The Conveyance Industry
· Made it illegal to charge kickbacks for referral (to a specific title co in return for favors)
· Lenders detail each cost and give it to buyers (lets first time home buyer in on the secret- that there are many more costs than just purchase price)
o Buyer gets this info from the lender (not from broker) – and by the time buyer gets to lender, he’s already signed a K to buy the house
o People paying all cash or whose financing comes from the seller never get any disclosure since it comes from the lender
Lawyer can represent both clients when:
(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:
(1) the representation of one client will be directly adverse to another client; or
(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.
(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:
(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;
(2) the representation is not prohibited by law;
(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and
(4) each affected client gives informed consent, confirmed in writing.
If a lawyer is requested to undertake or to continue representation of multiple clients having potentially differing interests, he must weigh carefully the possibility that his judgment may be impaired or his loyalty divided if he accepts or continues the employment. He should resolve all doubts against the propriety of the representation.
Alawyer can represent 2 ptys if: (good statement of it)
(1) obvious that lawyer can represent both (not too complex- see below)
(2) each consents
(3) after full disclosure
Baldasarre v. Butlerheld that an attorney may not represent both the buyer and the seller in a complex commercial real estate transaction even if both give their informed consent
In re Lanza: no per se rule against representing 2 ptys when one is your firm’s major client, it’s just one more element of the disclosure- have to tell other client that 70% of firm’s revenue comes from that client, but after they consent, then can go through w/ it. Furthermore, when a conflict does arise among parties with the same attorney, the attorney must withdraw immediately.
BROKERS LIABILITY TO SELLER’S AND BUYERS
· Brokers have a fiduciary duty of loyalty, skill, diligence, & disclosure to the seller only.
o Likely includes: Find a buyer, Advise (re: price, disclosure), Make house presentable, Sit on open houses, List the property (on the MLS), Advertise, Negotiate terms of sale once buyer located, Facilitate closing
o The seller can obtain more than mere breach of contract or breach of a fiduciary relationship. Further, the seller can ask for punitive damages.
BROKERS LIABILITY TO BUYERS
· Listing broker owes no fid duty to buyer; despite general rule, cts have found liability of listing broker to buyer on various theories- under fraud doctrine (concealment of material info- like covering termite damage w/ throw rug)
o Fraud: Must be a MATERIAL misrepresentation:
§ The test of materiality is whether it would affect the price or willingness of a reasonable buyer
§ Courts hold that a false representation as to the owner’s lowest price is NOT a representation of a MATERIAL fact.
§ who the other party is, IS NOT a material fact
o Because the listing broker is not in a fiduciary relationship w/ buyer, there is no need for listing broker to be forthcoming about known defects
§ Suppose the broker doesn’t really know the basement is dry…broker is allowed to just pass along what the seller told the broker
o The broker not strictly liable for passing on misinformation
§ Nature of broker’s liability is negligence based – failing to use reasonable care – must use professional expertise to avoid passing along misinformation to buyer
§ Negligent in repeating material misrepresentations of the seller that the broker knows are false or SHOULD have known are false
§ The seller would be strictly liable even though misrepresentation is not made fraudulently or negligently
SELLER’S AND BUYER’S LIABILITY TO BROKER
· Both licensed real estate brokers and LAWYERS can sue for commissions
· Agreement doesn’t have to be in writing to get a commission under most states law (look at SOF).
· Many states allow implied verbal listing agreements if the recipient knew or had reason to know it was not offered gratuitously but w/ expectation of payment.
· Real estate brokers are entitled to commissions only after producing a purchaser who is ready, willing and able to buy and who completes the transaction by closing title.
o If the seller wrongfully interferes with the completion of the sale, the broker will still be entitled to the commission for producing a ready and willing purchaser.
o If the seller withdraws property prior to end of listing agreement, still owes commission
§ he should turn down any Ks through that 90 day period so he doesn’t have to pay commission
o This rule can be circumvented by agreements between sellers and brokers.
§ agreements will be scrutinized carefully and may be unconscionable
o If house is taken by eminent domain while the listing agreement is in effect no commission awarded
§ Government condemning is not a party to a transaction
o Brokers was awarded her commission even though the property had been substantially destroyed by fire before the closing and the K of the sale had been rescinded.
· At end of listing, there is a tail period (typically 30 days) where if anybody enters into a contract with the seller, broker is entitled to commission even though term of listing has passed- only if broker has provided the list of who these people are that broker claims a commission for (broker must register these names w/ the seller)
o Puts seller “on notice” of those to whom if he sells to broker gets commission.
o If the broker fails to register the name the seller may also be put on notice due to prior offers from the buyer and the broker would thus be entitled to a commission under the substantial compliance theory.
THERE ARE 4 BASIC TYPES OF LISTING AGREEMENTS
§ Exclusive right to sell
· The exclusive right to sell listing is the most favorable to the listing broker, giving him the right to a commission if the property is sold by anyone even the owner during the term of the listing agreement
· He will get commission even if you sell house on your own
§ Exclusive agency
· An exclusive agency listing entitles the broker to a commission if he or any other broker sells the property but not if the property is sold through the efforts of the owner
· In an open or nonexclusive listing the seller agrees to pay a commission only if the broker is the first to procure a buyer, if the property is sold through the efforts of the seller or anyone else, the broker has no claim
· Provisions entitling a real estate broker to a commission regardless of whether his activities are the procuring cause of the sale are not inconsistent with a non-exclusive listing. Ordinarily brokers with nonexclusive listings must prove that they were the procuring cause of the sale in order to recover a commission. However, the parties may agree to different K terms.
· In a net listing the seller agrees to accept a specified price for the property and the broker receives any amount paid over that price.
· Net listing agreements in which the seller authorizes the sale at a specified price allowing the broker to retain as commission the difference between that price and the price at which the property is in fact sold, harbor serious potential for broker abuse. That has been regulated accordingly. NY and MO flatly prohibit.
Contract of Sale
RISK OF LOSS DURING THE EXECUTORY PERIOD
· The executory period is the period between K formation and Closing.
· The majority and common law rule is equitable conversion: A contract to sell realty vests equitable ownership in buyer. The buyer bears the risk of loss, even if the seller retains possession.
o Sanford v. Breidenbach: Equitable conversion by the purchaser of real property becomes effective when the seller has fulfilled all essential and material conditions of the K.
· There is a growing trend in the U.S. today to replace the rule of equitable conversion with a rule that allocates risk of loss to the party whether the seller or buyer who is in possession at the time the premises are destroyed.
o The Uniform Vendors and
status= marketable title
§ seller might warrant these things or make them conditions
§ this type is a warranty substitute
o Conditions relating to need on part of buyer
§ Ex. financing, buyer finding tenant for vacant spaces in building, selling their old home
§ Seller can’t warrant these sorts of things
o Conditions relating to ability to effect change
§ Ex. Ability to effect change = subdividing property or rezoning
o Strategic Conditions
§ Allows buyer to cancel K if not satisfied
· Issues involving specific common conditions
o Structural defects
§ Does K specify
· seller has right to cure
· can condition be waived and whose benefit the condition is for
· does buyer get return of deposit
· inspection timing
· Copy of inspection report need be handed over
§ K in which the terms of a loan financing contingency provision are not sufficiently identified will not be enforced because they are considered to vague and indefinite. The interest rate is an essential loan term and must be included.
· Including the term “prevailing interest rate” rather than an exact figure for the interest rate may be enough for a court to find a K enforceable.
· A K will be saved from illusoriness by the implied requirement that the buyer diligently seek financing on the terms specified. (No good faith when buyer attempted to get loan from only 1 institution even though other sources were available)
§ Does the condition allow the seller to cure by offer financing so the buyer can’t back out
· Probably will turn on lang of financing condition itself- ct will look at clause and sees that by way it’s worded, if it clearly suggests institutional 3rd party financing.
o Condition of sale of Buyer’s other house
§ Kick-out clauses: Seller can still show house and see if can get another K w/o that contingency, and if seller gets another K can go back to buyer and see if buyer will waive this contingency (kick-out condition) and if not, seller can go w/ the other K- this is called a kick-out clause
o Stream of income from commercial property
§ If a condition is that the buyer has right to examine books and records, tenants’ credit how does buyer verify that the copies of the leases provided by the seller are complete?
· After K formation the seller and tenant may have amended the lease, negotiated improvements or entered into a side letter.
o Buyer should have a condition that during exec period, the buyer receives signed estoppel certificates from the anchor tenants (Walgreens, Schnucks), and some percentage of space tenants.
§ Requiring 100% of space tenants would be a strategic condition b/c not likely to happen due to no requirement on the part of the tenants to cooperate.
§ A forward thinking seller would require in the lease that tenants cooperate.
o Tenants would affirm the lease/terms of lease, amount of security deposit, that rent is not prepaid, that the landlord is not in default. They would thereafter be stopped of claiming otherwise.
· The buyer should also have the seller warrant the income stream. If the income level of the property decreases, the buyer can sue the seller for damages.
§ If tenants are delinquent in their rent to the seller, the seller will want some method to collect the delinquent rent.
· Seller would like to have the buyer pay in full for the delinquent rent and have the buyer collect the rent.
· The seller could retain the right to go after the delinquent rent.