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Residential Core Law
ISSUES IN REAL ESTATE
STAGNARO, SABA & PATTERSON Full Service Law Firm
Real Estate Tax Valuation Appeals Wills, Trusts, Estate Planning & Administration Corporate General Litigation
Business Disputes Personal Injury And Medical Malpractice Labor And Employment Law Creditor’s Rights
THE FINE PRINT…This presentation is offered for informational use only. Nothing in this presentation constitutes legal advice, and an attorney-client relationship with either the presenter or Stagnaro, Saba & Patterson, Co. L.P.A. is not created with any member of the audience based solely upon this presentation.
Paul T. Saba, Esq.(513) 533-2703
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TOPICS House Bill 532 Agency Liability Case Law Update Electronic Signatures Advertising and Administrative Rules Contract Formation
Paul T. Saba, Esq.(513) 533-2703
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LICENSING STRUCTURE REVIEW TASK FORCE
Appointed by Ohio Real Estate Commission in 2012
Agents, Brokers, Instructors, Managers Reviewed licensing structure/other provisions
Recommendations: Licensing structure Disciplinary action Multiple trade names New education requirements
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LEGISLATION Bill introduced April 2016 Included additional amendments
Contemporaneous offers Earnest money return Independent contractor status Online pre-licensing education for sales license
Governor Kasich signed January 4, 2017 Effective April 6, 2017
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New Licensing Structure3 Types of Broker
Principal BrokerManagement Level LicenseeAssociate Broker (new status)
Salespersons can be either Management level, or Salesperson
New Status: Principal Broker Each brokerage must designate at least one principal
Duties now listed in one section of Revised Code With one exception, not new duties – just consolidated
Duties can be delegated to management level licensees Principal still responsible for oversight (so delegate wisely)
Principal’s Duties - ManagementDirect/supervise brokerage operations
Comply with office requirementsBrokerage must have regular place of business
Real address – not P.O. BoxAdditional locations must be licensed as branch offices
With Broker/Agent designated in charge Must have office sign (even if just business card at entrance)
Principal’s Duties – LicensingMaintain Licenses
Company, Branch Offices, SalespersonsEnsure Proper Display
Brokerage license in entrance/reception areaBranch office license at that branchAgents’ licenses must be available for
inspectionReplacing lost/destroyed licenses
Principal’s Duties – LicensingRenew Brokerage LicenseReturn licenses to division when
terminatedWritten notice to licensee
By certified mail within 3 days of return to division
Must explain reactivation rightsDoesn’t apply if licensee is simply
transferring
Principal’s Duties – Fair HousingDisplay Fair Housing pamphlet/poster
Double check that both are up to date Poster displayed in same area with
licenses
Principal’s Duties – Money Matters Maintain trust account
Manage record keeping Transactions & trust account records for 3 years
Pay agents/affiliated brokers their commission Earned Share within “Reasonable Time” Earned Share/Reasonable Time not defined by license
law
Ensure no payment for unlicensed activity
Principal’s Duties – Agency & Advertising
Develop/maintain company policy on agency
Consumer Guide to Agency Relationships
Establish & monitor advertising practices Ensure compliance with regulations
Expansion of Principal’s Duties Currently must supervise affiliated licensees
To ensure compliance with license law
Continued & expanded – Principal must now: Ensure agents only perform licensed activities w/in area of
competency If agent wants to branch out:
Should know to come to Principal to discuss Must work with affiliated licensee with necessary level of expertise
Principal Broker for Multiple Brokerages
Why?Broker wants to diversify:
Has residential brokerageWants to get into commercial, property
management, etc.So creates separate entity usually for liability
purposesBrokerage wants to set up holding/referral
company
Principal Broker for Multiple Brokerages
Currently permitted in 37 statesUnder H.B. 532, Broker may be permitted
to act as principal for multiple brokeragesWith permission of SuperintendentCriteria for approval currently being finalized
Only applies to principal broker
Management Level LicenseeAlready in the license lawLicensee who:
Oversees main office, branch, or division; and
Supervises other licenseesCan be a broker or a salesperson
Associate BrokerNew status If not principal or manager, then
associateNo oversightFunctionally, salesperson/agent
Reporting of Broker StatusDesignation of status
Division of Real Estate renewal forms will ask status
Change in principal broker status Must be reported to Division within 15 days
New Provision re Disciplinary Sanctions
Licensee can now be disciplined for:Acting as a broker without authorityImpeding ability of principal or
management level licensee from performing duties
Meant to combat the following:Rent-A-Broker situationsBroker prevented from performing by
agent
Multiple Trade NamesCurrently, Brokerage can request
permission from Division to do business in trade nameIf approved, DBA only name brokerage can
use
Under HB 532, Superintendent may approve use of more than one DBA
Trade Names: Criteria for Approval Name clearly distinguishable from other
broker/brokerage If not, written consent of other broker
Name can’t be misleading/likely to mislead public Not more than 5 trade names Some commonality
Saba Residential Realty / Saba Property Management Name registered with Ohio SoS as fictitious name
Mandatory Management Course House Bill 532 requires 3-hour CE course for
Principal brokersAssociate brokersManagement level licensees/agents & brokersBrokers on deposit
Required even if over 70 Must cover license law requirements Included as part of 30 hours of Continuing Ed.
Required for cycles beginning after April 6, 2017
Education ChangesPost-licensure sales course increased
From 10 to 20 hoursRequired for agents licensed on or after April 6th
Must be taken within one year of licensureCourse approval now same as C.E.Broker’s training programs may qualifyCan now be taken online
Online Pre-LicensingBroker pre-licensing courses can already
be taken online HB 532 permits pre-licensing sales courses
via distance educationMust still be taken at an institution of Higher
EducationCourses must be credit eligibleCan be taken on or after April 6
Contemporaneous OffersDefined by HB 532:
Two or more clients submit offer on property that will be considered by seller at same time
Catch 22: Duty of confidentiality to one buyer v. Duty to disclose material facts to other
buyer
Conflict in Current LawR.C. 4735.65(B):
A licensee does not breach any duty or obligation to the purchaser by showing the same properties to other purchasers or by acting as an agent or subagent for other purchasers…except that any dual agency relationship must be disclosed to a client pursuant to section 4735.71 of the Revised Code.
Conflict in Current LawOhio Canons of Ethics Article 10:
A licensee should not enter into an agency relationship with a party whose interests are in conflict with those of the licensee or another client represented by the licensee without fully disclosing the potential conflict and obtaining the informed consent of all parties.
HB 532 = New Guidelines Written notification of situation to all buyer-clients
prior to preparing offer(s) to purchase Can be via text, email If cannot be delivered in timely manner, can be verbal
If party objects, must refer to another licensee Identities/terms of offer cannot be disclosed Disclosure of existence of contemporaneous
offers does not breach duty of confidentiality OAR sample Disclosure Form
House Bill 532INDEPENDENT CONTRACTOR STATUS
Paul T. Saba, Esq.(513) 533-2703
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30 min
Independent Contractor StatusCurrent license law does not address status
Just that agents are affiliated with broker
Litigation in other states alleging agents were employees, not independent contractorsOvertime, minimum wage, worker’s comp, etc.
Independent Contractor StatusHB 532 adds language
Agents/brokers can be affiliated as either employee or independent contractor
Broker’s duty to supervise agents, on its face, does not create employee relationship
Independent Contractor Status IRS Test to determine if independent
contractorMust be licensed Must have an agreement that you are an
independent contractor for federal tax purposes
Substantially all of licensee’s remuneration must come from sales
Earnest Money Return If transaction doesn’t close, the following
is required to return earnest money:Written/Signed agreement, orCourt order specifying how funds must be
disbursed
Recent confusion in relying on preprinted language in purchase contract
House Bill 532 ClarificationSigned agreement regarding
disbursement of earnest money must be separate documentCannot be based on language in purchase
contractTypically signed release
R.C. 4735.62 - AGENCY DUTIESConfidentialityFull disclosureFollow lawful instructions of principalAdvance interests of principalDue diligenceFiduciary responsibilities
Paul T. Saba, Esq.(513) 533-2703
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R.C. 4735.621 – WAIVER Ohio House Bill 150
Minimum Services Bill (October 9, 2006) Licensee owes full fiduciary duties in R.C.
Duties that can be waived (R.C. 4735.63 & 4735.65) Answering ?s about steps clients must take to fulfill
contract With respect to offers/counteroffers:
Presenting, accepting delivery of, answering questions about, and assisting client in developing & presenting
Paul T. Saba, Esq.(513) 533-2703
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R.C. 4735.62 – DUTIES YOU CAN’T WAIVE Exercise reasonable skill and care Perform terms of written agency agreement Follow lawful instructions Maintain loyalty Comply with laws, statutes, rules, regulations Disclose material facts Advise client to seek expert advice Account in a timely manner for money Paul T. Saba, Esq.
(513) [email protected]
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R.C. 4735.62 – DUTIES YOU CAN’T WAIVEConfidentiality - Realtor® Code of Ethics
Obligation to preserve confidential information
Email mistakes can become violationsForwarding wrong documentReply all
Slow down!Paul T. Saba, Esq.
(513) [email protected]
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ACCEPTING/DELIVERING OFFERSVia text
Enforceable?Who’s responsible?Authority & apparent authority
Via emailPaul T. Saba, Esq.
(513) [email protected]
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Realtor LiabilityPRIOR KNOWLEDGE FROM DEAD
DEALSPaul T. Saba, Esq.
(513) [email protected]
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20 min
DISCLOSURES TO PURCHASER: R.C. 4735.67Material facts of which licensee has
actual knowledge that purchaser would not discover by reasonably diligent inspectionMaterial defects in the propertyEnvironmental contaminationInfo that statute or rule requires be
disclosed
No duty to investigate
Paul T. Saba, Esq.(513) 533-2703
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Buyer relies upon: Its own examination Seller’s certification in the RPDF Inspections (requested/required)
Not upon representation(s) of Realtor “The statements contained in this form are
made by the owner and are not the statements of the owner’s agent or subagent.”
RESIDENTIAL PROPERTY DISCLOSURE FORM
Paul T. Saba, Esq.(513) 533-2703
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How dual agencies arise Hazards Dual-Agency Disclosure (R.C. 4735.57)
Timing at auction sales (R.C. 4735.58) To purchaser at first contact (R.C. 4735.60)
Broker and management level licensee duties R.C. 4735.72
DUAL AGENCY: R.C. 4735.70
Paul T. Saba, Esq.(513) 533-2703
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Realtor/Brokerage lists property for sale Thereafter, Realtor acts as dual agent
Owner receives and accepts an offer Atypical inspection identifies problems
Short inspection – less than 2 hours Not in typical binder Never give Realtor name of inspector
HUBBARD V. TNT LAND HOLDINGS
Paul T. Saba, Esq.(513) 533-2703
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Buyers give Realtor handwritten list of problems Unnamed inspector estimates repairs >$30,000 Realtor assumes “negotiating tool”
Realtor handwrites addendum to contract Names issues found by “qualified home
inspector” Back turret had no footer Doors in spiral staircase pad had settled SW corner of home under master bedroom settling Garage floor needed substantial repair for settling
HANDWRITTEN ADDENDUM
Paul T. Saba, Esq.(513) 533-2703
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Deal falls apart Owner begins repair work
Installation of retaining walls Fresh concrete beneath turret room Fresh stucco over concrete pad Handmade shims to stabilize garage wall
Skim coat to cover cracks and shims Garage floor replaced with fresh concrete
FIRST OFFER FALLS THROUGH
Paul T. Saba, Esq.(513) 533-2703
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New Purchaser tours house Construction work ongoing Walks through 3 times, once with architect
Realtor acts as Dual Agent for successful sale Purchaser signs “as-is” purchase contract Inspection addendum
Permits inspection / credit for repairs Purchaser never obtains inspection
2ND OFFER (DURING CONSTRUCTION)
Paul T. Saba, Esq.(513) 533-2703
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Purchaser discovers earth movement issues, sues Verdict against Seller ~ $352,000 (house was
$320,000) Brokerage fights under doctrine of caveat emptor Verdict against Brokerage/Realtor
Breach of Fiduciary Duty/Negligence Knowledge was attributable to Realtor Fiduciary duty to Purchaser
REALTOR/BROKERAGE LIABILITY
Paul T. Saba, Esq.(513) 533-2703
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Realtor LiabilityHANDLING MULTIPLE OFFERS
Paul T. Saba, Esq.(513) 533-2703
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20 min
REALTOR® CODE OF ETHICS – ARTICLE 1 1-6: Submit offers & counter-offers as quickly as
possible
1-8: Buyer’s agent must submit all offers until acceptance Should recommend buyers/tenants obtain legal advice if
question as to whether pre-existing contract has been terminated
1-9: Preservation of confidential information
1-15: Disclosure re existence of other offers
Paul T. Saba, Esq.(513) 533-2703
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ESCALATION CLAUSES Basic components of addendum:
Original offer Amount to step up Max amount (“cap”)
Triggered by competing offer Hot market situations
Paul T. Saba, Esq.(513) 533-2703
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ESCALATION CLAUSES Basic components of addendum:
Original offer Amount to step up Max amount (“cap”)
Triggered by competing offer Hot market situations
Paul T. Saba, Esq.(513) 533-2703
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EXERCISE CAUTION Buyer giving up some negotiating power
Only use in multiple-offer situations If only offer submitted, technically remains at original price, BUT – seller will know to counteroffer Consider appraisal contingency
Ensure that legitimate competing offer does exist Review proof to avoid seller fraud Examine the numbers (e.g., closing costs paid by seller reduces
price)Paul T. Saba, Esq.
(513) [email protected]
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Realtor LiabilityCOPYRIGHT ISSUES & PHOTOS IN
MLSPaul T. Saba, Esq.
(513) [email protected]
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20 min
LISTING PHOTO REQUIREMENTS (7.11.2) Must include photo within 72 hours
Including front of the building Or “Seller Prefers No Photo” image (authorization on file)
No added text overlay Embedded data not prohibited (time stamps/floorplans, etc.)
Branding with any info or images prohibited Including “for sale” signs posted on property
Paul T. Saba, Esq.(513) 533-2703
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SUBMITTING PHOTOS ON MLS (11.5) Must have right to display/reproduce & authority
to grant MLS subscribers that right Subsequent listing agent must have prior written
authorization
Copyright ownership (11.6) All right, title, and interest in each copy of every MLS
compilation created and copyrighted by the MLS, and in the copyrights therein, shall at all times remain vested in the MLS.
The MLS shall have the right to license such compilations or portions thereof to any entity pursuant to terms agreed upon by the Board of Directors.
Paul T. Saba, Esq.(513) 533-2703
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EMERGING TECHNOLOGY: DRONES Commercial use currently prohibited – MLS must
remove Always comply with federal, state, local laws
Section 333 Waivers can be issued for real estate marketing Look for company that has waiver, insurance, indemnification
clause
Paul T. Saba, Esq.(513) 533-2703
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EMERGING TECHNOLOGY: DRONES
FAA Regulations may changeFAA developing regulatory frameworkExpected summer 2016
Paul T. Saba, Esq.(513) 533-2703
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Successful Realtor & builder ran “Shell Game” Listed homes at inflated rates Obtained fraudulent appraisals Used straw buyers to obtain loans
Homes foreclosed/Banks lost ~ $3.3 million
Realtor sentenced $3 Million in restitution 10 years in federal prison
MORTGAGE FRAUD = FEDERAL PRISON
Paul T. Saba, Esq.(513) 533-2703
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2010: mom’s license revoked for life
2015: pair fraudulently leased/sold properties
Conducted transactions under several business names Used keys from lockboxes or had properties rekeyed Had utilities turned back on Scraped winterization stickers off
Various charges pending Third-degree theft by deception Third-degree burglary
MOTHER/SON REAL ESTATE SCAM
Paul T. Saba, Esq.(513) 533-2703
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Section 333 WaiversHave been issued for real estate marketing
Hire person/company that has:InsuranceIndemnification clauseSection 333 waiver for real estate marketing
PROTECT YOURSELF FROM LIABILITY
Paul T. Saba, Esq.(513) 533-2703
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Realtor LiabilityCRIME PREVENTION & SAFETY
Paul T. Saba, Esq.(513) 533-2703
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20 min
WIRE FRAUD/PHISHING ATTACKSSophisticated hackers infiltrate email, steal
infoSend fraudulent email to buyer/title
companyMimic wording of clients, realtors, lender, title
repsLetterhead/documents appear authenticAppropriate parties copied
Divert proceeds to phony accountPaul T. Saba, Esq.
(513) [email protected]
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CYBER FRAUD – AVOID LOSS & LIABILITYDo not email financial information – fax
Identify 1 person authorized to give instructionsEnsure all parties know no financial info emailed
esp. wiring instructions!
Caution when giving financial info on webLook for https – “s” stands for secure Paul T. Saba, Esq.
(513) [email protected]
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CHANCE TO CASE HOME/LIFT SMALL ITEMSLocal - property showings via KeyBox
Plaintiff using online brokerageRealtors from other brokerages showing homeTheft on 2 occasions (months apart)
“Open House Bandits”Duo targeting open houses across northeast
Over 500 items from at least 20 homes takenJewelry, antiques, other valuables Paul T. Saba, Esq.
(513) [email protected]
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AN OUNCE OF PREVENTION…Clients should always secure valuables
Lock away items that could easily be liftedDon’t forget bills, statements, credit cards
Security in numbersWhen possible, enlist associates for extra eyesEncourage homeowner to seek neighborhood
helpTake inventory of visitors Paul T. Saba, Esq.
(513) [email protected]
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AGENT DUTY/LIABILITYWhat to do if you suspect criminal
intentPossible negligence claim (R.C.
4735.62)Exercise reasonable skill and carePerform terms of written agency agreementFollow client’s lawful instructionsMaintain loyalty to client’s interestsDisclose material facts
Paul T. Saba, Esq.(513) 533-2703
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Can agent sue broker to release listings?
Gang v. RE/MAX Champions One brokerage merging with another Not all agents want to go Brokerage won’t release all listings for particular
agent History of letting listings go with other agents
Court awards damages to both parties
BROKER V. AGENT
Paul T. Saba, Esq.(513) 533-2703
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John Nisbet left Coldwell Banker for Compass Before leaving, allegedly emailed Compass info
re revenue, compensation, commission splits
Coldwell sues for theft of confidential data Alleges that Compass thrives on misappropriation
For now, judge seeming to side with Nisbet Agrees info on MLS is public record
COLDWELL V. COMPASS – CASE TO WATCH
Paul T. Saba, Esq.(513) 533-2703
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Dad and stepmom own 114 acres Dad tells sons to form LLC so he can gift interest Sons form LLC and have deed drafted
Dad hospitalized Stepmom verbally promises to honor dad’s
wishes
Dad dies; Stepmom takes sole ownership
OBLH, LLC V. O’BRIEN
Paul T. Saba, Esq.(513) 533-2703
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Stepmom reserves mineral rights on 114 acres Enters into oil & gas lease
Sons sue: breach of contract & unjust enrichment District Court dismisses claims under statute of
frauds Appellate Court reverses & remands: Part
Performance
Moral of the Story? Reduce to writing & Sign ASAP
OBLH, LLC V. O’BRIEN
Paul T. Saba, Esq.(513) 533-2703
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AdvertisingADMINISTRATIVE RULES & THE
INTERNET AGEPaul T. Saba, Esq.
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10 min
HIGHLY REGULATED - R.C. 4735.16 Broadly defined – including, but not limited to:
Brochures, Business cards, Newsletters, Fliers, Yard signs, Magnets, Door hangers
Wide range of liability for Agent & Broker Name as it appears on License
“Realty” or “Real Estate” & insignias may be used Name of Broker the Salesperson is licensed under Equal prominence for Broker & Salesperson
Paul T. Saba, Esq.(513) 533-2703
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Electronic SignaturesUNIFORM ELECTRONIC
TRANSACTIONS ACT
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10 min
R.C. 1306.06 Signature may not be denied legal effect because
electronic Contract may not be denied legal effect because
electronic record used in formation If law requires written record, electronic record
satisfies If law requires signature, electronic signature satisfies
SATISFIES LEGAL REQUIREMENTS
Paul T. Saba, Esq.(513) 533-2703
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R.C. 1306.07 If law requires person to send information in writing to
another, requirement is satisfied if information is sent in record capable of retention by recipient at time of receipt
Electronic record is not capable of retention if sender or its information processing system inhibits ability of recipient to print or store
MUST BE CAPABLE OF RETENTION
Paul T. Saba, Esq.(513) 533-2703
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R.C. 1306.16 A provision of a non-electronic contract involving a consumer
and to which a state agency or county office is not a party that authorizes conducting of transaction by electronic means is unenforceable against consumer, unless consumer separately signs provision.
Consumer’s agreement to electronic transaction shall not be inferred solely from fact that consumer has used electronic means to pay account or register purchase or warranty.
Cannot be varied by agreement
ENFORCEABILITY AGAINST CONSUMER
Paul T. Saba, Esq.(513) 533-2703
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Thank you for coming.
