback case does not have standing to sue when the fee is not actually split. This ruling resolved an issue on which federal appellate courts disagreed, and a plaintiff now must show he or she was actually injured by a fee or charge; a desire to establish right and wrong, for its own sake, is insufficient.73 Kickback claims were allowed to proceed in several cases. In Bollinger,74 for example, buyers and sellers sued a multiple listing service, Realtor associations, brokers and salespersons, alleging kickbacks and fee splitting, price fixing, and fraud. The allegedly "hidden settlement fee" was an amount equal to 0.12% of the selling price shown on the HUD-1 closing statement, paid by the broker to the MLS. The plaintiffs alleged that the MLS provided no services in exchange for the fee, such that the fee was in exchange for the referral. The court denied the motions to dismiss brought by the MLS and brokers, but granted it with respect to the salespersons. The court also
72
Freeman v. Quicken Loans, Inc., 132 S. Ct. 2034 (2012) (Scalia, J.), aff'g 626 F.3d 799 (5th Cir. 2010).
73
E.g., Augenstein v. Coldwell Banker Real Estate LLC, No. 2:10-cv-191, 2011 WL 3837096 (S.D. Ohio Aug. 30, 2011) (plaintiff's desire to establish whether $100 administrative fee was proper was sufficient to establish right to sue; court granted summary judgment to plaintiff because fee did not involve additional services, making it unearned; Freeman casts doubt on whether Augenstein is still good law).
74
Bollinger v. First Multiple Listing Serv., Inc., 838 F. Supp. 2d 1340 (N.D. Ga. 2012).
29
dismissed all claims against the Realtor boards, the Sherman Act claim, and various state-law claims. The remaining claims were allowed to proceed. A great number of cases, however, continue to be brought within a homeowner's challenge to foreclosure, frequently as a separate federal court action. The lawsuits frequently were filed long after the loan closed, too late to bring a viable Kickback claim.75
C.
While There May be Disputes About Disclosure of Settlement Costs, They Are Not Likely to Lead to Liability Under RESPA.
The survey results for Disclosure of Settlement Costs follow the pattern for the other two RESPA issues. Almost 51% indicated the issue has moderate or higher current significance, but only about 18% believe the issue will increase in importance over the next two years. (See Tables 15, 17.) Nearly 29% believe there is a significant need for training about Disclosure of Settlement Costs. (Table 19.) Twenty cases were located addressing this issue, but most ruled that there is no private cause of action under RESPA for faulty pre-closing disclosure; none of the cases resulted in a finding of liability.
75
These Kickback cases were not counted for the Scan because they did not address the claims on their merits. In some cases, however, the homeowner could support a claim for equitable tolling of the statute of limitationsthat fraudulent or deceptive conduct by the defendant "hid" the claim from the plaintiffsuch that the plaintiff would have additional time to make the claim. Cases in which the plaintiff was given a chance to amend his or her complaint to allege facts supporting equitable tolling were counted for the Scan. E.g., Gomez v. Wells Fargo Home Mtge., No. C 11-01725 LB, 2011 WL 5834949 (N.D. Cal. Nov. 21, 2011); Khan v. World Sav. Bank, FSB, No. 10-CV-04305LHK, 2011 WL 133030 (N.D. Cal. Jan. 14, 2011).
30
V.
FRIVOLOUS LAWSUITS ARE COSTING BROKERS TIME AND MONEY, LEADING THEM TO SETTLE. Over 73% of the survey respondents report that Frivolous Lawsuits/Prevailing
Party's Right to Fees are currently at a moderate or higher level (see Table 15), and almost 65% believe that the level of disputes will stay the same during the next two years (see Table 17). The issue also was frequently ranked among the current or future potential disputes. Seventy-six percent of the respondents who ranked the issue placed it in their top three; over 63% placed it in their top three potential disputes. (See Tables 16, 18.) Nearly 30% indicated a significant training need about Frivolous Lawsuits, and more than 77% of the survey respondents believe it is an area requiring some additional training. (See Table 19.) The numerous comments from survey respondents tended to suggest that Frivolous Lawsuits are a significant problem, driven by the plaintiffs' emotions and the search for a deep pocket in the form of the broker's E&O insurance. The time and cost of defending a frivolous lawsuit frequently leads brokers to settle. This issue also covers situations in which a prevailing party has a contractual or statutory right to recover attorneys' fees and costs. These amounts can be substantial; in fact, two of the top ten judgments are fee awards. (See Table 8.) In one case, In re LandAmerica 1031 Exchange Services, Inc.,76 attorneys for class-action plaintiffs sought approval of their fee petition in conjunction with a motion for approval of a class settlement. Using the "percentage of the fund" approach and the usual "lodestar"
76
In re LandAmerica 1031 Exch. Servs., Inc. IRS 1031 Tax Deferred Exch. Litig., MDL No. 2054, 2012 WL 5430841 (D.S.C. Nov. 12, 2012) (civil procedure rules relating to class actions permit an award of fees and costs to the prevailing party).
31
analysis to determine if a fee is reasonable, the court awarded the attorneys 25% of the settlement funds, $989,973.07, and litigation costs of $60,882.57, for a total award of $1,050,855.64. In Smith v. Jenkins,77 the Massachusetts Consumer Protection Act78 authorized an award of reasonable fees and costs against several defendants, including real estate companies who participated in a fraudulent-lending scheme. The court reviewed the fee request and awarded $492,233 in fees and expenses and costs of $42,818, for a total award of $535.051.
VI.
COMMISSION DISPUTES AND PROCURING CAUSE CONTINUE TO BE SIGNIFICANT SOURCES OF CONFLICT. The issue of commission disputes and procuring cause is a significant source of
current disputes, according to 32% of the survey respondents.
About 75% of the
respondents who ranked the issue placed it among their top three current disputes; more than 71% laced it their top three future disputes. (See Tables 15, 16, 18.) Over 34% of the respondents believe that the issue will increase in importance over the next two years, and nearly 84% believe there should be additional training on commission disputes and procuring cause. (See Tables 17, 19.) There were over 30 comments about commissions and procuring cause from the survey respondents. The respondents continue to refer to the economic downturn and the tight market as causes of disputes. Some noted that confusion over who is the procuring cause of a transaction continues to be a problem. Two respondents referred
77
Smith v. Jenkins, 818 F. Supp. 2d 336 (D. Mass. 2011). See Mass. Gen. Laws ch. 93A, 9(4). 32
78
to the larger geographic reach of listings as a source of procuring-cause disputes. Several respondents simply noted that this issue is an ongoing, and most common, source of disputes between licensees. Roughly the same number of statutes and regulations were found through legal research as were found in 2011. (See Table 4.) These provisions vary widely. For example, New Jersey promulgated rules relating to referral agents and how they are licensed.79 The rule specifies that referral fees must be paid through the referral agent's broker.80 In Wisconsin, a licensee cannot accept compensation from anyone other than a client, principal broker, or broker-employer unless the licensee has prior written consent from all parties to the transaction.81 Ohio enacted a statute stating that a licensee cannot sell, assign or transfer his or her interest in a commission to an unlicensed entity.82 In Utah, a broker cannot pay a commission out of a trust account without first depositing funds into the broker's operating account, unless parties to the trust agree otherwise.83 Iowa promulgated a rule enforcing protective clauses and
setting forth the need to provide notice of protected transactions.84
79
See N.J. Admin. Code 115:7-1 (2011). See also Colo. Real Estate Comm'n, Position Stmt. 2 on Earned Fees (Apr. 5, 2011).
80
N.J. Admin. Code 116:10. Wis. Admin. Code RL 24.05(1)(a) (2012). Ohio Rev. Code 4735.21 (2011). Utah Admin. Code R162-2f-403(d) (2011).
81
82
83 84
Iowa Admin. Code r. 193E-11.2(543B) (2011). See also 839 E. 19th St. L.P. v. Friedson, 373 S.W.3d 674 (Tex. App.Houston [14th Dist.] 2012) (no commission was owed because broker did not bring property to buyer's attention during the term of the buyer representation agreement and the "protection period" language did not apply), Copyright 2013 National Association of REALTORS 33
Brokers' liens continue to be the topic of legislation and litigation. Arkansas now allows "principal brokers" to have the lien, a more limited group of lienors than "licensees," as the statute formerly provided.85 North Carolina enacted a new chapter providing for a broker's lien.86 North Carolina also requires evidence of a signed writing to recover on an "agreement for broker services."87 In Sotheby's International Realty,88 the plaintiff-buyer allegedly tried to avoid an exclusive representation agreement she had with the defendant-broker and another broker claimed to be entitled to the commission instead. The defendant broker placed a $16 million lien on the property and sought to have the dispute arbitrated. The trial court granted the motion to stay and directed the plaintiff to proceed with arbitration as set forth in the bylaws of the local Realtor association and NAR's bylaws and Code of Ethics. Disputes between a broker and a formerly associated salesperson also were litigated.89
review denied (Tex. Mar. 8, 2013); Crilow v. Wright, 2011-Ohio-159, 2011 WL 198424 (Ohio Ct. App. Jan. 14, 2011) ("protection period" was in effect permitting licensees to recover commission); First Weber Group N. Wis., LLC v. Guyant, 800 N.W.2d 494 (Wis. Ct. App. 2011) (same).
85
Ark. Code 18-48-801 to -808 (2011). N.C. Gen. Stat. 44A-24.1 to -24.14 (2011).
86 87
Id. 93A-13 (2011). See also Clouse v. Levin, 339 S.W.3d 766 (Tex. App.Houston [14th Dist.] 2011) (buyer's agent sued for breach of buyer representation agreement and sought compensation; no remedy, because agreement was not in writing).
88
Sotheby's Int'l Realty, Inc. v. Relocation Group, LLC, No. FSTCV116011784S, 2012 WL 1511375 (Conn. Super. Ct. Apr. 4, 2012).
89
See Caro v. Jundi (In re Jundi), Adv. No. 11-0759, 2012 WL 3648013 (Bankr. E.D. Pa. Aug. 23, 2012) (plaintiff and mentor split commissions while mentor was helping plaintiff learn the business; mentor allegedly changed dual-agency agreements so he, Copyright 2013 National Association of REALTORS 34
VII.
THERE IS A SIGNIFICANT NEED FOR ADDITIONAL TRAINING ON TECHNOLOGY ISSUES. While technology issues, taken together, are not a significant source of current
disputes, over 51% of the survey respondents believe these issues will increase in significance over the next two years, and over 51% believe there is a significant need for training about technology issues. (See Tables 10, 12, 14.) The principal areas of concern are Social Networking and State Internet Advertising Rules.
A.
Social Networking Has Emerged as a Top Area of Concern.
In the 2011 Scan, survey respondents indicated that the issue of Social Networking was a new problem. In 2013, almost 58% of the survey respondents
indicate the use of social-networking media is now a moderate or higher source of current disputes, and nearly 64% believe the number of disputes will increase over the next two years. (See Tables 15, 17.) Nearly 43% of the respondents ranked the issue in their top three current issues, and nearly 48% ranked it in their top three future issues. (See Tables 16, 18.) Close to 66% believe there is a significant need for training on social-networking issues. (See Table 19.) Respondents frequently commented that social networking is evolving quickly and state rules need to catch up. Training on this issue is paramount. One respondent summarized the issue: "Bottom lineagents and licensees almost blindly accept
rather than plaintiff, was the seller's representative, entitling him to larger percentage of commissions); Larson v. Karagan, 979 N.E.2d 655 (Ind. Ct. App. 2012) (plaintiff asserted criminal conversion of his real estate commissions by employer and proved employer's criminal intent).
35
technology tools in areas like social media without recognizing the legal risks of some of their behavior." A few states have regulated licensees' use of social-networking media. New Hampshire, for example, provides that advertising on "limited electronic media" such as Twitter, "thumbnails" and limited-space text messaging can comply with advertising rules by including a link to the place on a broker's website that contains the required information.90 Ohio's regulation also requires a direct link from the particular electronic platform to a rule-compliant webpage display, and includes blog posts and socialnetworking posts.91 The legal research did not retrieve any cases involving social networking.
B.
Respondents Believe that Compliance with State Internet Advertising Rules Is Difficult to Police and Suggest More Training to Prevent Violations.
Disputes involving State Internet Advertising Rules have moderate or higher significance, according to almost 58% of the survey respondents. Over 49% believe, however, that the issue is likely to increase in importance over the next two years, and nearly 54% believe additional training on this topic is needed. (See Tables 15, 17, 19.) The respondents' comments addressed states' ability to regulate advertising. One noted that "state commissions do not have [the] manpower to police" internet advertising. Another pointed out that "the market is global now" and there are too many
90
N.H. Rev. Stat. 331-A-2, V-C (2011). Ohio Admin. Code 1301:5-1-02(C) (2012).
91
36
differences among states' rules. Essentially, licensees do not seem to be following the rules, and "more training in this area is needed . . . to keep everyone out of hot water." States continue to adopt or modify rules governing internet advertising. Illinois's rule specifies how internet advertising may be deceptive and now includes using a URL, metatag or other device to decipher, direct, drive or divert internet traffic or to mislead consumers.92 Louisiana has a rule providing that advertising must state where the broker is licensed.93 Montana, by contrast, does not require licensees to include a specific street address.94 The legal research did not retrieve any relevant cases.
C.
Privacy and Anti-solicitation Laws Also Need Additional Training.
Although the survey data for Privacy and Anti-solicitation Laws indicate that these issues are not significant sources of current disputes, respondents believe both issues are increasing in importance and need additional training. Specifically, 66% of the respondents indicate that Privacy has moderate or higher current significance, and more than 42% believe the issue will increase in importance over the next two years. (See Tables 15, 17.) Over 53% believe there is a significant need for training about privacy issues. (See Table 19.) Similarly, Anti-solicitation Laws are not a significant source of current disputes, but about 55% of the survey respondents believe the issue has moderate or higher
92
Ill. Admin. Code tit. 68, 1450.710 (2011). La. Admin. Code tit. 46, LXVII:2515 (2012). Mont. Admin. R. 24.210.430 (2012).
93
94
37
current significance. (See Table 15.) Forty percent of the survey respondents believe the issue will increase in importance over the next two years, and over 45% believe there is a significant need for training on this issue. (See Tables 17, 19.)
VIII.
ANTITRUST ISSUES ARE NOT A SIGNIFICANT SOURCE OF DISPUTES, BUT ADDITIONAL TRAINING ON ANTITRUST ISSUES IS NEEDED. Taken together, the survey responses about Antitrust issues indicate that these
issues are not particularly significant to those who took the survey. In fact, 76% of the respondents reported a low frequency of current disputes (see Table 15), and 79% expect the number of disputes to stay the same over the next two years. Although few respondents ranked the issues among their top five, they believe additional training is needed on all four issues. (See Table 19.) The case law research retrieved a few relevant items. One case involved access to the MLS, while two other cases involved MLS policy. 95 One case, Hyland, was a class action in which the plaintiffs alleged price fixing through "supra-competitive brokerage fees" and a conspiracy to inflate real estate commissions arising out of the
95
See, e.g., Robertson v. Sea Pines Real Estate Cos., 679 F.3d 278 (4th Cir. 2012) (remanding case alleging that brokers and board members of local MLS restrained competition by setting rules that tended to exclude lower-cost competitors and set subjective standards for membership); Keller v. Greater Augusta Ass'n of Realtors, Inc., 760 F. Supp. 2d 1373 (S.D. Ga. 2011) (dismissing case in which agent had been fined for violating rules relating to a virtual office website because agent failed to allege antitrust injury); The MLSonline.com, Inc. v. Regional Multiple Listing Serv. of Minn, Inc. , 840 F. Supp. 2d 1174 (D. Minn. 2012) (plaintiff challenged local rule that members could not use phrase "MLS" or "multiple listing service" in firm names or domain names; court dismissed because no per se antitrust violation was alleged and a "rule of reason" violation was not established). Copyright 2013 National Association of REALTORS
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defendants' refusal to negotiate a 6% commission fee.96 Several national brokerage firms were involved. The plaintiffs settled with some of the real estate defendants in May 2012.97
IX.
THIRD-PARTY LIABILITY, ESPECIALLY THE LIABILITY OF APPRAISERS, IS AN AREA OF GROWING CONCERN. Taken as a whole, 30% of the survey respondents identified the topic of Third-
Party Liability as a significant source of current disputes, and 32% believe these issues will increase in importance over the next two years. (See Tables 10, 12.) While about 22% of the respondents ranked the topic among their top five, 67% of those who ranked the topic placed it among their current top three. (See Table 11.) Between Appraisers and Inspectors, Appraisers is causing more concern.
A.
Appraisers
The survey results indicate that 33% of the respondents believe that the liability of appraisers is currently significant, and 37% believe the issue is likely to increase in importance over the next two years. (See Tables 15, 17.) Approximately 35% of the respondents believe there is a significant need for additional training on this issue. ( See Table 22.) The issue defined for the Scan is whether an appraiser is liable to a buyer or seller with whom there is no privity of contract; the comments, however, report
96
See, e.g., Hyland v. HomeServs. of Am., Inc., No. 3:05-CV-612-R, 2011 WL 2532908 (W.D. Ky. June 24, 2011); Hyland, 2012 WL 122608 (W.D. Ky. Jan. 17, 2012) (motion for approval of class-action settlements).
97
Hyland, 2012 WL 1575310 (W.D. Ky. May 3, 2012) (granting motion to approve settlement with some real estate defendants).
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respondents' impressions about how appraisals are being done after a $7.8 million settlement between eAppraiseIT and the State of New York.98 These days, there is criticism that appraisers are not local and do not know the market. As a result,
properties are not being valued correctly. Other respondents noted that appraisals tend to "lag the market." New government regulations are also affecting appraisals.
"Appraisers are not hired directly by the lender and have no accountability and they don't care if their mistake or sloppy work creates a costly problem for everyone." Another respondent commented that "[b]anks' not being able to talk to appraisers is crazy." One respondent summarized the issue: "[t]he current appraisal situation is
destabilizing the market." One respondent suggested that appraisers are "[p]robably the single greatest reason deals fall apart." Twelve cases addressing liability of appraisers were found, and one court found that appraisers were liable. In Barkley,99 the plaintiffs were harmed by a property-
flipping scheme that involved grossly over-appraised properties, sometimes by over $100,000. The opinion is vague about which party was the appraiser and how much was awarded in damages. purchaser any duty.100 Other cases addressed whether an appraiser owes a
98
See Press Release, A.G. Schneiderman Secures $7.8 Million Settlement with First American Corporation and eAppraiseIT for Role In Housing Market Meltdown (Sept. 28, 2012) (New York asserted that appraisers were providing lenders with values to match the amounts lenders wanted to underwrite, rather than the actual value of the property, leading to inflated property values and the mortgage-lending collapse.).
99
Barkley v. United Homes, LLC, 848 F. Supp. 2d 248 (E.D.N.Y. 2012).
100
See, e.g., Cabrera v. Hensley, Nos. 09 CVS 544, 09 CVS 1062, 2012 WL 2903821 (N.C. Super. Ct. July 16, 2012) (granting summary judgment, court discussed Restatement (Second) of Torts 552 regarding whether appraisers owe any duty to Copyright 2013 National Association of REALTORS 40
B.
Inspectors
While fewer than 27% of the survey respondents indicated that the liability of inspectors is a significant source of current disputes, over 82% believe the issue has moderate or higher current significance, and about 70% believe the number of disputes will stay the same over the next two years. (See Tables 15, 17.) Just over 36% of the respondents believe there is a significant need for training on this issue. ( See Table 19.) Respondents noted that an action against an inspector is a "catch all" for property condition disputes, and there are "frequent claims over what the inspector found or 'missed.'" Eight cases addressing the liability of inspectors were located for the Scan. (See Table 2.) Liability was determined in four cases, but all ended in defense judgments. In Milner,101 the plaintiffs alleged that the inspector "missed or ignored" problems with the property, including a mold growth. In granting summary judgment, the court noted that the buyers did a cursory walk-through before closing and signed a mold addendum that specifically placed the duty to inspect for mold on the buyer, which constituted a waiver third parties and whether plaintiffs reasonably relied on appraisals); Copper Sands Homeowners Ass'n, Inc. v. Copper Sands Realty, LLC, No. 2:10-cv-00510-GMN-GWF, 2012 WL 987996 (D. Nev. Mar. 20, 2012) (granting partial summary judgment, court discussed Restatement 552 in context of professional-negligence claim). See also Hernandez v. Coldwell Banker Sea Coast Realty, No. COA 12-430, 2012 WL 5392328 (N.C. Ct. App. Nov. 6, 2012) (granting summary judgment and noting that without privity appraiser could not be liable; in any case, inconsistent information about whether property was a triplex or a duplex was noted in appraisal), review denied, 736 S.E.2d 192 (N.C. 2013).
101
Milner v. Biggs, No. 2:10-cv-904, 2012 WL 1188274 (S.D. Ohio Apr. 6, 2012). See also Milner v. Biggs, No. 2:10-cv-904, 2011 WL 2293306 (S.D. Ohio June 8, 2011).
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of the claim. In Arlington Home,102 an action against a mold-assessment consultant ended in a defense verdict.
X.
FAIR HOUSING ISSUES ARE NOT SEEN AS AREAS OF INCREASED LIABILITY, THOUGH THEY ALL WARRANT ONGOING TRAINING. Fair Housing issues, as a whole, do not seem to be significant to the survey
respondents, but those who ranked the issues within the topic generally placed them among their top five. (See Tables 10-14.) Three issues (Race Discrimination, Familialstatus Discrimination, and Advertising and Target Marketing) were identified as a source of a moderate number of current disputes. (See Table 15.) No Fair Housing issues were identified as likely to increase in importance over the next two years; nevertheless, all nine Fair Housing issues are on the list of issues needing some additional training. (See Table 19.) This finding duplicates the 2011 Scan. One respondent commented on the problem of steering purchasers to certain neighborhoods. Several states have addressed Fair Housing issues. For example, several
additional states have extended statutory protection on the basis of sexual orientation, and many are doing the same for gender identity.103 In Illinois, a brokerage agreement
102
Arlington Home, Inc. v. Peak Envtl. Consultants, Inc., 361 S.W.3d 773 (Tex. App. Houston [14th Dist.] 2012), review denied (Tex. Jan. 18, 2013).
103
See, e.g., Conn. Gen. Stat. 46a-51(21), 46a-64c(a) (2011); Haw. Rev. Stat. 515-16 (2011); Ill. Admin. Code tit. 68, 1450.710 (2011); Mass. Gen. Laws ch. 151B, 3B, 3C, 6, 7, 13; ch. 4, 7(59) (2011); Nev. Rev. Stat. 645.321 (2011), 118-100 (2011). See also 24 C.F.R. 5.100, .400 (2012), 77 F.R. 5662 (Feb. 3, 2012) (final rule protecting LGBT persons from discrimination with respect to HUD-assisted or HUDinsured housing).
42
must state its antidiscrimination policy.104 Maryland has enacted a law setting forth "minimum visitability features" for new homes.105 Liability was determined in 48 cases, and eight of those cases ended in favor of the plaintiff, including a case ending in the largest settlement in the history of the Scan, albeit against a lender rather than a real estate professional. In United States v. Wells Fargo Bank, N.A.,106 the United States alleged that Wells Fargo discriminated against more than 34,000 African-Americans and Hispanics who sought home financing and were placed in subprime loans or were required to pay higher fees because of their race or national origin. Wells Fargo's lending policies gave employees discretion about
which loan product and prices to offer "in a manner disconnected from objective criteria like credit risk."107 The parties entered into a consent order in which the bank, without admitting any fault, agreed to pay $125 million or more as compensation for aggrieved borrowers and to set aside another $50 million to provide down-payment assistance to low-income loan applicants in metropolitan areas most affected by foreclosures of subprime loans. The court entered the requested consent order.108
104
Ill. Admin. Code tit. 68, 1450.770 (2011). Md. Code Ann., Real Prop. 10-801 (2011).
105 106
United States v. Wells Fargo Bank, NA, No. 12-1150 (JDB), 2012 WL 4130513 (D.D.C. Sept. 20, 2012).
107
Id. at *1. Id. at *4.
108
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Another notable case was Linder,109 in which a licensee casually asked a prospective buyer, "Gladys, where are you from?" The question led to a claim of
national-origin discrimination and ended with an administrative decision awarding $17,500, including $10,000 in emotional-distress damages and a $7500 civil penalty, plus an award of fees and costs totaling $24,266.99.
XI.
SURVEY RESPONDENTS' CONCERNS ABOUT EMPLOYMENT ISSUES FOCUS ON INDEPENDENT CONTRACTORS AND PERSONAL ASSISTANTS. Employment issues as a whole did not receive a strong reaction from survey
respondents. (See Tables 10-14.) Nor did any one particular issue stand out as having current significance. (See Table 15.) Seven issues have moderate training needs: Personal Assistants, Independent Contractors, Employment Discrimination,
Harassment, Wrongful Termination, and Defamation. (See Table 19.) Two of these issues may be of particular concern: Personal Assistants and Independent Contractors. Wage and Hour Issues are also an emerging area of potential liability.
A.
The Issue of Personal Assistants Is Another Area Where More Training Is Needed.
The issue of Personal Assistants was not identified as particularly significant, either as a source of current disputes or as a source of future disputes; however, almost 58% of the respondents believe it is a moderate or higher source of current disputes, and more than 76% of the respondents believe this is an area needing some additional training. (See Tables 15, 19.) One respondent noted that "[l]icensed agents too often allow their unlicensed
109
Linder v. Boston Fair Hous. Comm'n, No. SUCV2010-03555-E, 2012 WL 3041452 (Mass. Super. Ct. June 7, 2012). Copyright 2013 National Association of REALTORS 44
assistants to take on more responsibility than they should have when they are communicating with the consumers." Another stated that "incompetent and non-
responsive assistants are a big source of anger" in a transaction. The legal research did not retrieve any cases on this issue.
B.
A Salesperson's Status as an Independent Contractor Does Not Preclude Suits Against Sponsoring Brokers.
Forty-six percent of the respondents report that disputes involving independent contractors are a source of a moderate or higher number of current disputes. ( See Table 15.) Only 18% of the respondents believe this issue is likely to increase in
importance, but it is an area needing additional training. (See Table 19.) Comments from the respondents were sparse. One connected the issue to
vicarious liability, noting that "brokerages are always named in lawsuits even though agents are independent contractors. Indeed, cases collected for the Scan confirm that impression.110 attention. Independent-contractor issues were addressed in 10 cases, and liability was determined in eight, but none ended in money damages. Another respondent suggested that the issue may attract legislative
110
Donlon v. Gluck Group, LLC, No. 09-5379 (JEI/KMS), 2011 WL 6020574 (D.N.J. Dec. 2, 2011) (granting summary judgment in case in which prospective buyer fell on houseboat stairs during showing by independent contractor); Fremont Reorg. Corp. v. Duke, 811 F. Supp. 2d 1323 (E.D. Mich. 2011) (broker dismissed from real estate fraud case because it was not liable for acts of its independent contractors).
45
C.
Wage and Hour Claims Under the Fair Labor Standards Act Are an Emerging Area of Liability for Brokers.
Survey respondents reported a low level of current disputes, but more than 42% of them indicated that there is a moderate or higher need for training on wage and hour claims. (See Table 19.) The case law research retrieved two cases in which licensees made claims against brokers under state-law equivalents to the Fair Labor Standards Act (FLSA). In Marcus & Millichap,111 a licensee claimed that the broker unlawfully withheld wages, but because he was an independent contractor he could not recover under the Illinois wage statute. In Wietzke,112 the plaintiff brought a putative class
action under state law against his employer alleging that he and other employees were misclassified as "exempt" employees and were entitled to unpaid overtime wages. The case settled for $800,000.
XII.
RESPONDENTS REPORT A MODERATE OR HIGHER NEED FOR TRAINING ABOUT ETHICS. Ethics topics are not a significant source of current disputes and a vast majority,
more than 81%, of the survey respondents do not anticipate an increase in the level of disputes over the next two years. Only about 24% of the survey respondents believe there is a significant need for training about ethics, but more than 66% believe there is a moderate or higher need for training. (See Table 14.)
111
Marcus & Millichap Inv. Servs. of Chicago, Inc. v. Sekulovski, 639 F.3d 301 (7th Cir. 2011).
112
Wietzke v. CoStar Realty Info., Inc., No. 09cv2743 MMA (WVG), 2011 WL 817438 (S.D. Cal. Mar. 2, 2011).
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XIII.
LICENSING ISSUES MAY NEED ADDITIONAL TRAINING. Licensing issues are the basis of a moderate or higher number of current
disputes, according to about 56% of the survey respondents, and more than 32% believe these issues are likely to increase in importance over the next two years. ( See Tables 15, 17.) About 68% believe there is a moderate or higher need for training about licensing issues. (See Table 29.) Only one person commented on the issue, anticipating that formerly licensed assistants who might "act like agents and cross the line." As noted in the discussion of new Agency statutes and regulations, this situation may become subject to state regulation.113 Issues relating to non-licensed activity were addressed in several cases retrieved for the Scan. Many of these cases involved an unlicensed personor a person In another case, Kansas City
licensed in another stateseeking a commission.114
Premier Apartments,115 an "apartment rental marketing" business asked a judge to declare that the licensing statute did not cover its business, locating prospective renters for property owners, such that it was exempt from the licensing requirement.
113
The
See I.A, supra text accompanying note 21.
114
E.g., RDLG, LLC v. RPM Group, LLC, Nos. 1:10cv204, 1:10cv233, 2011 WL 2604799 (W.D.N.C. June 10, 2011) (dismissing broker's breach-of-contract claim, because broker was not licensed in North Carolina, making the contract unenforceable), adopted, 2011 WL 2604706 (W.D.N.C. June 30, 2011); PC Carter Co. v. Miller, 253 P.3d 950 (N.M. Ct. App. 2011) (foreign-licensed broker could not collect commission for real estate activities undertaken in New Mexico). See also Futersak v. Perl, 923 N.Y.S.2d 728 (App. Div. 2011) (plaintiff was not licensed and could not recover commission), appeal denied, 944 N.Y.S.2d 466 (2012).
115
Kansas City Premier Apts., Inc. v. Missouri Real Estate Comm'n, 344 S.W.3d 160 (Mo. 2011), cert. denied, 132 S. Ct. 1075 (2012).
47
Missouri Real Estate Commission, in turn, got an injunction to keep the business from conducting real estate activities on the grounds that it was not licensed. On appeal, the business contended, among other things, that the licensing statute violated the First Amendment by placing limits on commercial speech. Although the state supreme court agreed that the business was engaging in commercial speech, it held that a license was nevertheless required to market real estate and upheld the injunction.116 The case law also research retrieved a number of cases addressing whether a real estate license could be revoked or suspended for misconduct. These cases vary widely and include: Bartlett.117 The Colorado Real Estate Commission revoked a license after the licensee pleaded guilty to attempted sexual assault of a minor but failed to inform the commission of the plea. On appeal of the revocation, the appellate court concluded that evidence of the licensee's rehabilitation could not justify reversing the revocation.118 Petridis.119 License suspensions were affirmed when a licensee acted as an undisclosed dual agent. St. Pierre.120 A salesperson violated her broker's policy that prohibited signing documents on behalf of clients. She was suspended and fined for dishonest
116
Id. at 167-70.
117
Colo. Real Estate Comm'n v. Barlett, 272 P.3d 1099 (Colo. Ct. App. 2011), cert. denied (Colo. Feb. 6, 2012).
118
Id. See also Pautsch v. Maryland Real Estate Comm'n, 31 A.3d 489 (Md. 2011) (affirming license revocation based on felony conviction for child sexual abuse, court rejected argument that there was no "nexus" between the real estate license and the conviction). But see Singh v. Davi, 149 Cal. Rptr. 3d 265 (Ct. Ap. 2012) (conviction for theft by false pretenses was insufficient grounds for denying broker's license when applicant's rehabilitation was adequate).
119
N.J. Real Estate Comm'n v. Petridis, No. A-5019-0973, 2011 WL 5137877 (N.J. Super. Ct. App. Div. Nov. 1, 2011).
48
conduct toward her employer. On appeal, the suspension and fine were upheld because violation of a broker's internal policy can constitute dishonesty. Calo.121 The Ohio Real Estate Commission revoked a license after the licensee refused to cooperate with the commission's investigation of a complaint.
XIV.
MORE TRAINING ON RELATIONSHIPS BETWEEN AFFINITY GROUPS AND REAL ESTATE BROKERAGES IS SUGGESTED. Although only 10% of the survey respondents believe that issues relating to
Affinity Groups are a significant source of current disputes, 62% indicated that issues relating to Affinity Groups are the source of a moderate or higher number of current disputes (an eight-point increase since 2011), and over 26% believe the issue will increase in importance during the next two years. (See Tables 10, 13.) Almost 25% indicate there is a significant need for training on this issue. (See Table 14.) The legal research did not retrieve any cases involving Affinity Groups.
XV.
LICENSING OF RELOCATION COMPANIES IS NOT AN AREA OF CONCERN. Relocation companies are not a significant source of current disputes, and they
are not likely to be significant during the next two years.
Only 7% of the survey
respondents indicated that this issue was currently significant, and only 26% believe it is likely to increase in significance over the next two years. (See Tables 10, 13.) Only
120
St. Pierre v. S. Dak. Real Estate Comm'n, 813 N.W.2d 151 (S.D. 2012). See also Hickethier v. Wash. State Dep't of Lic'g, 244 P.3d 1010 (Wash. Ct. App. 2011) (affirming license suspension after finding that broker mishandled client funds and converted a $2000 check to broker's own use).
121
Calo v. Ohio Real Estate Comm'n, 2011-Ohio-2413, 2011 WL 1988414 (Ohio Ct. App. May 19, 2011).
49
one person ranked this issue in his or her top three current issues, and of the four who ranked it as a potential issue, only one placed it in his or her top three. The legal research did not retrieve any cases involving relocation companies.
50
Appendices Appendix 1: Legal Research and Survey Data ..................................................... App. 1-1 Appendix 2: Cases ............................................................................................... App. 2-1 Appendix 3: Statutes and Regulations ................................................................. App. 3-1 Appendix 4: Research Method ............................................................................. App. 4-1 Exhibit A Exhibit B Issue Descriptions .................................................................. App. 4-8 Survey Form ......................................................................... App. 4-28
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2013 Legal Scan: Legal Issues Facing Real-Estate Professionals

NATIONAL ASSOCIATION OF REALTORS

Copyright 2013 National Association of REALTORS

Copyright 2013 National Association of REALTORS

C. XII. XIII. XIV. XV.

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Va. Code 54.1-2139, -2139.01 (2012) (Ch. 750, 1; H 206).

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agreements with the clients.

Id. 54.1-2139. Id. 54.1-2139.01.

N.D. Admin. Code 70-02-03-15.1(7)(a) (2012).

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Breach of Fiduciary Duty Continues to Be a Common Source of Licensee Liability.

Wash. Admin. Code 308-124C-125(9)(a) (2012).

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Dual Agency Remains an Area of Concern.

Survey respondents also

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Other Notable Verdicts

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Id. at *2. Id. at *3. 17

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Structural Defects Will Continue to Cause Disputes.

Mold and Water-Intrusion Claims Can Result in Substantial Legal Exposure.

Winters v. Fiddie, 716 S.E.2d 316 (S.C. Ct. App. 2011).

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$50,000 in compensatory damages and $75,000 for punitive damages.

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Private transfer fees51 Water-conserving plumbing fixtures52

See supra I.E, II.D.

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Va. Code 54.1-2142.1 (2011).

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Affiliated Business Arrangements Are Likely to Be a Source of Increased Disputes.

Va. Code 55-525.12(c) (2011).

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Respondents Are Moderately Concerned About Kickbacks.

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current disputes, according to 32% of the survey respondents.

About 75% of the

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setting forth the need to provide notice of protected transactions.84

Social Networking Has Emerged as a Top Area of Concern.

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Privacy and Anti-solicitation Laws Also Need Additional Training.

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Barkley v. United Homes, LLC, 848 F. Supp. 2d 248 (E.D.N.Y. 2012).

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Id. at 2. Id. at 3. 17

Id. at 1. Id. at 4.