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Real Estate Transactions
Temple University School of Law
Colehower, John H.

Real Estate Transactions – J. Colehower

Temple University – Spring 2016

ROLE OF THE LAWYER

Lawyer is both the strategic planner and risk manager – works to manage transaction cost-effectively and strategically to protect client’s investment and expectations.

Identify Reduce Shift risk in structuring transaction to benefit client – help client understand remaining risk.
Professional Responsibility – Responsibilities may run to both clients & non-clients

Lawyers as Brokers

Statutes generally have reg. exemptions for lawyers → split authority to scope of exemption

Incidental Test:
Total Exemption: attorneys totally exempt from licensing requirements based on reasoning that due to professional education and training their able to provide competent brokerage services and conduct already regulated by bar association

Cases

i. In ReLanza

Lanza, an attorney, represented both Greene, the seller of property, and Connolly, the buyer, during a dispute between the parties
Attorneys may not represent both the buyer and the seller in a real estate transaction unless there is full disclosure of a potential conflicts as well as informed consent.

BROKERS ROLE

Brokers find parties who engage in real estate transactions – central role is that of an intermediary in the market for sale and exchange of property.

If ambiguous → courts favor seller (owner) over broker – be concrete in terms.
Duration of listings have fixed expiration date (common 3m-1y), look at Ksale not Kclosing

Types: residential brokers (sale of homes), commercial brokers (sale of other properties), leasing brokers, mortgage brokers [detailed below]

Responsibility: follow state/federal codes of conduct and licensing requirement
Access to market information – properties, terms, values (valuable to clients)
Client → usually represents seller, may be “buyer brokers” & DUAL AGENCY
Risk: of practicing unauthorized practice of law

What constitutes unauthorized practice?

General – law practice consists of giving advice or drafting instruments affecting legal rights. Various Tests

“Incidental Test”
“Simple-Complex Test”
“Personal Representation Test”

iv. Real Estate Bar v. Nat’l Real Estate

claim by a state real estate bar that a national mortgage settlement services company engaged in unauth. practice
ct. concluded that opining on marketable title, providing title certifications, and preparation of deeds YES-LAW! But, title examination, preparation of abstracts, preparation of HUD closing statements, review of docs. to determine they were signed, and recording executed docs NO-LAW!
Listing Agreements

OPEN LISTING (nonexclusive) — first to the close wins

Broker earns commission by finding a ready, willing, and able buyer – seller may engage with other brokers.
Ready, willing, and able – demonstrate causal connection between actions and ultimate sale.

EXCLUSIVE AGENCY – seller (owner) promises monogamy, but can diddle himself

Broker is exclusive agent. Seller promises not to engage another broker during term of agreement – if other agent sell → exclusive agent receives his commission.
Owner may sell on his own and NOT PAY commission.

EXCLUSIVE RIGHT TO SELL (“exclusive listing”) – seller (owner) obligated monogamy, no diddle

Broker PAID COMMISSION in all instances – MOST PROTECTION. Seller is obligated to pay commission is any buyer purchased the property, regardless who procures.

NET LISTING – seller (owner) pays broker all the excess action

Broker PAID COMMISSION IN EXCESSvery uncommon, but broker will attempt to sell at a higher price

Types of Brokers

Residential – sell homes, lots, condos (etc) and concentrate on specific geographical areas and maybe specialize in particular price ranges
Commercial – sell office buildings, apartment complex, shopping centers, industrial facilities (etc) – specialize by type, regional/national practices
Leasing – residential/commercial. Earn commissions based on rents payable by tenants, paid generally upon lease execution or renewal
Mortgage – residential/commercial. Matches borrowers with lenders – ex. Helping commercial developers find project financing; match residential with lending institutions → benefit of access to wholesale cap. Markets, price discounts.

Representation

LISTING BROKER

Broker represents seller; obtains listing from the seller to sell the property.
AGREEMENT: details agency relationship, the commission arrangements, and other matters related to the undertaking.

SELLING BROKER (CO-OP BROKER)

Co-Op broker finds the buyer then splits commission, absent agreement, the seller broker also works for the seller.
COMMON: MLS (multiple listing services)
SUBAGENCY ROLE: agent of listing broker (subagent of seller) with fiduciary dutties to the seller NOT buyer. No one is representing buyer. Contrary to public expectations!

BUYER’S BROKER

Contracts with buyer promising to represent buyer in finding and purchasing a property. Compensated through a split of commission paid to listing broker.
ISSUE: Representing multiple buyers.

DUAL REPRESENTATION – broker may lawfully represent both parties (p. 24) challenges

Must be disclosure, consent.
Issues: conflicting duties of loyalty, disclosure, confidentiality.

TRANSACTION BROKER – sells services, but has no agency relationship with either party to avoid fiduciary duties. A.k.a. nonagency brokerage

Commission Earned When…

Old Rule – when they find a ready, willing, able to purchase → Broker earns his commission only when the Buyer completes the transaction by closing, not just by providing a ready, willing, and able customer
ELLSWORTH DOBS (new rule) NO SALE → NO COMMISSION (unless breach) → only in NJ/MA (minor)

Seller does not pay a commission unless the deal is complete
When a seller lists with a Broker, his expectation is that the money for the payment of commission will come out of the proceeds of sale
Wording → “on said sale” is enough
Simple solicitation NOT enough without showing CASUAL conn.

Extension Clause (extending listing period to any sale) must be established by some casual connection between broker’s efforts and the eventual s

pendens – notice filed in the public records for real estate that states that litigation is currently pending (destroying ability to take without knowledge) “cloud on title”
Tort Damages – as a result of breach/default (unusual)

Justification: injured party who receives money damages can enter market to purchase similar goods or services from another person (fungibility) → i.e. buyer purchases substitute; seller resells to 3rd
Definitions:

FMV (fair market value) fairness uses reasonable market comparison for type of property and value of loss. market defines geographic and uniqueness of relevant market, value can be calculated through comparable sales, replacement cost, or income flow (i.e. rents).

→ Factor in TMV & Time of the Breach

Reliance Damages – awarded under general princples of Klaw → recoverable if foreseeable

i.e. lost profits, out-of-pocket costs

Buyer’s Damages

i. Beard v. S/E Joint Venture

cited !! Flureau (minor law) – limits damages for “bad faith” defects in title
American rule (modern trend) !! Donovan –
Seller’s Damages

i. Kuhn v. Spatial Design, Inc. –

Where buyer breaches a home purchase and contract and seller places the house back on the market and resells in a reasonable manner, seller’s damages shall = Kprice – resale price
If the seller is obligated for the broker’s commissions, these shall be included in damages against breaching buyer\
Calculate from time of breach (criticized) rather than date of resale. Most courts still follow the decision in Kunh.
Forfeiture and Liquidated Damages

Forfeiture: “if buyer defaults, seller has the right to terminate K and retain deposit” clauses are often enforceable without seller having to prove actual damages.
Liquidated Damages – damages that the parties agree to and quantify in advance of any breach (i.e. prearranged K damages)

available only if actual damages are difficult to predict at time of K, especially where FMV is difficult to ascertain.
reasonable amount: when grossly excessive liquidated damages → penalty

reasonable around 10% or less of Kprice

Equitable Remedies

Specific Performance

general rule: both buyer and seller have right to specific performance. Claiming party must prove the circumstances that support SP.

buyer: every piece of land is unique
seller: mutuality of remedy – if buyer can SP, so can seller.

2. Kelley v. Leucadia – specific performance

3. Mohrland v. Draper – specific performance