Court of Appeals hears brokerage agency case

On October 9, 2012, New York's highest Court heard the case of Douglas Elliman LLC v. Tretter.

To watch the Court's oral arguments, click here and click on the button for webcast.

During the arguments, the Court was faced with the issue of the extent of a broker's fiduciary duty when working as an exclusive agent for a seller and concurrently trying to have potential customers become customers or clients of the broker on different homes / apartments.

The Tretters argument was that if you have an exclusive a broker can't show prospective purchasers another property, especially not one that is not an exclusive listing at your brokerage house.

Douglas Elliman suggested the following rule to the Court: "A broker can show a buyer other properties, the broker can be informative, can be honest, can be straightforward, but cannot prefer the property over the property of their principal". As restated by counsel to Douglas Elliman, the rule is: "The broker can be informative and honest about the unit, but cannot sell the unit over their principal".

While hearing the arguments, the Court focused greatly on a case that they heard back in 2001, called Sonnenschein v. Douglas Elliman. To read the prior case, click here.
The precedent discussed in Tretter from the Sonnenschein decision is as follows:
This Court has not addressed the parameters of a real estate broker's duty under these circumstances. Other jurisdictions have held that, in the absence of an agreement with a principal to the contrary, a broker owes no duty to refrain from “offering the properties of all [its] principals to a prospective customer” (Coldwell Banker Commercial Group v. Camelback Off. Park, 156 Ariz. 226, 230, 751 P.2d 542, 546; *376 McEvoy v. Ginsberg, 345 Mass. 733, 737, 189 N.E.2d 546, 547; see generally, Foley v. Mathias, 211 Iowa 160, 233 N.W. 106; Lemon v. Macklem, 157 Mich. 475, 122 N.W. 77). We find this approach to be consistent with the nature and fundamental requirements of the real estate marketplace in New York. Unless a broker and principal specifically agree otherwise, a broker cannot be expected to decline a prospective purchaser's request to see another property listed for sale with that broker. Any other rule would unreasonably restrain a broker from simultaneously representing two or more principals with similar properties for fear of ***67 **862 violating a fiduciary obligation in the event a buyer chose the property of one principal over that of another. Similarly, such a limitation would frustrate the interests of sellers, who benefit from the opportunity to market their properties to as many potential purchasers as possible, as well as the interests of potential buyers, who often request exposure to a number of properties in order to select the one most suitable to their needs and budget. For these reasons, we decline to impose upon all broker/principal relationships the restrictive view of broker duty that plaintiffs espouse. Of course, a principal remains free to enter into an explicit agreement with a broker to achieve such an exclusive arrangement.

We will stay focused on the decision, but the oral arguments are terrific and both attorneys represented their clients well.

Rich Dad, Poor Dad - Bankruptcy Dad

Robert Kiyosaki's Rich Global company filed for Chapter 7 bankruptcy as a result of a judgment obtained by The Learning Annex for $24M. Kiyosaki is the famed author of "Rich Dad, Poor Dad". While many are reporting this in a mocking manner in that Kiyosaki is famed for telling people how to make money, I believe its yet another example of Kiyosaki's message in a positive light.

The message is to separate your assets into different entities that are independent of each other. As a result of Kiyosaki's entity structures, its reported that he is still worth around $80M after the bankruptcy without any of the money being in jeopardy. Now, that is a good benchmark for success.

To read more about Kiyosaki's bankruptcy, go to a great article by businessinsider.com by clicking here.

Nation's largest lender of home mortgages sued by US Government

Wells Fargo was sued yesterday by the US Attorney's office for mortgage fraud because it allegedly certified loans improperly. The lawsuit seeks hundreds of millions of dollars in damages. The lawsuit was brought under the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.  The lawsuit deals specifically with the lender's participation in the FHA's Direct Endorsement Lender Program. 

Basically, the lawsuit says that FHA had to pay millions in insurance for defaulted loans based upon receiving inaccurate information by Wells.

This is yet another example about how the days of the smoke in the mirror test are over & lenders are now required to perform necessary due diligence to ensure that borrowers should be given loans.   

To read the US Attorney's Press Release concerning this lawsuit, click here. 

The Suffolk Lawyer - Focus on Real Property

I am delighted to share a link to this month's The Suffolk Lawyer, which is the official publication of the Suffolk County Bar Association.

This month's edition Focuses on Real Property. Click here to read the publication.

Inside, you can read articles such as "Accommodating Companion Animals" written by the leading experts on the topic over at Jackson Lewis; or you can learn to "Avoid Non-Payment" by the likes of Alicia M. Menechino; and don't every forget the need for a Buyer's Real Estate Agent in  a terrific article by Denise Langweber and her daughter Rebecca entitled "Buyer Beware"; or there is "The Diligence That is Due" by Lance Pomerantz; and lastly everything you need to know about transactions for "Residential Waterfront Properties" by the refined Heather Wright.

I owe a debt of gratitude to these authors for making my task as the Special Section Editor for Real Property  one of the best experiences of my professional life.

Green Guides - FTC's Regulations for Marking

The Federal Trade Commission has promulgated regulations to "help marketers avoid making environmental marketing claims that are unfair or deceptive under Section 5 of the FTC Act, 15 U.S.C. [section] 45".

To read the FTC's press release concerning the Green Guides, click here.

For a Summary of the Green Guides, click here.

For the complete Green Guides, click here.

To learn more about these Green Guides and how they relate to Long Island Real Estate, register for our upcoming continuing education course, "To be Green or not to be Green" by clicking here.

The National Mortgage Settlement Takes Effect: An Update to “Robosigning Settlements” from February 9, 2012

The National Mortgage Settlement between the Attorney Generals of 49 States and five banks and mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo) takes full effect today.

For Borrowers that are eligible under this Settlement, it provides sweeping changes in the modification process, servicing of loans, payments to the States and possible payments to borrowers who have already lost their homes in foreclosure.

Perhaps, one of the most important changes for borrowers attempting to modify their mortgage at the same time as being in active foreclosure, the settlement agreement will greatly inhibit “dual tracking” of borrowers. “Dual Tracking” occurs when a borrower is in active foreclosure litigation at the same time as attempting to modify their loan.

Prior to today, the foreclosure litigation continued in earnest, at the same time borrowers were being evaluated for a loan modification. In the past, many borrowers submitted loan modification applications but lost their homes to foreclosure before their applications were reviewed by the lender.

Although the Directives under the Home Affordable Modification Program (HAMP), specifically states that “Foreclosure sales may not be conducted while the loan is being considered for a modification or during the trial period”, this was of no assistance to borrowers with lenders and/or servicers, that did not participate in HAMP.

As delineated in the “Servicing Standards Highlights” on the New York State Attorney General’s National Mortgage Settlement webpage, some of the key features of the Dual Track restrictions are as follows:

C. Dual track restricted

1. Pre-foreclosure referral

*            If bank/servicer receives a complete loan modification application by day 120 of delinquency, bank/servicer must review and make a determination on the application prior to referring the loan to foreclosure.

*            If bank/servicer receives a substantially complete loan modification application by day 120 of delinquency, bank/servicer must provide borrower an additional 10 days in which to complete the application.  If bank/servicer receives a complete application by the end of the 10-day extension, bank/servicer must review and make a determination on the application prior to referring the loan to foreclosure.

2. Post Foreclosure Referral

*            Once a loan has been referred to foreclosure, if the borrower submits a complete loan modification application within 30 days after the attorney letter is sent to the borrower, the bank/servicer must not move for a foreclosure judgment or seek a foreclosure sale until it has completed its review and determination of the application.  If servicer offers the borrower a loan modification, the servicer must continue to delay any action in the foreclosure proceeding until the borrower accepts or denies the offer.  If the borrower accepts the offer, the foreclosure proceeding is suspended unless the borrower fails to perform on the loan modification. The borrower may accept verbally, in writing or by making the first trial payment.

*            If borrower submits a complete loan modification at any time after 30 days following the mailing of the attorney letter but prior to 37 days before a scheduled foreclosure sale, the servicer must complete its review of the application prior to going to foreclosure sale.  If the servicer offers the borrower a loan modification, servicer must delay the sale if necessary to provide the borrower 14 days in which to accept or deny the offer, and, if the borrower accepts, must continue to delay the sale unless the borrower fails to perform on the modification.

*            If borrower submits a complete loan modification with 37 to 15 days before a scheduled foreclosure sale, the servicer shall conduct an expedited review.  If the servicer offers the borrower a loan modification, servicer must delay the sale to provide the borrower 14 days in which to accept or deny the offer, and, if the borrower accepts, must continue to delay the sale until the borrower fails to perform on the modification.

There are many more details and assistance to borrowers in this monumental Settlement. The impact the Settlement has on the struggling housing market, remains to be seen. With actual oversight of lender compliance, enforcement of the Settlement Agreement and assistance to borrowers by providing contact information about organizations to aid borrowers, through the Office of Mortgage Settlement Oversight and the National Mortgage Settlement Administrator and State Attorney General’s Offices, perhaps this is a step in the right direction. Hopefully, other lenders, that are not parties to the Settlement,will voluntarily adopt similar Servicing Rules. Such a voluntary act would certainly assist the entire Industry and create uniformity, which would positively impact the struggling housing market.

For more information please visit:

The New York State Attorney General’s Settlement info at:

http://www.nysmortgagesettlement.com/

The National Mortgage Settlement Administrator:

http://www.nationalmortgagesettlement.com/

The Office of Mortgage Settlement Oversight:

https://www.mortgageoversight.com/