Share
A Mississippi court has considered whether the state’s real estate commission properly disciplined licensees for their role in a downpayment financing scheme.
Real estate licensee Tanja Adams (“Adams”) of Realty Executives (“Brokerage”) had an oral $130,000 listing contract for a property owned by Big Z Properties, LLC (“Seller”). Two years earlier, the Seller had purchased the property for $28,000 and had performed renovations on the property over the next two years.
Cynthia Curley (“Buyer”) made an offer to purchase the property, and Adams sent the Buyer a dual agency form asking her to acknowledge that Adams would serve as a dual agent in the transaction. Later, the Seller’s representative, John Zehr (“Zehr”), signed a separate dual agency form. Neither party acknowledged the form signed by the other party, and Zehr did not indicate on the form that he was acting as an agent for the Seller.
Audrey Neely (“Neely”), another salesperson associated with the Brokerage, allegedly provided the Buyer with a copy of the property condition disclosure form for the property. But a copy of this form was never produced and a copy of the form was never submitted to the Mississippi Real Estate Commission (“Commission”) during its proceedings.
In November 2005, the Buyer executed the purchase contract for a purchase price of $126,000, with Zehr identified as the seller. The Buyer allegedly told Adams that she only had $100 for a downpayment and Adams allegedly told her not to worry about it. The purchase agreement called for a 20% downpayment by the Buyer. The transaction closed without the Buyer providing any downpayment, although the closing statements all listed the Buyer as having made a 20% downpayment.
The Buyer received the downpayment funds in the following way: a charitable organization deposited the 20% downpayment plus other closing costs into the Buyer’s bank account. After the lender verified that the presence of the funds, these funds were removed from the Buyer’s account. At the closing, the Seller wrote a check approximating the downpayment amount to a bank and a separate check of $2500 to the charitable organization that had provided the downpayment assistance. Combined, the checks totaled the amount on an invoice that the charitable organization had sent to the Seller.
A few months after the closing, the Buyer could not continue making the payments and so tried to sell the home. She contacted another real estate professional, who reviewed the closing documents and discovered missing documents. The Commission then contacted the Buyer, and a complaint was filed against Adams, Neely, and Dell Palmer (“Palmer”), the supervising Broker at the Brokerage.
The Commission held a hearing, and found that the licensees had violated the state’s license laws. Specifically, the Commission determined that the licensees had failed to provide a property condition disclosure statement, failed to obtain a properly executed dual agency form, and also had a role in the “irregularities” in the purchase contract and downpayment assistance provided. The licensees filed a lawsuit challenging the Commission’s determination as well as the discipline imposed, which involved suspensions and additional education requirements.
The Court of Appeals of Mississippi affirmed the Commission’s discipline and determinations. A court limits it review of determinations made by the Commission to the following grounds: first, whether the action was supported by credible evidence; second, whether the action was arbitrary or capricious; whether the action was beyond the power of the administrative agency; and finally, whether action violated some statutory or constitutional right. Because the matter involved a professional license, the Commission had the burden to prove these allegations by clear and convincing evidence.
The court first considered the dual agency violations. The Commission had ruled that there had not been a validly executed dual agency form because both parties did not acknowledge the same form. The Seller argued that it was an LLC and so there was an exception for LLCs in the Commission’s rules. The Commission had rejected this argument because the Seller had signed many of the other transaction’s forms as an individual, not a LLC, and so it was unclear whether the Seller qualified for this exception. The court found that the evidence supported the court’s conclusion and so affirmed the Commission’s determination.
Next, the court considered the property condition disclosure compliance. The licensees argued that they had given the Buyer a copy of the disclosure report, and the Buyer did not contradict this account. The Commission had found that the Brokerage did not have a copy of the disclosure form in its files for the transaction nor did the Brokerage produce a copy of the form signed by the Buyer. The court ruled that the evidence supported the Commission’s conclusion, and so affirmed this ruling.
Finally, the court evaluated the licensee’s “improper behavior” in the downpayment assistance arrangement. While the licensees argued that no one had determined that the arrangement was illegal, the Commission found numerous problems with this arrangement, as it artificially inflated the value of the property and overstated the payments made by the Buyer. The court agreed, finding that the licensee’s participation in this scheme was both a breach of their fiduciary duty and also the duty of good faith and fair dealing to the Buyer. The court affirmed the determinations and discipline imposed by the Commission.
Palmer v. Mississippi Real Estate Comm’n, 14 So.3d 67 (Miss. Ct. App. 2008).