Agency Highlights: 1Q 2018

In all three of the agency cases discussed below, the courts examined the interplay between a broker or licensee’s actions, duties, and rights and the duties and rights required or not required under the terms of an agreement governing the parties’ relationship and/or the real estate transaction.

A. Cases

Broker and licensee did not have a duty to conduct a background check on tenant.

1. Ross v. Lindley, No. TJS-17-0115, 2018 WL 950017 (D. Md. Feb. 20, 2018)

A property owner entered into an agreement with a brokerage firm to lease three residences on the property. After the tenant defaulted on the lease, the property was foreclosed upon. The property owner sued the broker and licensee for failing to conduct a background check on the tenant. The property owner claims that the licensee and broker breached the agreement, were negligent, and withheld information; and that the broker failed to supervise the licensee.

The court determined that the agreements did not require the broker and licensee to conduct a background check, so the defendants did not have a contractual duty to do so. There was also no negligence because brokers and licensees do not have any legal duty to conduct background checks. Also, because the licensee produced all material information in her possession, there was no constructive fraud. The court granted summary judgment in favor of the broker and licensee.

Listing broker could be liable for mismanaging the resale list for the resale of time share interests.

2. Weinberger v. Intero Real Estate Services, Inc., No. C080462, 2018 WL 476347 (Cal. Ct. App. Jan. 19, 2018)

The owners of a Lake Tahoe time share entered into a listing agreement with the defendant broker to sell their time share interest. The sellers claim the broker breached the listing agreement by allowing other owners to sell their interests before the plaintiffs. The sellers and other owners of time share interests were subject to a resale agreement that required the sellers to use the broker for the resale of their interest, and allowed only one fractional interest sale for every four fractional ownership interests in a three-bedroom unit that the owner sold. The sellers also alleged that the broker breached its fiduciary duty to them.

The trial court dismissed the claims on the ground that the broker was not a party to the resale agreement. On appeal, the appellate court found there was evidence that the broker allowed another party to sell an interest ahead of the plaintiff-sellers. The appellate court noted that the listing agreement incorporated the rules of the resale program. There was also evidence of self-dealing and failure to disclose material facts related to the resale and management of the resale list. Accordingly, the appellate court reversed dismissal of the claims.

3. Brandon v. Marcus & Millichap Real Estate Investment Services, Inc., et al. , No. B276540, 2018 WL 1324787 (Cal. Ct. App. Mar. 15, 2018)

Broker and licensee could enforce arbitration clause contained in purchase agreement because agreement identified them as agents of the seller and purchaser.

After the purchaser of an apartment building was sued for defaulting on the loan, he filed suit against the broker and salesperson who had represented both parties in the transaction. In this decision, the issue was whether the broker and licensee could require the claim to be decided in arbitration pursuant to the arbitration clause in the purchase agreement. The broker and licensee did not sign the agreement.

The trial court determined that the broker and licensee could not enforce the arbitration clause because they were not signatories to the purchase agreement. The appellate court concluded otherwise. According to the appellate court, the broker and licensee could enforce the clause because they were identified in the agreement as agents of the purchaser and seller. The appellate court reversed the trial court’s order denying arbitration.

B. Statutes and Regulations

Kansas

Kansas revised the official forms issued by the Real Estate Commission, including the brochure relating to agency relationships. A brokerage firm may either use the Commission document or design a brochure that contains at least the same information contained in that document. [1] The required addendum to be used by transaction brokers was also amended, [2] as was the official form to obtain consent for direct negotiation. [3]

Mississippi

New rules regulating real estate teams were adopted in Mississippi. The rules state that teams are composed of members who all work under the direct supervision of the same Principal Broker. [4] Teams must appoint one member to be the Team Leader and must be registered with the Mississippi Real Estate Commission.[5]

New Mexico

The New Mexico Real Estate Commission amended the rules regarding the duties of a broker. The amended rules clarify that a broker has a duty to disclose in writing all agency relationships with any party to a transaction. [6]

Virginia

The Virginia Legislature amended the real estate licensing statutes to address real estate teams.[7] The new laws require teams to obtain a business entity salesperson’s license. The amended law also sets out the duties of supervising brokers.

The Legislature also passed a law that states that that it is not a breach of fiduciary duty for a licensee to obtain a translation of real estate documents for a client.[8] No fee may be charged for procuring a translation.

C. Volume of Materials Retrieved

Agency issues were identified 8 times in 7 cases (see Tables 1, 2). Breach of Fiduciary Duty was the most commonly raised issue, while Designated Agency and Other issues were also addressed in cases this quarter. Two Agency statutes and five regulations were retrieved this quarter.

Table 1

Volume of Items Retrieved for First Quarter 2018

by Major Topic

Table 2

Volume of Items Retrieved for First Quarter 2018 by Issue