LEGAL HOTLINE ARCHIVE
Disclosure

Broker Status

Q. Can an agent, broker associate or, for that matter the designated broker sell their own investment property "For Sale by Owner/Agent" through an agent acting as buyer’s agent without listing and no transaction involvement by the sponsoring agency and not be in conflict with commission or ethical rules and regulations?

A. One principle obviously involved in this inquiry is that a licensee selling property in which he/she has an ownership interest must reveal such interest in writing to the purchaser. Other than that, the question is not clear to us, particularly the phrase "no transaction involvement by the sponsoring agency."

If a licensee is selling his/her own property and acting as a buyer’s agent with respect to that property, then there must be "transaction involvement" by the buyer’s agent’s sponsoring or qualifying broker -- because it is the sponsoring or qualifying broker with whom the purchaser has the contractual relationship. If this is the case, there must also be clear, written, full disclosure, to any prospective purchaser, not only of the ownership interest, but also regarding the agency relationship and any compensation arrangement. Since this arrangement is akin to dual agency, full written disclosure to and written agreement by a purchaser would be wise.

Moreover, if a licensee is selling his/her own property, without a listing, and with the required disclosure, then any (and we are assuming totally unrelated) buyer’s agent presenting offers would still have to have the involvement of his/her sponsoring or qualifying broker -- but in this case that would not be a concern of the selling owner/agent.

Material Defects

Q. Should a Home Inspection Report, provided by a licensed Home Inspector, be attached to a Property Disclosure Form? ( A home Inspection was made for a property that was under contract - the contract fell through after the home inspection report was received and copy provided to the Seller.)

A. Whether or not a home inspection report should be provided with a property disclosure form is a matter to be agreed to among the parties. The parties may contractually agree that a property disclosure be provided and may also specify what it must contain or who it should be performed by.

It should be noted that a Realtor's failure to disclose a know material
defect regarding the condition of real estate is a cause for censure, suspension or revocation of license. Thus, if the broker becomes aware of a material defect through a home inspection report there is a duty to disclose such material defect.

Q. A pre-closing termite inspection was performed. Extensive termite damage to the structure was determined to exist.

1. Is the seller responsible for treating for termites and/or repairing damage caused by them?
2. If the seller refuses to treat for the termites, is this grounds for backing out of the contract by either party?
3. The contract states "If a termite certificate is required by Lender, PURCHASER will be reimbursed by SELLER for cost of that termite inspection at the Act of Sale." Does this mean that, if a termite certificate is not required by a Lender but IS still desired by the PURCHASER, the SELLER is NOT required to reimburse the PURCHASER for this expense?

A. Questions 1 and 2: The "responsibility" for treatment and repair could be affected by the facts and circumstances surrounding the transaction, dealings and representations between the parties, provisions in the purchase agreement, or possibly even provisions in the termite certificate. If the sale has already occurred, obviously provisions in the Act of Sale could also have a bearing on this issue. Our point is that an attorney would have to analyze everything for a thorough answer.

However, assuming (1) this is the first time anyone has ever mentioned termites in connection with this transaction, (2) the purchase agreement is totally silent in this regard, (3) the damage is extensive, and (4) the purchaser has not somehow otherwise agreed to assume some responsibility, then it is our opinion that a Louisiana court would not order specific performance by the purchaser, i.e., would let him "back out" of the contract, if the seller refuses to repair the damage and treat the house.

Question 3: Whether a termite certificate is required and, if so, who pays for the inspection/certificate, is strictly a contractual matter between the parties. Assuming the contract in this case provides that the seller’s obligation to reimburse the purchaser is dependent upon the lender requiring a certificate, and further assuming the lender did not require one, then the seller should not have to reimburse the purchaser. We express no opinion on the potential effect of any other contractual provisions or of other facts/circumstances or dealings between the parties.

Q. Recently the news media has been reporting that ABC neighborhood is located over an old refinery. The report has stated that the neighborhood was previously used as a dump site for refinery waste products. In newspaper articles, residents were quoted about illnesses believed to have been caused by the toxicity; one homeowner was quoted as saying that a dark oil-like substance had seeped into his carpet from the slab.

As this is now public knowledge, what position should we, as Realtors, take from the disclosure standpoint? What should our position be with former customers and clients? Should we decline taking listings on properties in this area?

A. A licensee’s failure to disclose to a buyer a material defect regarding the condition of real estate, of which the licensee has knowledge, is a violation of the Louisiana Real Estate License Law. As a more serious matter, the failure to disclose under such circumstances would likely expose a licensee to a civil suit from the buyer.

You obviously have knowledge of this condition, so the issue is (assuming the condition actually exists) whether it is a "material defect" regarding the condition of real estate. We can find no Louisiana case on point, but our opinion is that this scenario (again, if indeed it exists) constitutes a material defect.

Thus, we conclude that you should disclose it to prospective buyers. Just because it has been in the news media doesn’t negate your duty (although if a licensee did not disclose it, and the buyer already knew it, and this prior knowledge could be proven, we doubt that such buyer could recover in a suit against the licensee; however, it is better to be safe than sorry).

If you were genuinely unaware, and had no reason to be aware, of the situation previously, our opinion is that you owe no duty to disclose this condition to prior customers/clients.

If you intend to take a listing on properties in this area, we suggest you inform the owners that you will have to disclose the existence of the waste site, and get the written consent of the owners to do so.

Miscellaneous

Q. 1. What is the legal role/relationship of the Broker with the client of an agent within the broker's company?
2. Does a designated agent of a buyer have an obligation under law to
provide a property disclosure if requested by the buyer? Specifically does agent have this responsibility other than under his duty of obedience to his principle?
3. Ministerial acts: is the "Ministerial Acts Status" applicable to either the
buyer OR the seller in the for sale by owner circumstance described?
4. Does the law speak to the appropriate time for presenting the Buyer
Agency Contract?

A. 1. LSA-R.S. 9:3893 sets forth the duties of licensee in representing clients. It provides:

A licensee is defined as any person who has been issued a license by the commission as a real estate sales person or a real estate broker. LSA-R.S. 9:3891(11). Client is defined to mean one who engages the professional advice and services of a licensee as his agent. Thus, any client of an agent is a client of the real estate broker to the real estate broker owes the duties set forth in LSA-R.S. 9:3893.

This relationship is also covered in the Code of Ethics and Standards of Practice of the National Association of Realtors (the "Code of Ethics"). Article I of the Code of Ethics provides:

When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. The obligation of absolute fidelity to the client's interest is primary, but does not relieve REALTORS® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly.

Standard of Practice 1-2 defines client to mean the person(s) or entity(ies) with whom a REALTOR® or a REALTOR®'s firm has an agency or legally recognized non-agency relationship. In addition, customer is defined as a party to a real estate transaction who receives information, services, or benefits but has no contractual relationship with the REALTOR® or a REALTOR®'s firm. Thus, by virtue of the definitions of client and customer, a REALTOR®'s firm and all of the brokers therein, owe a duty to promote and protect the interests of all of the clients of the firm.

2. We are not aware of any specific law that obligates the designated agent of a buyer to provide a property disclosure if requested by the buyer. However, failure to provide such information may be a violation of Article I of the Code of Ethics or LSA-R.S. 9:3893, as discussed above. In addition, failure to disclose to a buyer a known material defect regarding the condition of real estate of which a broker has knowledge is a cause for censure, suspension or revocation of license under Louisiana law.

3. LSA-R.S. 9:9894 provides:

Licensees shall treat all customers honestly and fairly and when representing a client in a real estate transaction may provide assistance to a customer by performing ministerial acts. Performing these ministerial acts shall not be construed in a manner that would violate the brokerage agreement with the client, and performing those ministerial acts for the customer shall not be construed in a manner as to form a brokerage agreement with the customer.

LSA-R.S. 9:9894 allows a Licensee, when representing a client in a real estate transaction, to provide assistance to a customer by performing ministerial acts. LSA-R.S. 9:3891(12) defines ministerial acts as those acts that a licensee may perform for a person that are informative in nature and provides several examples. This authorization of the performance of ministerial acts in found in the laws governing agency relationships. However, no agency relationship exists in the case of a for sale by owner. Also, the actual wording of LSA-R.S. 9:9894 only authorizes the performance of ministerial acts when representing a client in a real estate transaction. LSA-R.S. 9:9891(4) defines client to mean one who engages the professional advice and services of a licensee as his agent. In the case of a for sale by owner there is no client.

On the other hand, the purpose LSA-R.S. 9:9894 is essentially to provide that the performance of ministerial acts does not violate a brokerage agreement with a client, nor form a brokerage agreement with the customer to whom such ministerial acts are performed. We do not know of any rulings or case law which have interpreted LSA-R.S. 9:9894 in the context of a for sale by owner. Also, LSA-R.S. 9:9894 authorizes ministerial acts to be performed for a customer. Customer is defined to mean a person who is not being represented by a licensee but for whom the licensee is performing ministerial acts. Presumably either a buyer or seller could fit this definition in a for sale by owner context.

4. Agency disclosure informational pamphlets are to be provided to prospective buyers or sellers at the time of the first face-to-face contact with the buyers or sellers when performing any real estate activity involving the sale of real property, other than ministerial acts. See Section 3703(A) of the Rules and Regulations of the Louisiana Real Estate Commission.

Conversely, if a licensee obtains a listing contract on a property, may the licensee show his listing to a buyer/customer as a ministerial act, as described in LSA-R.S. 9:3894? This question is asked with the assumption that the listing agent provides an explanation of the ministerial acts and obtains written informed consent of the buyer.

2. Is there a legal directive or reference for timing of a presentation of a Buyer Agency Contract? If the law does not speak to this specific issue, is there another guideline directing licensees to the appropriate time for presentation of a Buyer Agency Contract?

A. 1. You are correct that when calling on a Owner/Seller in the context of representing a buyer client you are performing a permissible ministerial act on behalf of the Owner/Seller. Showing a person through a property being sold by an owner on his or her behalf is a permitted ministerial act under LSA-R.S. 9:3891(12)(i). You are also correct that a licensee who shows a listing to a buyer's customer is performing a ministerial act on behalf of the buyer. Setting up an appointment to view property is a permitted ministerial act under LSA-R.S. 9:3891(12)(d).

2. Other than (discussed above) Section 3703 of the Rules and Regulations of the Louisiana Real Estate Commission, we are not aware of any legal directive or reference for timing of presentation of buyer agency contracts. Article 9 of the Code of Ethics of the National Association of Realtors states as follows:

Realtors®, for the protection of all parties, shall assure whenever possible that agreements shall be in writing, and shall be in clear and understandable language expressing the specific terms, conditions, obligations and commitments of the parties.

While this rule does not address the timing for memorializing the buyer agency relationship, it does direct Realtors to reduce such relationships to writing for the protection of both the Realtor and the Buyer.

Q. I understand that a convicted felon, after serving time, may take a real estate course and apply to the Commission for the opportunity to take the Louisiana Real Estate Exam. If he receives permission to take the exam, passes, and has a Broker who will allow him to work for him, he would then apply for membership in the local Board of Realtors.

As a Broker, can I legally deny this agent access to show my listings? Can I have owners sign a form stating he cannot show their homes unless they are at home? What can I do to protect my clients if I feel that any agent is not trustworthy?

A. Denying a licensed agent access to your listings and encouraging your clients to do the same would most likely be a violation of the Code of Ethics of the National Realtors® Association. Realtors have an absolute duty to promote the best interest of their clients under Article 1 of the Code of Ethics. In most cases, the interest of a client will be best served by actively responding to all inquiries pertaining to their listing. In fact, Realtors® have a duty to submit all offers to their clients. In addition, Article 3 of the Code of Ethics provides:

Realtors® shall cooperate with other brokers except when cooperation is not in the client's best interest.

Standard of Practice 3-8 specifically provides that Realtors® shall not misrepresent the availability of access to show or inspect a listed property.

While we are not aware of any ruling on point, denial of access to listings to someone who meets all of the requirements of and is licensed under state law would appear to be against the best interest of a client, absent any other specific allegations. Louisiana law specifically provides that licenses shall be granted only to persons who bear a good reputation for honesty, trustworthiness, integrity and competence. LSA-R.S. 37:1436.

The law charges the Commission with determining whether or not a person meets the honesty, trustworthiness and integrity criteria. Once the Commission determines that a person meets all of the licensing requirements (including the honesty, trustworthiness and integrity requirement) and the person is licensed, then other brokers generally have a duty to cooperate with that person, unless they can demonstrate that to do so is against the best interest of their client. General allegations of dishonesty and untrustworthiness will probably not be sufficient reasons not to deal with a particular agent because the Commission, prior to the issuing a license to that person, has already considered those particular characteristics of the agent.

You should also note that Article 15 of the Code of Ethics prohibits Realtors® from knowingly and recklessly making false or misleading statements about their competitors, their businesses or their business practices. Therefore, you should be careful when speaking with your client or anyone else about the agent in question.

If you do not feel that an agent is trustworthy and want to safeguard the interest of your client, there is no prohibition against you making arrangements for you or your clients to be present when the agent shows your listings, as long as you and your client are accommodating enough so that the agent still have reasonable access to the property.

Q. At the time of listing, should a written disclosure be made by the seller if overhead power lines exist on the utility servitude at the rear of the property?

A. There is no law or regulation requiring such disclosure. If your thought is that perhaps the existence of overhead power lines is a "defect" in the property, for redhibitory purposes, there is no Louisiana case law which would support such theory.

Even assuming overhead power lines are a defect, a seller does not implicitly warrant defects which are known to the buyer or reasonably discoverable. We can’t imagine that overhead power lines are anything other than apparent upon even the most cursory inspection of the property.

As for the listing broker’s potential liability, the general rule is that a broker is only liable to a purchaser for negligent misrepresentation or fraud. It is only our opinion, and we repeat there is no case law regarding this issue, but we don’t think the failure to disclose this fact in the listing agreement would rise to the level of either negligent representation or fraud.

Q. One of my siblings expired on April 26, 1998, and left no will and was a widow without children. Therefore, her four remaining siblings are heirs to her only real property, her home.

I would like to list and sell the property. Would placing an agent/owner sign in the property be sufficient notification to prospects and ultimately the purchasers?

Is a letter or form required as any other type notification?

A. The Louisiana Real Estate Commission’s regulations require that a licensed broker who offers property for sale in which he owns any interest, shall state in any advertisement and on any signs that he is the owner/agent or licensed real estate agent. A licensee selling property in which he/she has an ownership interest must reveal such interest in writing to the purchaser.

If a licensee is selling his/her own property and acting as a buyer’s agent with respect to that property, then there must be "transaction involvement" by the buyer’s agent’s sponsoring or qualifying broker -- because it is the sponsoring or qualifying broker with whom the purchaser has the contractual relationship. If this is the case, there must also be clear, written, full disclosure to any prospective purchaser, not only of the ownership interest, but also regarding the agency relationship and any compensation arrangement. Since this arrangement is akin to dual agency, full written disclosure to and written agreement by a purchaser would be wise.

Q. I have a commercial piece of property listed for sale, and presently under contract. Several weeks ago, I received several offers on the property within a matter of days. In addition to those offers, I also received a phone call from an out of town consultant interested in the property. I advised this person that I had several offers and that if her buyer was interested in the property they needed to submit a written offer in a timely fashion.

Approximately one week later the consultant called back and wanted to know the status on the property. I advised her it was under contract. She wanted to know if the purchaser would flip the building to her buyer.

I put her in touch with the buyer "A’s" broker. Since that time Buyer "A’s" broker has communicated with me indicating that there is a very good possibility that buyer "A" is going to flip the property to buyer "B" for substantially more money. No contract has been signed as of yet. However, I have every reason to believe the contract will be entered into.

I have these questions:
1. Do I tell the present owner of the property, with whom I have the listing that the buyer is discussing a sale of the property to another buyer for substantially more money.
2. If I tell the owner, and he becomes angry and he does something that causes the potential sale to fall through with buyer "B," could I be put in a compromising position, possibly subject to a lawsuit by buyer "B" because I knowingly conveyed the information. As we speak, the dialogue between buyer "A" and buyer "B" is simply conversation since there has been nothing submitted in writing nor any money changed hands.
3. Is there any reason that I cannot take a referral fee from buyer "A’s" broker if buyer "A" sells to buyer "B." Since I do not represent either of the buyers, do I have a duty to disclose to the present owner that I would be receiving compensation on the flip sale.

A. Question 1: Article 2 of the Standards of Practice provides:

Realtors® shall avoid exaggerations, misrepresentations, or concealment of pertinent facts relating to the property or the transaction. (Emphasis added.)

Article 2 relates to specific items concerning the property or the transaction between the buyer and seller. We could locate no case law or commentary to specifically address the issue presented regarding a secondary transaction. The Realtor® as a fiduciary should err on the side of disclosure. Therefore, the conservative view is to inform the client/seller of the "flip." We also spoke with a representative for the National Association of Realtors® ("NAR") who stated that their interpretation of the Article would require disclosure to the client/seller.

Question 2: A Realtor® may not encourage a client to breach an agreement to sell or purchase property. Any disclosure made to a potential client that possibly could be interpreted as such an encouragement should be specifically followed by the caveat to the client that the Realtor® does not and cannot encourage any breach of the existing agreement. The Realtor® should advise the client/seller to contact their legal counsel regarding the viability of the agreement to sell and/or purchase.

Louisiana caselaw does provide a cause of action for tortious interference of contract. This tort claim is rarely imposed and applies to a duty a person may have to refrain from unjustified, intentional interference with a contractual relationship. See 9 to 5 Fashions, Inc. v. Spurney, 538 So.2d 228 (La. 1989). If the Realtor® has arguably a duty of disclosure to his/her client, it seems unlikely that a court would interpret this disclosure as an intentional interference with a contract.

Question 3: Article 7 of the Standards of Practice states that in a transaction Realtors® shall not accept compensation from more than one party, even if permitted by law, without disclosure to all parties and the informed consent of the Realtor®’s client or clients. Although Article 7 is not on point with the question asked in that the transaction between Buyer "A" to Buyer "B" is a secondary transaction, the most conservative view of Article 7 would require disclosure of the referral fee to the client/seller. We contacted a NAR representative regarding this issue and were advised that there is possibly a violation of Article 7 (or Article 6) if no disclosure is made to the client/seller.

Q. I am a licensed Broker (and Realtor) representing a client in the purchase of replacement property to complete an IRS Section 1031 like kind exchange of investment real estate. I was not involved with the client at the time of, or regarding the sale of, the relinquished property.

I will be earning a commission as the Buyer’s Agent for the replacement property. At the Act of Sale a Net Lease and an Option to Purchase to me from the Buyer will be executed.

First, I will be representing the buyer as a Broker in their acquisition of the replacement property. Secondly, I will be representing myself in the subsequent Lease and Option to Purchase of the property they are acquiring. No sales or leasing commissions are being paid on the Lease or Option.

I have provided the required Real Estate Agency Disclosure. We do not have a written Buyer-Broker Agreement. I have complied with necessary obligations to treat the client fairly, honestly, disclose all pertinent facts, etc. The buyer is aware that I am a Broker and that I am representing my own interest in the Net Lease and Option to Purchase. I have asked the client to have the entire transaction reviewed by his own tax, investment and legal advisors. We will both profit from the arrangement and I do not see any reason why this should be considered a conflict of interest on my part.

Question 1: Do these series of transactions cause me to be a dual agent?

Question 2: Are there any additional disclosures or disclaimers recommended or required by law, or that could be provided to specifically limit any risk of liability I may have from my participation as a Broker and as a principal to this transaction?

A. The Louisiana Real Estate Commission’s regulations (Chapter 33, §3301) state a licensee shall not acquire an interest in, buy for himself, his firm or any member thereof, or any corporation in which he has an interest, properties listed with him, or his company or firm, without making his true position known in writing to the owner or lessor prior to entering into the sales contract or lease agreements.

If a licensee will be leasing the property and acting as a buyer’s agent with respect to the acquisition of a property, there must also be clear, written, full disclosure to the buyer, not only of the ownership interest, but also regarding the agency relationship and any compensation arrangement. This arrangement is akin to dual agency (but not generally what is defined in the regulations as "dual agency") and full written disclosure to and written agreement by the buyer would be required. Full, complete and written disclosure may limit liability. The buyer (seller/lessor in secondary transaction) should be advised that the Broker is not representing the buyer in the lease/option transaction and the buyer should retain other professionals (lawyer, agent) as he/she feels is necessary.

Q. I am an independent broker and am selling my own home. I am listing my home with a major brokerage firm. I plan to disclose on the Disclosure Statement as well as on any counter-offer or acceptance of an offer that I am a licensed real estate broker. Is the listing broker supposed to indicate on all signs and advertisements that I am a licensed real estate agent, or does that requirement only apply when the licensee is selling their own home, or is an agent with the broker who is listing the home?

A. We checked with the Louisiana Real Estate Commission regarding your inquiry. If you, as the licensee, are not selling your own home but are listing with another broker, the listing broker need not indicate on all signs and advertisements that there is a "owner/agent."

Q. In complying with a Realtor’s obligation under R.S. 37:1455(27), we have our clients fill out the industry standard PROPERTY CONDITION DISCLOSURE FORM. In this case, the client checked off that the property was not in a flood zone and checked off that the property had flooded in the past. Our clients were mistaken but were in good faith, even the Policy Jury certified that the property was not in a flood zone. Upon obtaining his appraisal, the potential buyer discovered that the property was in a flood zone and demanded a price reduction of roughly 22%. The sellers refused and the contract expired.

Is the disclosure form completed by the client a fulfillment of the realtor’s obligation to disclose or an obligation on the part of the client. If such a document can become the basis for the client’s liability, then the client must be advised that his responses must be absolutely correct, not simply their best recollection. Also does the standard purchase agreement providing indemnity to the realtor, but not the client, relating to flood zone declarations in light of this disclosure form.

A. A real estate broker owes a specific duty to communicate accurate information to the seller and purchaser. This encompasses the duty to disclose any material defect to the purchaser of which the broker is aware. A Realtor’s failure to disclose to a buyer a material defect regarding the condition of the property, of which the Realtor has knowledge, is a violation of Louisiana real estate law. Further, the failure to disclose under such circumstances would likely expose the Realtor to a civil suit from a buyer. If a Realtor is genuinely unaware of a defect, there is generally no duty for a Realtor to further inquire or otherwise investigate flood zones or other information unless a Realtor has reason to believe the information received from the Seller is inaccurate. If a Realtor is laboring under a mistake of fact, rather than engaging in willful, knowing or negligent misrepresentation, then a buyer can generally not recover damages. See Dawley v. Sinclair, 419 So.2d 534 (La. App. 1982).

Also, there is no requirement that the Seller accept the offer with terms used in the "standard" Agreement to Purchase and Sell which provides a limitation on liability for disclosures by the Realtor (and in some cases Seller).

Q. A convicted child molester lives in a neighborhood where I have a listing. What are my disclosure responsibilities?

A. The Louisiana Real Estate License Law ("License Law") provides that the Louisiana Real Estate Commission ("Commission") may censure a licensee, or suspend or revoke any license, if a licensee fails to disclose to a buyer a material defect regarding the condition of real estate, if the broker has knowledge of such defect. The Commission’s examination staff informs us that this issue has not been addressed by the Commission but most likely it does not consider the location of the convicted child molester to be a "material defect" in this context which would require disclosure. Therefore, at least with respect to the License Law, disclosure is probably not necessary.

However, the License Law has little to do with potential civil liability to a buyer. There are no Louisiana cases addressing this issue, but the Louisiana Civil Code provides that one is liable for every act (which would include an act by omission, such as failure to disclose) that cause damage to another. Obviously, if this fact is not disclosed to a potential buyer (certainly a potential buyer with young children) there is a potential for damage. Therefore, the safer legal course, vis-à-vis liability to the buyer, would be disclosure. Also, there is a valid argument that a broker owes a duty of "fair dealing" to a potential buyer; there are no guidelines regarding whether disclosure of this fact falls within such duty, but certainly a buyer could argue such.

Further complicating this matter is a broker’s fiduciary duty to his client--the owner. An owner might claim that disclosure to a potential buyer violates this duty. A broker in this situation should seek written permission from the owner to make such disclosure, but we cannot render further personal legal advice. If further advice is needed, we suggest you seek the services of an attorney.

Q. A convicted child molester lives in a neighborhood where I have a listing. What are my disclosure responsibilities?

A. The Louisiana Real Estate License Law ("License Law") provides that the Louisiana Real Estate Commission ("Commission") may censure a licensee, or suspend or revoke any license, if a licensee fails to disclose to a buyer a material defect regarding the condition of real estate, if the broker has knowledge of such defect. The Commission's examination staff informs us that this issue has not been addressed by the Commission but most likely it does not consider the location of the convicted child molester to be a "material defect" in this context which would require disclosure. Therefore, at least with respect to the License Law, disclosure is probably not necessary.

However, the License Law has little to do with potential civil liability to a buyer. There are no Louisiana cases addressing this issue, but the Louisiana Civil Code provides that one is liable for every act (which would include an act by omission, such as failure to disclose) that cause damage to another. Obviously, if this fact is not disclosed to a potential buyer (certainly a potential buyer with young children) there is a potential for damage. Therefore, the safer legal course, vis-à-vis liability to the buyer, would be disclosure. Also, there is a valid argument that a broker owes a duty of "fair dealing" to a potential buyer; there are no guidelines regarding whether disclosure of this fact falls within such duty, but certainly a buyer could argue such.

Further complicating this matter is a broker's fiduciary duty to his client--the owner. An owner might claim that disclosure to a potential buyer violates this duty. A broker in this situation should seek written permission from the owner to make such disclosure, but we cannot render further personal legal advice. If further advice is needed, we suggest you seek the services of an attorney.

Q. Can an agent when leaving a real estate company's employment refuse to release all of the names and all of the completed customer registration forms and lists held by him or her?

A. Generally, properly executed contracts are generally binding on the Parties thereto. From your forms, it appears that the Customer is contracting with the Company as opposed to the Agent, therefore the Company, not the Agent, should have a binding contract with the Customer.

Section 1703 of the Real Estate License Law Regulations provides that upon termination of a licensees' relationship with a sponsoring broker, every salesperson or associate broker shall immediately turn over to the sponsoring broker all business related property obtain from or provided by the sponsoring broker or agency.

Section 1703 of the Real Estate License Law Regulations further provides that, upon termination of a business relationship with a sponsoring broker, every salesperson or associate broker shall immediately turn over to the sponsoring broker all listing information, contracts, agency forms, and other business or agency related information, data or documents obtained from or provided by the sponsoring broker or agency for use by the licensee during the business relationship.

In addition to the Real Estate License Law Regulations, failure to turn over customer registration forms or other similar lists or information may constitute and unfair trade practice under the Louisiana Unfair Trade Practices Act. What constitutes unfair competition is determined by the Courts on a case by case basis. Solicitation of customers of a former employer can in some instance rise to the level of an unfair trade practice.

Courts generally balance a former employee's individual freedom with the right of the employer to honest and fair competition and to protect his business assets and property. More specifically, in cases involving competition by former employees consideration is given to things such as the manner in which and purpose for which customer lists are compiled, the conduct and motivation of the employee before and after termination of employment, the manner in which customers are contacted, nature of representations made by the former employee, existence of a scheme to take over all or a substantial part of the former employer's business and the intent on the part of the former employee to injure the business. See National Oil Service of Louisiana, Inc. v. Brown, 381 So. 2d 1269 (4th Cir. 1980).

Q. Please assist me by pointing me in the right direction or perhaps even handling the question.

Buyers purchased a home almost 12 months ago. Recently, they discovered some of the wiring in the home is aluminum. In fact, one of the receptacles was burned out because of the wiring (discovered very recently). There appears to be no other problems at this time.

The questions are:
1) Was or is there a requirement to disclose that the house had aluminum wiring (short of any problems with such)?
2) In any event, do the buyers have any kind of claim under redhibition; i.e. had they known of the aluminum wiring they perhaps would have made a different offer or chose not to purchase this property? They had a mechanical warranty inspection performed for the purposes of a home warranty (nothing disclosed to them at that time regarding the wiring).
3) Any responsibilities or concerns for the REALTORS involved; i.e. buyers and sellers agents?

A. Every sale carries with it the legal warranty that the thing sold is free from hidden or "redhibitory" defects unless is specifically waived in the act of sale. A defect is redhibitory when it renders the thing useless. The existence of such a defect gives a buyer the right to obtain recession of the sale. A defect is also redhibitory when, without rendering the thing totally useless, it diminishes its usefulness or its value so that is must be presumed that a buyer would still have bought it, but for a lesser price. The existence of such a defect limits the buyer to a reduction of the purchase price. Louisiana Civil Code article 2520.

Not all redhibitory vices or defects justify recision of the sale or a reduction of purchase price. Apparent defects, which the buyer can discover through a simple inspection, are excluded from the seller's legal warranty. Louisiana Civil Code article 2521. To determine if a defect is apparent, one must consider whether a reasonable prudent buyer, acting under similar circumstances, would discover it through simple inspection of the property. A simple inspection is more than a casual observation; it is an examination by the buyer with a view of ascertaining its soundness.

However, a buyer is not required to examine inner or hidden parts of an object. See Amend v. McCabe, 664 So. 2d 1183 (La. 1995) and Guillory v. Sarpy, 117 So. 2d 403 (4th Cir. 1965). Generally, a buyer is only under a duty to make an inspection which is reasonable in light of all of the circumstances surrounding the sale. The following are considerations: knowledge and expertise of buyer, opportunity for inspection and assurances made by the seller. See Anselmo v. Chrysler Corporation, 414 So. 2d 872 (4th Cir. 1982).

Inadequate heating systems and malfunctioning gas and water pipes have been found to constitute redhibitory defects. See Weber v. Mathews, 367 So. 2d 1326 (4th Cir. 1979) and Ranney v. Durkin, 398 So. 2d 82 (4th Cir. 1981). There is one reported case which did allow the cost of wiring repairs as an item of recovery in an action for reduction of a purchase price. However, the Court did not specifically address the nature of duty to inspect wiring. The Court simply stated that that the plaintiff was "entitled to some recovery on this item." See Allen v. Burnett, 530 So. 2d 1294 (2nd Cir. 1988).

An action for redhibition against a seller who did not know of the existence of a defect in residential real estate must be brought within one (1) year from the day the property was delivered. An action for redhibition against a seller who knew of the existence of a defect must be brought within one (1) year from the day the defect is discovered. Louisiana Civil Code article 2534.

Based on the forgoing, the specific answers to your questions are as follows:

Question 1: There is no legal requirement that the seller disclose that the house had aluminum wiring.

Question 2: Generally, the sale can be rescinded if the aluminum wiring is a redhibitory vice that renders the house useless. If the aluminum wiring is a redhibitory vice that merely diminishes the usefulness or value of the home the buyer may be entitled to a reduction in the purchase price. The ultimate determination as to whether the aluminum wiring is a redhibitory vice is a question of fact for the Court.

Also, the plaintiff in a redhibitory reduction action has the burden or proving that the defect could not have been discovered by simple inspection. The issue of discoverability upon simple inspection is also a facts and circumstances determination, but generally does not mean a detailed examination or dismantling that might deface the thing purchased.

In an action for reduction of purchase price involving the sale of real property, the measure of recovery is the amount necessary to convert the unsound structure into a sound one. See Allen v. Burnett, 530 So. 2d 1294 (2nd Cir. 1988). The redhibitory action for reduction in purchase price must be brought within one (1) year from the date of delivery of the property if the seller did not know of the existence of the defect and within one (1) year from the date of the discovery of the defect if the seller knew of the existence of the defect.

Question 3: Unless a real estate agent has an ownership interest in the property he will not be considered a vendor for redhibition purposes. A buyer has a remedy against a real estate agent only in tort for damages resulting fraud or negligent misrepresentations of material facts made by the agent in connection with the sale. Louisiana Civil Code articles 1953, et. seq. and 2315. A real estate agent owes a specific duty to communicate accurate information to both the vendor and purchaser. See Duplechin v. Adams, 665 So. 2d 80 (1st Cir. 1995).

Generally, fraud is misrepresentation or suppression of the truth made with the intention either to obtain unjust advantage for one party or to cause loss of inconvenience to the other. See Smith v. Remodeling Service, Inc., 648 So. 2d 995 (5th Cir. 1994). Fraud can result from silence or inaction. Louisiana Civil Code Article 1953.

In addition, under Louisiana Real Estate License Law the Commission may censure a licensee for:
1. Knowingly making any false representations to any party in a real estate transaction; or
2. Failure to disclose to a buyer a known material defect regarding the condition of real estate of which a broker has knowledge. LSA-R.S. 37:1455(A)(15) and (27).

Q. Property Disclosure shows flood zone to be "C", based on most recent survey ('92) and that owners have never been notified of anything different.

No contingencies in Purchase Agreement relating to flood zone requirement. Purchaser does not complete inspections timely. Submits Condition Response Request to Sellers for repair of several minor items two days after prescription time for that stipulation of contract (again does not mention or address flood zone). Mortgage company discovers that flood zone has changed to "A" and is requiring flood insurance of approximately $800.

Purchasers to do not want to pay that much, but may possibly pay $700. As a consequence their position is that now they want to cancel the contract based on lack of current and incorrect information on Disclosure. They are requesting a cancellation and return of deposit.

Seller maintains that according to the Disclosure Clause in the contract, Purchaser has the responsibility for due diligence within 10 day inspection time including those items mentioned on the Property Disclosure. Not only were those items not addressed by Purchaser, but the request for changes were made outside the 10 day response time, and therefore, according to the contract, Purchaser accepted the property in its current state. Seller wants Specific Performance or deposit plus restitution for costs incurred in preparations for moving and purchasing another property.

A. Also, we are not able to give a definitive answer to your question without reviewing the language of the disclosure clause to which you refer. However, generally, if the property disclosure states that the property is flood zoned "C" and the property is in fact flood zoned "A", this would be grounds for cancellation of the contract. However, the language of the disclosure clause to which you make reference may provide for a different result. Generally, the purchaser should be entitled to rely on the flood zone representation made by the seller. However, it is possible that the disclosure clause could provide that no representations are in fact being made by the seller and further specifically obligates the purchaser to verify all of the items contained in the disclosure statement within a stipulated time period.

Q. How can a listing agent and disclosure statement be handled on following?

New residence purchased from the builder, who would not handle warranty repairs, with suit filed against builder who has turned over to general liability company with unlimited legal stamina compared to buyer footing legal expense.

In addition to items discovered before sale, additional hidden defects such as cracked ceramic tiles, cracked bricks and joints, slab, movement at walls, windows, etc. has occurred during past year and continues possibly due to poor compaction.

It is recommended by soil engineer that no repairs be made for a year or two until settlement is over. The owners want to list now and not sure how to handle listing and property disclosure for the above. It may be difficult to find a buyer who can observe current defects without having a substantial loss on resale. The new Home Warranty Act was not part of the closing papers on the purchase, nor was it mentioned.

A. The most important thing regarding the listing of this property is that the information contained in the listing be accurate and not misleading. Section 2505 of the Louisiana Real Estate Commission Rules and Regulations provides:

All advertising shall be an accurate representation of the property advertised. No broker or licensee sponsored by said broker shall use advertising which is misleading or inaccurate or in any way misrepresents any property, terms, value, policies or services of the business conducted.

Another concern with respect to this property will be the warranty if and when a buyer is found. Generally, under Louisiana law a seller has an obligation to give certain warranties, including a warranty of fitness. Louisiana Civil Code Article 2475 provides:

The seller is bound to deliver the thing sold and to warrant to the buyer ownership and peaceful possession of, and the absence of hidden defects, in that thing. The seller also warrants that the thing sold in fit for its intended use.

The implied warranty that an object is fit for its intended purpose can be avoided only by an express and implicit waiver thereof. Generally, in order to waive the warranty that a thing sold is free from defects and is fit for its intended purposes, the waiver must be written in clear and unambiguous terms, must be contained in the sale and any mortgage documents and must either be brought to the attention of or explained to the buyer.

The defects you have described may or may not be considered to make the home unfit for its intended use. For example, in one case where cracked floors and walls were apparent prior to the sale, a court found that such imperfections did not give rise to an action for recession of the sale or reduction in purchase price. However, other courts have found that cracks had been patched and painted over so as not to be discoverable by simple inspection constituted redhibitory defects entitling the purchaser to a reduction in purchase price or to rescind the sale.

It should also be noted that any defects which are covered by the warranties provided in the New Home Warranty Act should extend to a subsequent purchaser during the time that such warranties remain in effect and are available under the New Home Warranty Act.

Thus from both a listing and warranty standpoint you should be truthful and upfront about the condition of the home.

Q. A question has arisen again in my area regarding psychologically impacted properties. Allegedly someone committed suicide in a particular listing of which the listing agent nor anyone in this office has any knowledge. When a prospect shows interest, the neighbors make certain that the buyer has knowledge of the suicide, which puts us in a bad light.

Are we obligated to discover such information? Are we obligated to reveal the information? What is the current feeling on this?

A. Psychologically impacted property is defined under Louisiana law, to be, among other things, property that was, or is suspected to have been, the site of a homicide, or other felony, or a suicide. LSA-R.S. 37:1468(A).

Louisiana law further provides that the fact or suspicion that a property is psychologically impacted is not a material fact or material defect that must be disclosed in a real estate transaction. The statute provides that no cause of action shall arise against an owner or his agent for the failure to disclose to a buyer or prospective buyer that such property is or may be psychologically impacted. LSA-R.S. 37:1468(B).

Therefore, generally Louisiana law provides that Realtors are not obligated to investigate whether or not property is psychologically impacted, nor reveal to a buyer or prospective buyer that a property is or may be psychologically impacted.

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