November 2012 Legal Case Studies


November 2012 | D.R. Legal News

Legal Case Studies

Arizona real estate agent not entitled to commission because the agent did not sign the buyer-agency agreement. Young v. Rose, 2012 W.L. 4357, 427 (Arizona Appellate Court September 25, 2012). The real estate agent, Young, entered into an exclusive real estate agent agreement agreeing to represent the buyers, Rose, in purchasing a new home. Over an 18 month period, the real estate agent sought out property for her clients. During that period, the agent and the Roses signed three exclusive real estate agent contracts of six months each. The third agreement expired in October 2007. In January of 2009, the real estate agent sent an e-mail message to the Roses to say she had found four properties that possess some of the wish list items that the buyers were seeking, except that the price exceeded the $4,000,000 budget of the buyers. The buyers responded to the agent’s e-mail and asked the agent to keep them posted regarding two of the properties if the price dropped. Later that same day, the agent e-mailed the Roses to say that one of the properties had lowered its price and that the owner would consider offers under $4,000,000. The agent asked the Roses to sign a new exclusive buyer-agency agreement. The agent attached a PDF version of the agreement to an e-mail that she sent to the Roses. The Roses signed the agreement and it was e-mailed back to the agent. The agent responded by an e-mail that simply said, “Thank you” and had the agent’s name and business information at the bottom of the e-mail. The agreement authorized the agent to act as the buyer’s exclusive broker from January 2009 to July 12, 2009 in their efforts to locate a lot or home. During the term of the agreement, the buyers purchased a different home using a different real estate agent. Agent Young then sued the buyers seeking to recover a commission set forth in the agreement that the buyer’s had signed with her. At court, prior to trial, the buyers filed a Motion to Dismiss the agent’s claim for a commission. The Trial Court ruled in favor of the buyers, and the agent appealed. The Appellate Court stated that Arizona law had very specific statutes regulating real estate agents. He quoted from the Arizona statute which read, “All real estate employment agreements shall: (1) be written in clear and unambiguous language, (2) fully set forth all material terms, including the terms of broker compensation, (3) have a definite duration or expiration date showing dates of inception and expiration, (4) be signed by all parties to the agreement.”  The court held that the agent did not follow the strict rules of the Arizona statute because she had not signed the agreement. Therefore, the court held that she was not entitled to any commission. The court recognized that this seemed to be a harsh result, but nonetheless held that the statute was clear that all parties, both buyers and agents, must sign the agreement. Even though the agent could prove that the brokerage agreement met the requirements of the statutes of fraud. (The rule of law that requires certain types of contracts to be in writing and signed by the party to be charged). Even though the buyers had signed a contract and were the party “to be charged” in this case, the court nonetheless held that the Arizona statute on real estate employment agreements had requirements beyond meeting the statute of frauds. The agent also argued that her e-mail that said “Thank you” and contained her name and business information that she e-mailed to the buyers after receiving a signed copy of the brokerage agreement by e-mail should constitute a valid signature sent electronically. The court, however, did not rule upon the issue of whether that e-mail could constitute a valid signature because there were not enough facts in the record, and the case was sent back to the Trial Court for further argument on that issue.

Real estate agent was not liable for failing to disclose that work had been done on the foundation prior to purchase, when the agent did not have knowledge of the defect nor specific knowledge that work that had been done in an attempt to repair the defect. Ledbetter v. Schacht, 2012 W.L. 377, 5969 (Tennessee Appellate Court, August 31, 2012). The buyers sued the seller’s real estate agent. The buyers allege that the seller’s agent had failed to disclose to them the existence of foundation and structural defects in the home and repair attempts that took place prior to the sale. As a result, the buyers claimed that they were experiencing loose grout in the tile floors and showers and cracks in the walls and uneven hardwood flooring, and loose exterior siding and brick along with plumbing problems. The buyers alleged that the seller’s agent was liable for damages because the agent failed to disclose her knowledge of the defects. The seller’s agent testified that she knew that a structural inspection of the house was performed and that some additional work on the foundation was necessary in response thereto. However, she testified that she never saw the actual reports from the inspections or knew the extent of the work performed. The agent testified that it was her understanding that all the recommended work had been completed and that the house was in compliance with all applicable codes after the repairs were made. Buyers argued that the seller’s agent violated the Tennessee Residential Property Disclosure Act because she failed to “disclose adverse facts of which the licensee had actual knowledge or notice.”  The Tennessee Residential Property Disclosure Act defined “adverse facts” to mean, “Conditions or occurrences generally recognized by competent licensees that significantly reduce the structural integrity of improvements to real property, or present a significant health risk to occupants of the property.”  The court also heard evidence that after repairs were made, inspections found that the house was structurally sound. The court held that although the agent had general knowledge that work had been performed on the house this was not enough to constitute that the agent was aware of “conditions or occurrences generally recognized by competent licensees that significantly reduce the structural integrity of improvements to real property.” 

Broker was found liable for failing to disclose chemical contamination. Alfieri v. Bertorelli, 295 Mich. App. 189 (2012). Buyers purchased a condominium unit that was built in what had once been an abandoned factory. The factory had been contaminated with a toxic chemical. While converting the building into condominiums, a vapor barrier was installed, but the site was never properly decontaminated. The buyers purchased the unit and based upon a newspaper article in a sales brochure they believed that the contamination had been cleaned up, so they did not have their own inspection for toxic chemicals. After the purchase, it was later determined that the property was seriously contaminated. The seller’s agent argued that as seller’s agent they owed no duty to buyers. The court ruled that the seller’s brokers did owe a duty to disclose new information to a buyer that either renders a prior statement untrue or relates to a particular concern expressed by the buyers. In this case, the buyers expressly asked about the contamination. The seller’s broker had been made aware by the state’s environmental regulator that the sales brochures had misleading information about remediation of contamination. The court ruled in favor of the buyers and found that the seller’s brokers were liable for “silent fraud” which is fraud based upon suppressing material fact or giving an incomplete response to an inquiry.

Court holds that a title company is not in the business of providing information about title but instead is providing a private contract between the title company and the insured for insurance. United Community Bank v. Prairie State Bank & Trust, 4-11-0973 (Ill.App. July 11, 2012). The title insurance company missed a judgment lien in favor of a third party when it searched the chain of title. Borrower borrowed funds from United Community Bank to buy a duplex. Unbeknownst to borrower and United Community Bank, a judgment lien in favor of Prairie State Bank was filed. The title insurer for the borrower and United Community Bank was Commonwealth Title Insurance Company. Commonwealth, in its search, failed to discover the judgment lien in favor of Prairie State Bank. The buyer/borrower argued that it was entitled to rely on the title commitment for information regarding the title, and that because the title commitment did not mention this judgment lien that there was negligence by the title company. The court ruled, however, that a buyer was not entitled to rely on a title commitment for information regarding title, because the purpose of the title commitment was not to provide information regarding title; rather, the title commitment had a wholly different, contractual purpose, namely, specifying the losses the title insurer was excluding from coverage in its offer to provide title insurance. 