Deceptive Trade Practices/Fraud: 2018 Yearly Update

As demonstrated below in the summaries, the Deceptive Trade Practices/Fraud cases often involve some type of undisclosed relationship between the real estate representative or broker

There was no evidence that designated broker and contractor engaged in fraudulent scheme with licensee.

and another. In other instances, the cases arose because a fact of importance surrounding the sale was not disclosed. Online real estate services are also facing more scrutiny. Recently, and as detailed below, a federal judge in Illinois dismissed a lawsuit against Zillow Group claiming that its Zestimate tool represented an unfair business practice that and makes it harder for people to sell their homes.

1. Estate of Lynott v. Luckovich, No. C14-0503RSL, 2018 WL 501577 (W.D. Wash. Jan. 22, 2018)

Mr. Lynott’s estate alleged that two defendants, Campbell, a real estate representative and designated broker, and a contractor/project manager, engaged in a scheme with another licensee, Luckovich, to defraud Mr. Lynott by using his money to purchase and remodel eight properties without compensation. Campbell was the designated broker for the investment company owned by the Lukovich. Five of the properties in which Mr. Lynott invested were co-listed by the Campbell and Luckovich. The estate alleged that Luckovich’s alleged breach of duties should be imputed to Campbell.

The court found there was no legal authority to hold one real estate representative responsible for another’s malfeasance based solely on the fact that they appeared on the same listing. The court also concluded there was no evidence that Campbell knew that Luckovich, who owned and had control over her own company, was deceiving a client. Furthermore, the estate failed to show that Campbell personally breached any of the duties she owed to clients. The court dismissed the claim against Campbell. The court also held that the estate failed to offer any evidence that the project manager knew or must have known that Luckovich was defrauding Mr. Lynott. The court dismissed the claims against the real estate representative and the project manager.

Real estate representatives could be held liable for alleged failure to disclose divided loyalties and to disclose other offers on the property.

2. Pellet v. Keller Williams Realty Corp., 177 Conn. App. 42 (Oct. 10, 2017)

The seller and his brother contacted the defendant real estate licensees, indicating that he wished to sell the property with a net profit of $90,000. The property sold for $100 more than the listing price, with the seller netting almost $89,000. After the purchase, the purchasers performed extensive renovations to the property and subsequently sold the property for a net profit of approximately $16,000. The seller then argued that the licensees wrongfully induced him into listing and selling the property at a price below market value, among other allegations. He brought suit against all of the parties to the transaction, asserting claims for breach of contract, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, intentional misrepresentation, negligent supervision, conspiracy to defraud, and violation of the Connecticut Unfair Trade Practices Act. The trial court dismissed the complaint against all defendants on a directed verdict. The trial court found that the seller did not meet the standard of proof to establish professional negligence on behalf of the real estate professionals. The court also found the seller could not establish damages.

The Court of Appeals reversed and ordered a new trial on the grounds that the trial court made improper findings of fact and improperly grounded the entire case on professional negligence. According to the appellate court, the seller could have prevailed on all of the counts in the complaint on the basis of ordinary negligence and breach of contract. Allegations in the complaint, such as allegations that the real estate defendants acted in bad faith, failed to disclose divided loyalties, and failed to disclose other offers on the property, sufficiently stated claims to support causes of action for deceptive trade practices, breach of fiduciary duty, and misrepresentation.

Purchasers claimed sellers engaged in fraud by failing to make repairs and disclosing condition of carpet in the home.

3. Tullos v. Tumbleson and Cleary, No. D-1-GN-16-004465, 2017 WL 4398698 (Tex. Dist. Ct. June 13, 2017)

After purchasers moved into their recently-purchased house, they discovered that the carpets  were soaked with pet urine and infested with insects and that the air conditioning unit had not been repaired prior to closing, contrary to the sellers’ statement in the Seller’s Disclosure Notice. The purchasers alleged that sellers and the sellers’ real estate representative breached the parties’ contract by failing to conduct agreed-upon repairs prior to the closing date, failing to disclose known material conditions of the residence, and failing to promptly repair damage caused by the seller after closing. Additionally, the purchasers filed claims for fraud and violation of the Texas Deceptive Practices Act. The purchasers contended the sellers had intentionally misrepresented the condition of the house by actively concealing the condition of the carpets. Sellers paid a settlement of $20,000 to the purchasers to resolve the matter.

Online real estate property value estimation tool did not constitute a deceptive trade practice.

4. Patel v. Zillow, Inc., No. 17 C 4008, 2018 WL 2096453 (N.D. Ill. May 7, 2018)

Property owners allege that Zillow, an online real estate services website, violated the Illinois Uniform Deceptive Trade Practices Act and the Illinois Consumer Fraud and Deceptive Business Practices Act. The property owners contend that Zillow’s “Zestimate” tool is a deceptive trade practice because Zillow promoted it as a reliable valuation resource, when in reality it is “a suspect marketing gimmick” drawing people to its website to solicit advertising revenue from real estate brokers and lenders. Plaintiffs also asserted that Zillow’s marketing program called “Seller Boost” is misleading and deceptive. In exchange for an additional advertising payment paid by representatives who are deemed “premier agents,” Zillow provides leads. According to the property owners, Zillow provides information without the advance permission of homeowners. Other allegations state that Zillow will list For Sale By Owner properties and provide a low Zestimate, but Zillow then significantly increases the Zestimate if a premier broker lists the FSBO properties.

The court held that Zestimates are not false or misleading representations of fact likely to confuse consumers. More specifically, Zestimates are merely an estimate of the market value of a property, which is supported by Zillow.com’s statement on the website that Zestimates may not be accurate. Also, according to the court, Zestimates are nonactionable opinions of value. The court further held that although the property owners allege that Zillow has created some confusion, the allegations do not describe the type of confusion the Deceptive Trade Practices Act prohibits. With respect to the Consumer Fraud Act claims, the court held that the “consumers” for purposes of this ICFA claim are the home buyers, not the property owners, and therefore, the property owners’ claim failed to show a consumer nexus. The trial court granted Zillow’s motion to dismiss the claims.

Property owner failed to disclose lien on property that affected lumber company’s use of timber rights.

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ARELLO Archive

The NAR/ARELLO Archive is a compilation of new types of laws collected over the past few years. This resource is helpful to guide states that may want to adopt similar laws in their state.

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Read a summary of this quarter's additions to the ARELLO archive.