Friday, May 15, 2015

Marchese v. Miller and Total Realty LLC - An Example Of What Real Estate Agents Should Not Do

As I said in an earlier post, most buyer claims against real estate agents contracted by the seller involve allegations of misrepresentation or nondisclosure. In Marchese v. Miller and Total Realty LLC, the Wisconsin Court of Appeals has provided real estate agents with a helpful example of what not to do.

In Marchese, the real estate agent advertised a vacant lot as buildable. He also drafted a WB-40 Amendment To Offer To Purchase that provided that the buyers would not make any payments towards their purchase of this lot until the sellers relocated the retention pond on the lot. He even reassured the buyers prior to closing that that the sellers would relocate the pond. The buyers closed on their purchase even though the pond had not been relocated because they assumed that the title company would not disburse any money to the sellers until the pond was relocated. Unfortunately, money was disbursed to the sellers and the pond was never relocated. The buyers had to purchase another lot because this one was unbuildable with the pond in its present location.

The buyers sued the sellers and the real estate agent. The subject of the Court of Appeals' decision was the trial court's order dismissing all claims against the real estate agent notwithstanding the jury's verdict finding that the real estate agent engaged in intentional misrepresentation and violated Wis. Stat. s. 100.18.

The Court of Appeals held that the evidence presented at trial was sufficient to prove a s. 100.18 claim. The real estate agent admitted at trial that he advertised that a home could be built on the lot even though he knew that no home could be built until the pond was relocated. Even more damning, the seller testified at trial that he told the real estate agent that he would not move the pond until he got paid - after the closing.

The Court of Appeals further held that the evidence presented at trial was sufficient to prove an intentional misrepresentation claim. Though the real estate agent told the buyers that it "shouldn't be a problem" for the sellers to relocate the pond before they got paid, the real estate agent knew that the seller would not move the pond until he got paid.

While there are important lessons in this decision about whether or not real estate agents should should advertise in a manner which is false, deceptive or misleading (no!), whether or not expert testimony is required to prove a negligence claim against a real estate agent (no!), and whether or not judges should disregard jury verdicts (again, no!), the real lesson is that real estate agents must do whatever they can to distance themselves from sellers hellbent on committing fraud. Wis. Admin. Code s. REEB 24.03(2)(b) says as much under the label of "COMPETENCE REQUIRED": "Licensees shall act to protect the public against fraud, misrepresentation and unethical practices." Furthermore, Wis. Admin. Code s. REEB 24.07(2) provides as follows:

Disclosure of material adverse facts. A licensee may not exaggerate or misrepresent facts in the practice of real estate. A licensee, when engaging in real estate practice, shall disclose to each party, in writing and in a timely fashion, all material adverse facts that the licensee knows and that the party does not know or cannot discover through a reasonably vigilant observation, unless the disclosure of the material adverse fact is prohibited by law. This provision is not limited to the condition of the property, but includes other material adverse facts in the transaction. 

This duty to disclose material adverse facts is NOT limited to situations in which the seller tells his real estate agent that his basement and roof leak like a sieve whenever it rains. Under Wis. Admin. Code s. REEB 24.02(1)(b), "adverse fact" is defined to include "[i]nformation that indicates that a party to a transaction is not able to or does not intend to meet his or her obligations under a contract or agreement made concerning the transaction." Here, the seller threw his real estate agent under the bus and testified that he told the seller that he had no intention of complying with his obligations under the WB-40 Amendment. Real estate agents - this is what could happen to you if you allow yourself to get involved with sellers with the wrong intentions!

UPDATE (10/24/2015): This case has been summarized on realtor.org. I have no idea why the author of that "legal case summary" repeatedly refers to Total Realty LLC as "the Buyer's Representative" when the Court of Appeals' decision refers to Total Realty LLC's agent as "the listing and selling broker" and focuses on how that agent advertised the property and what he was told by the seller that he failed to disclose to the buyer. This was not a WB-36 buyers' agent obligated to negotiate on the buyer's behalf.