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Archive of Legal Issue Articles Featured During Risk Management Month Mold Issues Molds can be found almost anywhere, especially in Louisiana homes. Most molds are not dangerous to people, but certain molds can cause serious health problems for some people. Since molds are in virtually all homes, and some molds are toxic, REALTORS must exercise caution in making representations to buyers about the presence of mold in a home.
Property Condition Disclosure Form Required by Law Or what? Agent Duties Exemptions Protecting Against Identity Theft Identity theft occurs when someone obtains personal information about you and assumes your identity to apply for credit cards or checking accounts. The crook can then purchase goods and services in your name, and when they don’t pay the bill, it damages your credit rating. To avoid this, you must take steps to protect your personal information. Here are just some of the things you can do to reduce the chance you will be a victim of identity theft:
And for information on what to do if you are a victim of identity theft, see our October 2008 Redstick Report on Identity theft. Avoiding Social Media Pitfalls According to NAR, more than 50% of REALTORS use one or more social media tools. While some REALTORS use these tools for social purposes only, many also use them for business purposes. This mix of business and personal use and the informal tone often used in social media can lead to unwanted risk. General Tips for Using Social Media
Advertising Regulations LREC rules and regulations governing advertising by licensees apply to all advertising, no matter what media is used. It is not clear, however, how some of the regulations apply to specific uses of certain social media. For example, do individual blogs, posts or tweets have to include the broker name and phone number, or is it sufficient to have that information clearly listed on a home page? The LREC has not determined exactly how its regulations will be applied in instances like this. Fortunately, the Commission has decided to issue “cease and desist orders” for acts they determine violate the advertising rules. This will allow brokers and agents to correct the situation without facing discipline or sanctions. Social Media Policy for the Office Dual Agency Best Practices Dual agency, or the representation of both parties in a real estate transaction by one agent, is permitted under Louisiana law. But despite the fact that it is specifically authorized by statute, it is still a practice fraught with risk. Indeed, many conscientious brokers will not permit their agents to engage in dual agency, establishing instead a standard practice of referring buyer clients to another agent when the client becomes interested in a property listed by the firm. Notwithstanding the risks, dual agency does work well for many clients and agents. If you serve as a dual agent, here are some best practices to minimize your risk of facing a disgruntled former client in the future:
A final tip for dual agents is this: be prepared to let go. No matter how much work you have done to close a deal, it is not worth the risk to cling to a dual agency relationship when one or both clients are uncomfortable. If either client shows any signs of discomfort with the dual agency, move quickly to involve another agent. The two agents should be able to work out compensation issues fairly, so make sure your clients’ interests are put first Being Smart about Smart Phones The competition among smart phone manufacturers has led to amazing advances in the capabilities of these miniature computers. With a device that fits in a pocket, you can text, talk, email, IM, video chat, watch tv, surf the web, read a novel, write a novel and play a ton of cool games. Before you know it, these devices will be able to drive your car for you. But until then, you should consider putting the smart phone down while you drive. Effective August 15th, the prohibition against texting while driving is a primary offense. What that means is that an officer can issue a citation to any driver he sees texting. Before this change, drivers could only be cited for texting if they were also cited with another offense. The fine for a first offense is up to $175 and up to $500 for a second offense. Fines can be doubled if the offender is involved in an accident. But the passage of this new law isn’t the only reason you should not text while you drive. Distracted driving is dangerous. Texting, surfing the internet, looking up a phone number, even talking – all of these activities distract your attention from the road, and increase the risk that you will be in an accident. The safest policy is not to use your phone at all while driving. But given the reality that most people feel the need to multi-task, the second best option is to limit your calls and use a hands-free device. And if these options don’t work for you, your best risk management plan is to have a lot of car insurance. Continuing Education Requirement Each year, active licensees are required to complete at least 12 hours of approved continuing education, four of which must be in the mandatory topic designated by the LREC. This year, the Commission audited the continuing education records of licensees. Many licensees were required to substantiate their compliance with the continuing education requirement by providing copies of completion certificates. Most were able to show their attendance, but hundreds could not show they had complied in 2009. Those licensees who failed to meet the continuing education requirements were fined and required to make up the hours missed from last year in addition to meeting this year’s annual requirement. There are valuable lessons to be learned from this year since the LREC will audit education annually.
Continuing education should not be an afterthought. Plan ahead to ensure you complete the required hours, including the mandatory topic. And keep track of your records. Information about continuing education courses offered by Louisiana REALTORS can be found at www.larealtors.org. Fair Housing and Buyer-Initiated Requests All REALTORS know that they cannot direct a buyer client to certain types of home based upon the client’s race, religion, family status or other protected status. But what if the buyer initiates the request that only certain types of homes be shown? For example, what if a client with four children asks to see only five bedroom homes? Or a client asks to be shown homes near churches or synagogues? What if a Hispanic client asks to be shown homes in predominately Hispanic neighborhoods? The first question is easiest to answer. While an agent cannot steer a family to a certain type of home based upon the agent’s notion of what is appropriate, she can certainly accommodate a client’s request to look at houses of a certain size or configuration. Similarly, an agent can help a client find a home near a church or synagogue if the client requests it. In these instances, the agent is accommodating a legal request by the client without limiting the availability of housing to the client based upon their protected status. But the request for an agent to identify neighborhoods with a certain racial composition can be more troubling to handle. HUD issued an opinion letter in 1996 stating that an agent could provide this type of information, but only at the client’s request. That letter was later withdrawn by HUD, with the promise of guidance on the issue in the future. No such guidance has been provided yet. For now, the safest practice is to have the client make their own determination about which neighborhoods meet their criteria on racial composition. Agents can help clients find resources to obtain the information they need, but the agent should not make their own assessment of which neighborhoods are most suitable for the client’s racial preference. Once the client has identified the areas of town they like, the agent can then select homes from those geographic boundaries.
If a seller is facing a short sale, does the listing agent have to disclose this fact to potential buyers? A seller’s financial condition and other factors affecting his or her negotiating position are pieces of confidential information and should not be disclosed without the seller’s consent. An MLS may, however, require participants to disclose a potential short sale if they know of the possibility. In those cases, the agent or broker would have to explain this requirement to the seller and obtain his or her consent prior to listing the property. Listing agents dealing with a potential short sale should check their local MLS rules to determine what options they have regarding disclosure of the situation. But even if disclosure is not required, a careful evaluation of the seller’s interests is necessary before deciding whether to discuss the short sale with potential buyers. Disclosure of a pending short sale need not harm the seller’s bargaining position. In fact, the failure to disclose a potential short sale may end up harming the seller’s interests. A short sale transaction can be complicated, with significant delays caused by the involvement of the bank in the negotiating process. A buyer learning about these additional hassles may find a way out of the contract if he or she is unhappy with the unexpected hurdles. Agents can better equip themselves to assist clients facing a potential short sale by educating themselves about the process. A great online resource for this information is http://www.realtorsfr.org/. Also, stay tuned for future class offerings by Louisiana REALTORS on short sales. ”As Is”/Waiver of Redhibition The as is/waiver of redhibition clause of the statewide purchase agreement (lines 181 – 188) is often misunderstood by consumers and agents alike. Many sellers believe that “as is” means that they won’t have to make any repairs to the home as part of the transaction. But that may not be true. Assume a buyer and seller reach an agreement and sign the statewide purchase agreement form, with the box checked on line 181, electing to transfer ownership of the home “as is, without warranties “ The standard language on an inspection period (lines 126 – 159) is kept in the agreement, with an inspection period agreed upon by the parties. When the inspection period arrives, the buyer finds rotten wood on some of the trim and demands repair. Can the seller object to this request by claiming that the buyer agreed to accept the home “as is?” The answer is no. The buyer may demand repairs or a reduction in the price, and the seller may accept or reject any of these demands. If a resolution isn’t reached, the purchase agreement can be terminated without penalty by either party. This back and forth is governed by the contractual provisions on inspections in lines 141 to 159 of the statewide purchase agreement. When the inspection period is over, the buyer has only then bound himself to purchase the house in its present condition. When the sale is completed, the “as is, without warranties” clause goes into effect. If, after the sale, the buyer discovers a hidden defect in the home, he may not then seek to rescind the sale or have the price reduced, having waived that right. Take the time to explain to your clients how the inspection period works in conjunction with the as is/waiver of warranties clause in advance to avoid unpleasant misunderstandings after a purchase agreement is signed. RESPA and Home Service Contracts (Warranties) HUD issued an interpretive ruling on June 25, 2010, providing some guidance on whether and how real estate brokers and agents may be compensated by home service contract companies. The ruling was effective immediately, but HUD voluntarily implemented a 30-beday comment period on the new ruling. NAR submitted extensive comments on the ruling. That comment period has passed, but it is unclear whether or when any changes to the ruling may come.
If you are considering whether to accept compensation from a home service contract company, or if you want more information on this issue, please read the analysis provided by the Ohio Association of REALTORS, which is linked below. HUD Issues Rule Limiting Payment for Home Warranties What is Procuring Cause? One of the most commonly-asked questions submitted to Louisiana REALTORS®’ Legal Hotline is, “Ok, here’s what happened: [insert scenario]. I’m entitled to the commission, right?” There are two certainties associated with these questions. One, the asker always “knows” that they were the procuring cause of the sale, and thus entitled to the commission (they are right about 50% of the time). And two, the lawyer answer is always, “Well, that depends.” (He is always right.) The procuring cause of a transaction is the one who sets in motion the unbroken chain of events that leads to procuring a buyer who is ready, willing and able to purchase a property on terms acceptable to the buyer. But there is no formula for applying this definition to a given set of facts. It is not necessarily the agent who first shows the buyer the home, nor is it necessarily the agent who writes the offer, though obviously, each of these facts is relevant in making the determination of procuring cause. Only a panel of REALTORS can make the determination of procuring cause within our association. A group of (typically) five trained panelists listens to both sides of a story, takes this general definition of procuring cause, along with a laundry list of factors to consider and concepts to apply, and they make their own decision. If you are involved in a dispute over a commission, start by talking to the other broker. The two of you may be able to work things out yourselves. If that doesn’t work, and arbitration is requested, accept the association’s offer of mediation. Even if you couldn’t reach an agreement one-on-one, a trained mediator may be able to assist you in reaching an agreement, which may be the last opportunity for you to determine your own outcome. If the dispute must be resolved in arbitration, take the time to review the Code of Ethics and Arbitration Manual. Learn what factors will be considered by the panel so that you can effectively present evidence to them at your hearing. While you don’t control the outcome at a hearing, you do control your presentation, and you want to make sure the panel hears all the evidence favorable to your side. Duty of Confidentiality to Former Clients What if a listing agent’s contract expires and then that agent represents a buyer who is interested in the same property? Are there still any confidentiality obligations to the seller? Louisiana Revised Statute 9:3895 addresses confidentiality upon termination of an agency relationship and provides: Except as may be provided in a written agreement between the broker and the client, neither a broker nor any licensee affiliated with the broker owes any further duties to the client after termination, expiration or completion of performance of the brokerage agreement, except to account for all monies and property relating to the transaction and to keep confidential all confidential information received during the course of the brokerage agreement. Confidential information is defined as information obtained by a licensee from a client during the term of a brokerage agreement that was made confidential by the written request or written instruction of the client or is information that, if disclosed, could materially harm the position of the client. However, if any of the following occur at any time information that would otherwise be considered confidential will no longer be considered confidential information: 1. The client permits the disclosure by word or conduct. Also, material information about the physical condition of property is never considered confidential information. New Home Warranty Commencement Date The New Home Warranty Act is the exclusive remedy for purchasers of newly-constructed homes, though a builder may voluntarily agree to increase the warranty applicable to a home he builds. The mandated warranty provides three different periods of coverage. One year – During the first year, new construction is warranted to be free from defects “due to noncompliance with the building standards or due to other defects in materials or workmanship not regulated by building standards.” Two years – For the first two years, new construction is warranted to be free from defects in the major systems – namely, the plumbing, electrical, heating, cooling, and ventilating systems. Five years – New homes are warranted to be free from major structural defects for five years. An important question must be asked about these warranty periods – one/two/five years from when? For example, what if a buyer purchases a new home from the builder, who moved into the home for one year after completing construction? Under the act, the new home warranty period commences on the earlier of the date of transfer of title (closing) or the date of occupancy. Thus, the builder-occupied home mentioned above would be one year into the warranty. A purchaser would have one year of coverage for major systems and four years of coverage for major structural defects. Another timing issue relevant to purchasers of new homes is the deadline for reporting defects to the builder. A home owner must report a relevant defect to the builder or his insurer by certified mail within 30 days after the expiration of the relevant warranty period in order for that defect to be covered by the warranty. Which Broker is Supposed to Hold the Deposit? Traveling around Louisiana, one hears many different perspectives on whether the Listing Broker or the Buyer’s Broker should hold the deposit for a pending sale. But the fact is, either broker may properly hold the deposit. Why? Because each broker’s obligations are the same in discharging that duty. When a broker has someone else’s money, his or her duty is not just to the client, but to all parties with an interest in those funds. Different areas of the state have different customs as to which broker typically holds the deposit money. But while those customs are fine, they do not determine who actually holds funds in escrow in any given transaction – that decision is left to the parties. Line 93 of the 2010 statewide purchase agreement has a blank for that choice to be incorporated into the contract. Clearly, these duties do not permit the broker to treat either party with favoritism, so both parties’ interests are protected, regardless of whose broker hold the deposit money in escrow. What is the difference between a “breach” of contract and a “default” on a contract? The terms “breach” and “default” are often used interchangeably, but there are technical differences. Generally speaking, a breach is any failure to perform an obligation under a contract, no matter how significant. The word default is best used to describe a party who has committed a breach of contract that allows the other party to take specified actions against the defaulter. Putting another party “in default” means to notify them of one’s demand for performance, and this step is often necessary before other remedies are pursued. Here is an example of the words used in the context of a letter between two contracting parties: Dear Sir, This is to notify you that you are in default of our agreement. Specifically, you breached the agreement when you failed to deliver your product as promised on Thursday. You have until tomorrow at noon to perform your obligation, or I will terminate our agreement and seek damages.Note that in this example, “breach” is used as a verb, while “in default” describes the status of the person who committed the breach. It is also proper to say that a person has defaulted on an agreement. Notwithstanding this distinction between the terms, the best approach in determining the meaning of either word is to have an attorney review it in the context of the agreement New Changes to the Law of Agency On August 15, 2010, changes to Agency Law go into effect. These changes were proposed by Louisiana REALTORS and made law in Act 427 of the 2010 legislative session. Here is what you need to know: When to Give Clients/Customers the Agency Disclosure Form Substantive Contact means that point in any conversation where confidential information is solicited or received. This includes any specific financial qualifications of the consumer or the motives or objectives of the consumer in which the consumer may divulge any confidential, personal or financial information, which, if disclosed to the other party to the transaction, could harm the party’s bargaining position. This includes any electronic contact, electronic mail, or any other form of electronic transmission. Designated Agents A New Agency Disclosure Form Why Should I Worry About Risk Management Risk is a part of life, whether you're driving your car or investing your money. Risk associated with your real estate practice cannot be eliminated, but it can be controlled through sound risk-management policies. As we begin Risk Management Month, a campaign by Louisiana REALTORS to promote awareness of key issues, it is worth taking a look at the general sources of risk relevant to real estate licensees. State License Law and the Law of Agency Federal Law REALTOR Code of Ethics Negligence Managing Risk It’s impossible to avoid all risk, but anticipating likely areas of risk and exercising some simple precautions to avoid them can take you a long way. Make sure you have adequate insurance and understand your coverage. This applies not only to your mandated errors and omission insurance policy, but also to automobile, homeowner’s and general liability insurance policies. Consider written policies and procedures that set forth your company's agency policies, competitive practices, fair housing guidelines, personnel policies, communications policies, and overall commitment to legal and ethical standards of practice. Keep up to date on the mandated purchase agreement and disclosure forms. And when preparing these documents, take the time to review them to eliminate any errors. Get regular legal and accounting advice from experts. While you should always consult with your own attorney for legal advice, make sure to use the wealth of free legal information available to you at www.larealtors.org and www.realtor.org. Please stay tuned in August as we offer daily risk management tips, and feel free to submit any questions you may have through your broker using our Legal Hotline service. |
