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Court Says short sale non disclosure ok? Not so fast.

By
Education & Training with Advanced Realty Education HomeSmart Realty

Do brokers representing sellers have a duty to disclose the only way a transaction will close is with approval of a "short sale" from the lender(s)?  One court said Sellers yes but their broker NO!!   ???  Here is a snip of that ruling:

At the hearing on the brokers‟ demurrer to the buyers‟ original complaint, the court asked why the seller had not been named as a defendant in the case. The buyers expressed doubt that the seller could pay a judgment. The court stated that the complaint lacked any allegation of personal knowledge on the part of the brokers, and suggested that the buyers‟ real claim was against the seller. It sustained the demurrer to the original complaint, with leave to amend.
At the hearing on the demurrer to the first amended complaint, the court concluded: “Well, I said this last time, and I repeat it this time. I think you‟ve got a great lawsuit against the seller of the property, but the seller of the property is not a named defendant in this case. I‟m guessing that the seller, because the seller is upside down in this, is basically judgment proof. And so you‟re searching around for a deep pocket. The deep pocket is the brokerage. But the brokerage appears . . . under the circumstances to have done nothing that breached any duty to your client, certainly did not engage in fraud that you allege. Basically I think the ruling in sum is that you picked the wrong target
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here.” It then sustained the demurrer to the first amended complaint without leave to amend.
As the foregoing shows, the court never stated that the seller was an indispensable party. Rather, the court said that the brokers had breached no duty to the buyers. At the same time, the court indicated a certain amount of sympathy for the buyers and suggested that they pursue an action against the seller—the party that had agreed to convey title free and clear for $749,000 and then failed to do so. This is not the same as saying that the demurrer was sustained without leave to amend for failure to join an indispensable party. The buyers simply misread the reporter‟s transcript. Consequently, we need not address their authorities concerning indispensable parties.

 

When I first read this, my gut was tied up in a big knot.  If you follow my writings you are very aware of my position on disclosure so likely will understand my feelings of dismay.

Thank goodness there is an appeal process. 

 On the appeal, the higher court stated:OParticularly in these days of rampant foreclosures and short sales, “[t]he manner in which California‟s licensed real estate brokers and salesmen conduct business is a matter of public interest and concern. [Citations.]” (Wilson v. Lewis (1980) 106 Cal.App.3d 802, 805-806.) When the real estate professionals involved in the purchase and sale of a residential property do not disclose to the buyer that the property is so greatly overencumbered that it is almost certain clear title cannot be conveyed for the agreed upon price, the transaction is doomed to fail. Not only is the buyer stung, but the marketplace is disrupted and the stream of commerce is impeded.

My faith in justice has been restored.  But I still have to ask, "what was that lower California court thinking?

For the entire Ruling on the appeal http://www.courtinfo.ca.gov/opinions/documents/G041906.PDF

By the way, Larry and Sheila, here ya go.  Donne, this is your State.  Thanks for the encouragement you guys.

 

 

Comments (5)

Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Hercel - Thx for the info, I really appreciate it.  I'm bookmarking this to read the CA ruling later.  So, now that we know that sellers and their agents are required to disclose in a short sale, what about an REO.  That is my biggest issue. 

These REO bank sellers and their agents are flat-out refusing to disclose anything and hiding behind some addendum that claims they never lived there so they know nothing when in fact they do know stuff.  They know that since they foreclosed on the property that the city/county has issued numerous fines on the property and no one is going to be able to get clear title until those fines are paid.  That is something that the REO bank sellers and their agents are well aware of (they are named on the violations) and yet they don't disclose.

Furthermore, every time one of these properties falls out of escrow because of property conditions that the REO bank sellers and their agents are made aware of, in writing, they just BOM the property and continue to refuse to disclose anything that just leads more unsuspecting buyers to the property and spend more time, energy and money on the property.  AAARRRGGGHHH!!!

Ok, my little mini rant is over and I'm getting down off my soapbox.  Have a good day Hercel and a wonderful Halloween weekend.  :)

Oct 29, 2010 05:12 AM
Hercel Spears
Advanced Realty Education HomeSmart Realty - Tempe, AZ
Oct 29, 2010 06:11 AM
Hercel Spears
Advanced Realty Education HomeSmart Realty - Tempe, AZ

I will add to Donne's "rant."  We have had several properties that have "sold" without disclosure and the unsuspecting buyer is hit with a very expensive repair they could have planned on if they had known.  Since there was no disclosure they were not prepared for the expense and had no choice but to let the property go back as a foreclosure.  One property in my neighborhood has been in foreclosure 3 times.  My suspecions are that it is for the very reason, non disclosure.

 

Oct 29, 2010 06:25 AM
Lawrence "Larry" & Sheila Agranoff. Cell: 631-805-4400
The Top Team @ Charles Rutenberg Realty 255 Executive Dr, Plainview NY 11803 - Plainview, NY
Long Island Condo and Home Specialists

Hercel, This is a whole other story, but we were actually planning to write a blog post about REO's here in NY. Seems Fannie Mae does not look too favorably upon investors and makes it more difficult for them to purchase. Waiting time to present an offer is longer, and you must fill out a disclosure that you are an investor...why?  Isn't it better to get an unwanted property sold as quickly as possible and get another house off the market. If an investor buys it, the home will probably be reovated and that should increase the values in the neighborhood. And what about if there fines pending for clear title...can you expand on this?

Oct 30, 2010 01:34 AM
Hercel Spears
Advanced Realty Education HomeSmart Realty - Tempe, AZ

Wow Larry and Sheila,

I look forward to seeing your blog on REO's. 

As to your question on why investors are being singled out, it can be explained in one word, POLITICS.  Right now, it is the current administration's belief that the public likes the idea of owner occupants getting "the deal" instead of a "bottom feeder," (investor) getting "the deal."  For whatever reason, it has become unseemly for anyone to make a profit in the foreclosure process. 

To make the point, one of our political races for a congressional seat has one candidate accusing the other of making a profit at the expense of the poor family that has lost their home to foreclosure.  In reality, what the accused has done is purchase the properties at auction or otherwise, and exactly as you have stated, fixed them up and either rented or sold them.  (Tongue firmly planted in cheek) What kind of a monster is that??? 

Can you give me more detail on the, "fines pending for clear title?"

 

Oct 30, 2010 02:51 AM