We recently EZined about an October 2010 case where the court found liability for a listing broker for failure to disclose the transaction was a short sale.  We disagreed with the court – which found liability.

Not everyone agrees with us.

For instance, Peter D from Ventura says:

Quote:  ”You are full of shit!  Fraud is fraud!!

“Any property that is under water MUST be disclosed to buyer as a short sale!  Failure of a realtor or broker to disclose that the home is under water any may be subject to short sale is wrong!!!!!!!!!

You cannot agree to sell you home for less than it’s worth….only a lender can do that!  Realtor and broker should be sued!!!!!!!!!!!

“The court ruled correctly!!!!

GO F yourself and get me off this &^%$# mailing list right now!!!!!!!!!=”       End Quote


  • Apparently Peter feels strongly that we’re incorrect in our analysis. The court of appeal agrees with him, that’s why it found liability.

    We won’t bother him with an EZine anymore, although I’ll miss his spirited debate on the issue.

    • Jaynelle says:
      “The ruling makes sense to me. The L[isting] A[gent] should have disclosed that the sale might be a potential short sale requiring lender approval. CAR has no less than two documents which disclose and discuss this. Also the CAR form has a section where the buyer has to disclose if the sale is contingent upon the sale of the buyer’s house. Plenty of disclosures all around had someone bothered to look.”

      True enough, however, the holding of this case isn’t limited to that point. The case stands for the premise that the Listing Agent has a duty to disclose the legal impact of the liens against a property. (At least, that’s how I see it.) Since when? Does that mean that an agent must disclose the legal impact of CC&Rs too? What is most troubling is that the court DIDN’T find that the listing agent committed a fraud (an intentional misrepresentation) but that there was a breach of a “general duty” to all the parties of the transaction – even if that duty was contrary to the interests of the Listing Agent’s client.

      • Mary also comments:
        “Just curious, wouldn’t the issue of title be covered in the RPA, section 12; Title and Vesting, items A, B, & C? Also the issue of the buyers selling their property to cover the cost of purchase in section 13; Sale of Buyer’s Property?”

        Agreed! That, in fact, makes the most sense to me. Here’s what the court said:

        The listing broker owed the duty to pro-actively disclose the 3 existing deeds of trust (and, presumably, the legal impact of those debts) BEFORE the buyer made the offer!

        Does that mean that the disclosure package – including title report, CC&Rs, zoning, building, etc, etc, have to be prepared and submitted to every prospective buyer?

  • That was very interesting. There are not a lot of websites out there with good content on your subject. I hope to read more good information when I come back later.

  • Richard added this:

    “I agree that the short sale deal by the appellate court was nonsense, but the listing broker should have disclosed and by not doing so should have been fined. The buyer had a broker to guide him and should not have won a judgment.
    I’m not an attorney, but common sense rules.”

    CH: Common sense SHOULD have ruled, but didn’t I’m afraid. Why the buyer’s broker wasn’t nailed is a mystery.

  • "A Broker"

    Here is another that disagrees:

    “The “Law” is nuts? Any broker who KNOWS the property is upside down and lets their client sell their home without disclosing the short sale is the “nuts” one here. How the hell would you like to sell your home thinking you were buying another and not be told that the purchase was a short sale with the possibility of not going through…especially when your agent knew it!? The one thing agents are always told is: “DISCLOSE, DISCLOSE, DISCLOSE.” Get on board.
    A Broker”

    • The key here is that the buyer’s agent wasn’t the one sued. The Listing Agent was. The listing agent that gave the buyer the title report – the report that showed the 3 deeds of trust.

      Where was the buyer’s agent in all this? Where was the contract that said the purchase was subject to the sale of the buyer’s house? Where was the agreement non that sale that said it was contingent on the closing of the target house?

      There is PLENTY of “blame” to go around on this one. But – what the court did (in my opinion – and I’d love to be wrong…) was impose new duties on listing agents – duties that weren’t there beore. And the court opened the door to even more ‘clever’ attacks.

  • Ben

    Your article seems incredulous that there is some assumption of fair dealing by agents.

    If a listing agent has knowledge, they should absolutely share that.
    If the agent has no knowledge of an imminent short sale based on recorded and publicly available information, then the agent is probably in the wrong business.

    The buyer was greatly harmed by the lack of knowledge, and it is the duty of the sellers agent to present a truthful and complete picture. I hope that the result of this case sets a higher standard for agents and brokers.

    • The point I’m trying to make is not as to the presumption of a listing agent withholding information that materially effects value or desirability. The point is that the appellate court has now – potentially – kicked open the door to an expansion of the duties owed by a listing broker to a non-client buyer! The fact (i.e. that the home was encumbered by 3 mortgages totaling more than the value of the property) was one that the buyer is deemed to have had “constructive notice of” because of the recording laws, and “actual” notice of by way of receipt of the title report during the due diligence period. Where was the Buyer’s Agent in all this? That the Buyer then blindly went out and sold his property to fund the purchase of the new house is NOT something (in my opinion) that the listing agent ought to be responsible for. Didn’t the Buyer read **anything** in the title documents.

      I guess those were questions the appellate court didn’t think about.

  • Noreen

    My personal belief is that “some” agents are contributing to the decline of housing values. They do this by listing homes incredibly low to generate activity. The offers come in; obviously at or lower than the already ridiculous offering price. They then send the low offers to the Lender as “proof” of what the market is willing to pay.

    This further destroys valuations along with the demise of our economy. Shameful & self-serving.

    I had inquired as to whether CAR can do anything regarding this egregious way of doing business that
    hurts everyone and was informed in the negative.

    Hope you can shed some light on this behavior.

    • Depress values by listing low?
      Or increase value by conducting an auction and getting bidding fever. Isn’t that the premise behind eBay?
      If that’s what’s going on – it’s OK.
      If it’s to support an Uncle Fluffy Short Sale purchase agreement, it’s called Fraud.

      (BTW – There’s no discussion of that fact scenario as the premise for the holding of the case.)

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