Can you guess how these case studies end?

Managing brokers can gain insight into real estate scenarios – involving guns, suicide, vicious dog attacks and money – when they read the legal case studies in the November issue of DR Legal News.

The six case studies covered by Lisa Harms Hartzler of Sorling Northrup Attorneys can be summarized like this (but they’re really worth reading in their entirety):

  • Shooting range on the second floor of a gun shop held to be a permitted use in zoning allowing private recreation.
  • Title company consented to pay a $200,000 penalty for alleged RESPA violations.
  • A jury must decide if a broker was liable for a salesperson’s fraud.
  • A landlord was not liable for injuries caused by tenant’s vicious dog away from the premises.
  • A listing agent was entitled under the listing agreement to both a portion of forfeited earnest money and a commission on subsequent sale.
  • The court allowed a wrongful death suit to proceed against a real estate developer who pressured family to move out of apartment.

Read the November analysis now.

Take these five smart legal safeguards before the year ends

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The way your company finishes one year can lay the foundation for early success next year, says a lawyer in the latest edition of D.R. Legal News.

In that spirit, Michael G. Horstman, with Sorling Northrup Attorneys in Springfield reminds IAR’s managing brokers of five important tasks to complete by the end of 2014:

  • Update employment applications, employee handbooks and employment law posters;
  • Review insurance policies for your company and confirm that sponsored licensees are maintaining the proper type and appropriate amount of insurance;
  • Check your company’s transaction and disclosure forms to prevent use of outdated information and inconsistent terminology;
  • Study your anticipated income and tax liabilities to see if adjustments should be made to avoid penalties and save money; and
  • Check your document retention and destruction policy – or create one if none exists – and then make sure you dispose of documents beyond the timeframes set in the policy.

When establishing a document policy, Horstman explains contracts are subject to legal action for up to 10 years, the Internal Revenue Service can audit tax returns for up to seven years and the Illinois Department of Financial and Professional Regulation can take action for violations up to five years old.

For more important explanations and details regarding his suggestions, check out his article in the November edition of D.R. Legal News.

Do you know the answers to our top Legal Hotline questions?

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IAR gets calls all the time on its Legal Hotline asking for guidance on real estate issues. We asked Legal Hotline attorney Betsy Urbance to share with us the top questions and answers from the third quarter. Test your real estate knowledge below.

Scope of Real Estate License

Q.  Is it legal for me to pay referral fees to unlicensed individuals for ­referring real estate sellers or buyers to me?

A.  No. Generally speaking, you cannot pay anything of value to an unlicensed ­person in exchange for referring real estate brokerage business to you.

If you are licensed, the Illinois Real Estate License Act (the Act) applies to you. Section 10-15(a) says “no compensation may be paid to any unlicensed person in ­exchange for the ­person performing ­licensed activities in ­violation of this Act.” Section 1-10 of the Act, under the definition of ­Broker, says a person who assists in “procuring or referring of leads or prospects, intended to result in the sale, exchange, lease or rental of real ­estate” for another and for compensation, needs a real estate license. Finally, ­Section 20-20(a) (38) says licensees who pay compensation in violation of ­Section 10-15 will be subject to discipline.

The bottom line is real estate licensees may not pay unlicensed people (who are not party to the transactions) anything of value in exchange for a real estate referral.  If you do, you can get in trouble. Also, keep in mind that compensation can be anything of value, from cash to ­televisions to baseball tickets.

Purchase Contract

Q.  How should I handle multiple offer presentations, and how can I be sure my offer is presented if I am the buyer’s agent?

A.  The License Act and the Code of Ethics require licensees to present all offers as soon as practicable, unless sellers waive the right to see them. Above all, the bottom line for the listing agent is to keep the seller client informed and follow the seller’s lawful direction.

  • Offers must be presented in a manner that are in the seller-clients’ best interest. But agents aren’t legally required to share offers with seller-clients in the same order they’re received.
  • If possible, listing agents should present all offers at the same time.
  • Agents aren’t legally required to disclose to all other buyers that there are other offers.  Agents should consult with seller clients about offers on the table and check their office policies. The REALTOR® Code of Ethics, Standard of Practice 1-15, requires REALTORS® to divulge the existence of offers on the property as long as the seller clients approve.
  • After considering all terms of each offer, it is the seller’s decision to reject, counter or accept.
  • With regard to assuring the offer is presented, model MLS rules give the buyer’s agents the right to attend presentations of their clients’ offers unless sellers object in writing. Buyer representatives may then ask to see copies of sellers’ written objections. Buyer representatives do not have the right to be present during discussions about offers. (Check local MLS rules for similar provisions.  Note: As a practical matter, this rule is not likely to be invoked, but it is probably in your MLS rules.)

Agency

Q.  What can be done in situations where listing agents have bank-owned properties (lenders get properties back through foreclosure) and listing agents are non-responsive to buyer clients’ offers?  May I go around the listing agents and work directly with the sellers?

A. No, it is not legal for you to “go around” listing agents and work directly with sellers. The Illinois Real Estate License Act (the Act) requires licensees to deal through exclusive listing agents. So you may not go directly to sellers without consent from listing agents. On the other hand, the Act does not apply to unlicensed buyers who can go directly to sellers to make sure their offers have been received. We typically do not know how sellers are directing listing agents to proceed with offers that come in.  Listing agents have a duty to present all offers to the sellers until closing, unless seller clients are directed otherwise.

If listing agents seem unresponsive, you can contact managing brokers for status reports on your buyers’ offers.  Or you could ask for something in writing signed by the sellers. However, keep in mind that sellers of foreclosed properties might not be willing to sign anything to prove offers are received or considered.  I encourage listing agents to communicate with buyers’ agents to at least describe the procedures listing agents are following in presenting offers to the seller clients.

If you have proof that listing agents are stonewalling, you should file a ­complaint at the Illinois Department of Financial and Professional Regulation’s Division of Real Estate (DRE).  When listing agents are REALTORS®, you can also file ethics complaints with local associations.  Use the processes in place to encourage others to follow the rules and comply with the Act.

Disclosure of Defects

Q.  Was there a recent change made to the Illinois Residential Real Property Disclosure Act?

A.  Yes.  Effective Jan. 1, 2015, PA-98-0754 adds the words “windows” and “doors” to question #6 on the Illinois Residential Real Property Disclosure Form.  These changes are the result of a case where the court held that leaking windows and doors were not included in the definition of walls, and thus the seller had no obligation to disclose defective conditions involving windows and doors.  PA 98-0754 fixes this issue.

IAR legal team expands to offer Transaction Helpline

Jeffrey T. Baker

As more IAR members discover the purpose of the Transaction Helpline, the more familiar they’ll be with Jeffrey T. Baker.

Baker is the Sorling Northrup attorney who’ll answer questions about the real estate contracts REALTORS® use with buyers and sellers.  During the past six weeks, he’s started to get the word out to managing brokers letting them know about the creation of the Transaction Helpline, and its separate phone number (844-647-3833) and email address (jbaker@iar.org).

As a result of his appearance at the IAR Fall Conference & Expo in Chicago and a brief explanation of his expertise in a newsletter to managing brokers, he’s getting an increasing number of inquiries.  So far, he says most of the situations involved questions about inspections, disclosures and earnest money payments.  As time goes on, he is convinced the situations will become more varied.

Growth of Legal Services
For more than 20 years, IAR has offered legal information and assistance to REALTORS®, mostly involving state licensure issues and questions about the REALTOR® Code of Ethics.  However, he says that in recent years, an increasing number of questions involved real estate contracts.

For years, IAR members with legal questions have spoken directly with Legal Hotline Attorney Betsy Urbance.  They have also seen the webinars she’s participated in on various real estate topics. She continues to be your contact in those areas.  The addition of Baker expands the legal services available to members.

“A lot of trade associations don’t provide legal services to their members like the Illinois Association of REALTORS®,” says Baker.  “It’s a great service for our members.”

For Example
One question Baker recently answered was:

Q. What are the Buyer’s options when the contract is lawfully terminated but the holder of the earnest money will not return the funds?

A. Questions related to earnest money are some of the most often asked questions and the answer really depends on the facts of each case. The general rule that will apply in almost every case is that if there is a dispute as to who is entitled to the funds, then the holder may not disburse the funds without either joint written direction from the parties or a court order. From this general rule, there are several specific ones that may apply to any one transaction. For instance, if one party makes a claim for the funds but does not file a legal action in court, the holder of the funds may turn the funds over to the State Treasurer’s unclaimed property division if 6 months has passed since the time of the initial claim. Or, if the holder of the funds would like to disburse pursuant to the directions contained in a written contract, the holder may notify the principals of the transaction of its intention and plan for disbursement and if a written objection is not received within at least two weeks of the notice, then the holder of the earnest money may disburse the funds according to the disclosed plan of disbursement. The holder of the earnest money could even file a legal action itself to determine the rightful owner of the funds, though this is very rare. When a Buyer is attempting to obtain a return of its earnest money though and is unable to receive the written consent of the Seller or even cooperation from the holder of the earnest money for that matter, the Buyer’s only option is litigation to force the return of the funds.

Misconception
Baker says the REALTORS® he’s spoken with usually begin their inquiries to the Transaction Helpline with two questions in mind.  First, they want to know if their situation has legal ramifications.  Second, they want to know what to tell their clients.

“I tell managing brokers I am NOT the attorney for buyers or sellers.  That’s a misconception we want to avoid.  For the time of the call or email, we are the attorneys for the REALTORS®. We are able to look at the contracts they are using and legally interpret the language for the brokers.”

“While we want to educate our REALTORS®, I also tell the brokers to direct clients – the buyers and sellers or the landlords and tenants – to speak to their own attorneys with their own legal questions We don’t want the REALTORS® to ‘practice law’ or give advice that a lawyer should be giving to their own clients.”

Baker notes that although Illinois real estate contracts are very similar in theme and intent, the 34 local associations have slightly different versions for residential, commercial or land transactions. He estimates he must be familiar with more than 50 contracts, along with their riders, addendums and contingencies.

So in the future, as you consider issues surrounding real estate contracts – whether they are residential, commercial, farm land, etc. – don’t hesitate to contact Baker.  He is your IAR resource, and he’s only a phone call or email message away.