Two cases against real estate agents recently caught my attention. The cases, discussed below, stress the importance of disclosing material facts, and agents hoping to avoid litigation here should take a few moments to see what happened to their colleagues in California and Washington. Here’s what happened.
Case 1 – The House that Couldn’t Close
Agent Sieglinde Summer listed a home for sale in Huntington Beach, California. The asking price ranged from $749,000 to $799,000, and Summer advertised that the seller was very motivated. Phil and Jeanille Holmes saw the listing and became interested. After Summer showed them the house, the Holmeses offered to purchase it for $700,000, free and clear of all monetary liens and encumbrances, other than the loan they intended to obtain. The seller, through Summer, countered at $749,000, which the Holmeses accepted. They then sold their existing home in order to complete the purchase on the seller’s house.
Unfortunately, they learned too late that the seller’s home was encumbered by $1,141,000 in loans. The Holmeses claimed these loans made it impossible for the property to close at the agreed upon price, since the lenders would be highly unlikely to accept such a reduced payoff. The Holmeses filed suit against Summer and his firm, claiming that Summer, as listing agent, owed them a duty of disclosure about the existing loans. The trial court disagreed and dismissed the case prior to trial.
Recently, the California Court of Appeals reversed that decision. The court said that the law is well established that when agents know of facts that affect the value or desirability of property, and knows that such facts are not known or reasonably discoverable by the buyer, the facts must be disclosed. Summer contended that matters pertaining to financing were separate from matters affecting the value or desirability of the home, but the court rejected this argument. The purpose of the rule, after all, is to permit buyers to make informed decisions about whether to purchase homes. Requiring listing agents to disclose that a sale is at a high risk of failure furthers this purpose. Therefore, Summer and his firm could be liable, and the case will proceed to trial.
Case 2 – The Bad Recommendation
Mark and Carol DeCoursey wanted to move to Washington state, and with the help of agent Paul Stickney, they bought a home there. They also wanted to make renovations to the home, so they turned to their agent for recommendations. Stickney recommended Home Improvement Help, Inc. (HIH). On such recommendation, the DeCourseys hired HIH to do the work. Unfortunately, HIH’s finished product had a number of structural and other safety issues, which the DeCourseys anticipated would cost $525,289.78 to repair.
Unbeknownst to the DeCourseys, Stickney and HIH’s owner formed a real estate joint venture eight years earlier and incurred approximately $400,000 in debt together. According to HIH’s corporate documents, Stickney was a twenty-percent shareholder in the company. The evidence at trial showed that Stickney gave a cell phone to HIH’s owner and allowed HIH to store documents on his computer. In addition to his recommendation to the DeCourseys, Stickney had recommended HIH to at least thirty of his other clients in the preceding five years. Stickney, of course, disclosed none of this.
In an effort to recover the costs of repairing the home, the DeCourseys filed suit against Stickney and the firm at which he worked. The jury found that Stickney had a conflict of interest that he did not disclose to the De- Courseys and awarded them $522,200 in damages. The trial judge also awarded the DeCourseys $508,427 in legal fees and court costs. The brokerage was liable for these amounts, too.
Lessons Learned
Both results should not be surprising. When an agent knows that a third party, such as a lender, governmental authority, or board of directors, must approve the terms of a deal before it can close, that must be disclosed to the buyer. As the court correctly pointed out, such a duty arises because of an agent’s obligation to disclose material facts and to treat all parties to the transaction fairly. As for making recommendations, agents are wise to disclose all past and present dealings, personal or professional, that the agent has with the person or company being recommended. Even if the agent is simply passing along a list of potential contractors or inspectors, such connections should be disclosed.
What is troubling, however, is that Stickney claimed he did not believe he had a conflict of interest. This suggests he considered the issue at some point and ultimately concluded no conflict existed. In doing so, he violated a significant rule of real estate brokerage: when in doubt, disclose. In other words, if one has to consider whether to disclose a connection with a contractor or a potential obstacle to closing, the answer is clear: yes.
Doing otherwise might just cost you a million dollars.
Posted via email from Title Insurance Market watchers and financial experts have predicted some trends in the housing market for 2011. The housing market has been suffering since the recession of 2007-2009. In 2010, the mortgage rates had lowered historically. But as the economy has started to stabilize, the housing market is experiencing a boost too. As a result, the mortgage rates too have started to increase. So, if you need a mortgage for your home, or if you want to refinance, you should first ask the question “how much mortgage can I afford“. It is essential for you to first find out your affordability before taking out a home loan. Mortgage market trends for 2011 The 5 mortgage trends for 2011 as predicted by the financial experts are: 1. Mortgage rates will be rising – The mortgage rates are expected to rise throughout the year in 2011. The MBA or the Mortgage Bankers Association said that the mortgage rates may hover around 5% in 2011 and may increase to about 6% by 2012. The mortgage rates had lowered considerably in the second quarter of 2010, but it had started to rise from the last quarter of 2010. However, though the mortgage rates will hover around 5% in 2011, it is said that the rates are still in the low range. 2. Demand for mortgages may decrease – The overall demand for mortgages may decrease in 2011. The consumers have lost their confidence due to the financial depression and it may take time for them to gain back their confidence. 3. Mortgage refinancing applications can drop – The mortgage refinancing applications will drop this year. MBA has said that the refinance applications may fall by around 40% in 2011 and then the percentage may even rise in 2012. The rising mortgage rate is one of the most important reasons for the predicted lowering of the refinance applications. The other reason for the predicted drop in the refinance applications is the pause that was put on the foreclosure process in 2010 due to the problems in the foreclosure paperwork. 4. Mortgage processing will remain slow – The mortgage processing is also going to remain slow in 2011. Most of the lenders anticipate that it will take almost 60 days between the loan application and the closing. Even most of the lenders say that they want the period of loan processing to continue over a period of 60, 75 or 90 days. 5. Qualifying for a mortgage will be tougher – Another very important trend to be seen in the mortgage market is that people may find it hard to qualify for home loans. With the introduction of the new mortgage lending laws in 2010, lenders have become stricter towards the borrower’s credit and ability to repay the home loan. Other than this, zero cost refinancing may grow all the more and the jumbo loan mortgages are going to get more attractive. Experts say that the rates for these loans were high, especially in the last two years. However, the jumbo loan lending institutions are going to lower the rates in 2011 in order to woo more people into borrowing the jumbo loans. Samantha Taylor is the Community Mentor of MortgageFit and has been contributing her suggestions to the Community since 2005. Not just that, she has also made notable contributions through the various articles written on different subjects related to the mortgage industry. Few of her popular articles would include names like ‘Mortgage that you can afford’, ‘Mobile Home Loan with Bad Credit’, and How much mortgage can I borrow?’ Posted via email from Title Insurance Today, the Obama Administration delivered a report to Congress that provides a path forward for reforming America’s housing finance market. The Administration’s plan will wind down Fannie Mae and Freddie Mac and shrink the government’s current footprint in housing finance on a responsible timeline. The plan also lays out reforms to continue fixing the fundamental flaws in the mortgage market through stronger consumer protection, increased transparency for investors, improved underwriting standards, and other critical measures. Additionally, it will help provide targeted and transparent support to creditworthy but underserved families that want to own their own home, as well as affordable rental options. Posted via email from Title Insurance
Continuing Ed for Title Agents
Mortgage trends – Trends of home loan for the year 2011
Continuing Ed for Title AgentsObama Administration Announces Plan to Wind Down Fannie, Freddie
Continuing Ed for Title Agents
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