Agency Highlights: 1Q 2020

The agency cases located this quarter predominantly address breach of fiduciary duty and buyer representation. Agency issues were identified in eleven cases. 

1. Blanchard v. Critchfield, No. A-5928-17T4, 2020 WL 289006 (N.J. Super. App. Div., January 21, 2020)

The equitable doctrine of laches and statute of limitations barred buyers from seeking to reinstate an amended complaint eight years after original consent order.

Buyers purchased a vacant lot in West Wildwood. According to the buyers, their agent informed them that the lot was “buildable” under local zoning requirements and that the New Jersey Department of Environmental Protection (NJDEP) had previously issued a permit pursuant to the Coastal Area Facility Review Act (CAFRA) that allowed the property to be developed. Buyers stated that their agent led them to believe that they would be allowed to construct a single-family dwelling on the lot. Yet, after closing, the buyers learned the NJDEP had not issued a CAFRA permit for the lot; rather, the agency had issued the permit for a single-family dwelling on an adjoining lot.

The buyers made several claims. First, their agent was grossly negligent in advising them regarding their ability to build a home on the property and in drafting the agreement of sale and related documents. Second, they also claim the sellers knew the lot was not “buildable.” They alleged that the sellers had knowledge that the prior owner in 2006 had been denied a CAFRA permit for the lot’s development and that a CAFRA individual permit would be required. Third, the buyers also alleged that the sellers knew the lot did not meet the criteria for an individual CAFRA permit and that the NJDEP would deny an application for a permit. Last, buyers claimed that seller’s agent advertised the property for sale, but did not disclose that an entity called Water's Edge Environmental (Water's Edge) had previously determined the property could not be developed. Buyers alleged that the seller’s agent fraudulently failed to disclose the Water's Edge finding and instead advertised the property as suitable for construction of a “dream home.”

The trial court referred the matter for mediation. On October 1, 2009, the parties entered a consent order waiving statute of limitations and giving the buyers nine months to make a good faith effort to obtain a CAFRA permit. If they obtained the permit, the parties would agree to dismiss with prejudice. Otherwise, the buyers could reinstate the amended complaint. In August of 2010, the buyers applied for a CAFRA permit with the NJDEP. They were unsuccessful in obtaining the CAFRA permit.

It was not until March 26, 2018, that the buyers filed a motion to reinstate their amended complaint pursuant to the consent order. The lower court held that the buyers’ motion was barred by a six-year statute of limitations for contract claims and also by the equitable doctrine of laches.¹ The appellate court affirmed, explaining that even if the original statute of limitations was waived, the consent order itself was a contract, which has a six-year statute of limitations. Furthermore, because the buyers waited almost eight years to reinstate the amended complaint, without providing sufficient reason, the equitable doctrine of laches did apply.

2. Edson v. Fogarty, No. 1-18-1135, 2019 IL App (1st) 181135 (Ill. App., May 14, 2019)

When a buyer cannot through ordinary prudence discover the zoning of a property, his reliance on a broker’s misrepresentation is reasonable.

A real estate broker listed a commercial unit for sale on the lower level of a condominium building and decided to label the zoning “B1-3,” a nonexistent zone. He later testified that there was no way of determining the zoning because the map showed the zone for the entire building. The space had previously operated as a Stop & Shop convenience grocery store, and the broker advertised it as “perfect for grocery, Medical Clinic, Fitness Center...” After seeing the listing, a buyer expressed interest in purchasing the unit and leasing the space to a grocer or other commercial tenant. On two different occasions touring the property, first with the buyer and his father, and again with the buyer and a potential tenant that the buyer found, the broker represented that the property would be great for a grocery store. In December 2012, the buyer’s $600,000 offer for the property was accepted. 

After lease negotiations with the buyer’s first potential tenant fell through, he began negotiations with another potential tenant. It was not until then that he was told that his property was zoned DR-10, for residential use. After the buyer learned the true zoning, he contacted the alderman’s office and discussed rezoning the property, which could only happen if the condominium association approved his tenant. The association never gave its approval, so the buyer eventually stopped paying his condominium assessments. After a judgment of foreclosure, he lost title to the space. 

The buyer sued the broker and the broker’s employer, for their alleged misrepresentation about the property’s zoning. His lawsuit claimed fraud, negligent misrepresentation, and violations of the Illinois Consumer Fraud Act and Real Estate License Act. The trial court granted summary judgment on all claims in favor of the broker, ruling based on the element of reliance, that the buyer had no right to rely on the broker’s misrepresentations, since they were misrepresentations of law, not fact. Upon appeal, the appellate court reversed the lower court’s holdings.

The fraud and negligent misrepresentation claim turned on whether the broker’s statements about zoning were representations of fact or law. Representations of law would mean that both parties had equal ability to know and interpret the zoning, and the buyer had no right to rely on the broker’s statements, needing instead to use ordinary prudence to discover the true zoning of the building. Here, however, the court found that the buyer could not have discovered the actual zoning through reasonable prudence. The zoning maps were unclear and the broker himself could not determine the right zoning, choosing instead to assign it a nonexistent zoning designation. Thus, the court found that the broker made misrepresentations of fact that the buyer had a right to rely on; the court reversed and remanded the summary judgment on common law fraud and negligent misrepresentation. Additionally, the court found that neither the Consumer Fraud Act nor the Real Estate License Act required the element of reliance and thus reversed and remanded those decisions as well.

3. Rosenthal v. JRHBW Realty, Inc., No. 1180718, 2020 WL 964322 (Ala., February 28, 2020)

A real estate agent had no duty to a buyer to retain a structural engineer to inspect home.

A buyer retained a brokerage through its “agent” Mr. Valekis to assist him in selling his residence and locating a new house to purchase. Valekis told the buyer about an unlisted property located at 4335 Cliff Road in Birmingham (“the home”) that Valekis believed would meet buyer's needs. Valekis was aware that the owners of the home, David and Lori Cooper, had previously listed it for sale, and, when Valekis contacted them on buyer's behalf, the Coopers were still interested in selling the home. Around June 18, 2013, the buyer first viewed the home with Valekis along with his mother and stepfather. During that visit, he noticed a pile of rocks in the basement and some jacks. He “asked Valekis if he knew of any structural problems with the house because the underneath [--] just something didn't look quite right. [Valekis] said no. Then we asked him about the jacks, and he said the [Coopers] had done work on the foundation of the house and now it's been taken care [of], so there are no longer any issues of structural problems.”

The buyer told Valekis that he would not buy the home without having a structural engineer examine it. The buyer testified that on multiple occasions Valekis reassured him that Valekis would “take care of retaining and scheduling the structural engineer.” Valekis, however, asserted that the buyer had not specified a structural engineer to inspect the home but had indicated that it was sufficient to have a foundation-repair contractor inspect the home. Valekis asked a foundation-repair contractor, Caudle, to inspect the home.  He did not mention to the buyer that Caudle was not a structural engineer, that Caudle had seen problems with the foundation, or that Caudle recommended the home be inspected by a structural engineer. The buyer then placed an offer on the home based on Valekis’s representation that a structural engineer had inspected the home and that he had not found any structural issues.

On June 29, 2013, the buyer and the sellers signed a Real Estate Sales Contract. The sales agreement clearly stated that the buyer had the responsibility to inspect the home and that he was purchasing the home in “As Is” condition. The same day, the buyer also executed a Buyer Agency Agreement, which contained a disclosure section stipulating that the buyer had the duty to inspect the home and that Valekis and the brokerage were not responsible or liable for any undetected conditions.

The buyer closed on the home and moved in soon after. After a few months, he concluded that the home was too small and again engaged the services of Valekis and his brokerage, to sell the home. After the home was placed on the market, the buyer began to notice major problems with the structure that also raised concerns with potential buyers such as cracks in the dining room next to the doorway, movement of a pillar on the deck, and the front steps shifting away from the main structure. Valekis subsequently informed the buyer that numerous potential buyers were concerned with the condition of the home. Ultimately, the buyer had the home inspected by a foundation-repair contractor, and that contractor recommended that he hire a structural engineer. The structural engineer concluded that the home was experiencing significant structural distress and settlement, estimating that fixing the issues would cost over $100,000.

The buyer brought action against Valekis and his brokerage based on multiple claims.²  On appeal, the primary issue was whether Valekis was acting as the buyer’s agent at the time he agreed to ask a structural engineer to view the home or if he had voluntarily assumed an entirely separate duty or implied contract with the buyer to find a structural engineer. The court determined that at the point Valekis agreed to find a structural engineer, was acting as a “transaction broker” under the Real Estate Consumer's Agency and Disclosure Act (RECAD) when he had a foundation-repair contractor, rather than a structural engineer, inspect the home prior to the signing of a written agreement between the home's purchaser and him   Furthermore, prior to the signing of a written agreement with the home purchaser, Valekis had no duty to the purchaser to retain a structural engineer to inspect the home, even if the agent had not been either buyer’s “transaction broker” under the RECAD or buyer’s agent. Therefore, the agency agreement, which stated that Valekis and his brokerage had no duty to inspect could not be a basis for buyer’s breach-of-contract action for failure to have a structural engineer inspect the home.  The court affirmed summary judgment in favor of Valekis and his brokerage on the basis that their duties did not extend to inspecting the property. 

2. Statutes and Regulations

Idaho

The amended statute³  now requires that sales associates provide copies of signed brokerage agreements to the broker or broker’s office prior to the end of the next business day after obtaining the agreement. Additionally, the sales associates must provide copies of any document signed by the buyer or seller to the broker or broker’s office prior to the end of the next business day and copies must also be provided to the buyer and the seller.⁴

Designated broker responsibilities were expanded to include that they must maintain adequate, reasonable, and regular contact with sales associate engaged in real estate transactions, per the amended statute.⁵ Additionally, designated brokers must be reasonably available to the public during business hours in order to discuss or resolve disputes.⁶

Wyoming

Responsible brokers are required to keep and maintain a full set of records of every real estate transaction for no less than two years.  Before the amendment, the statute required keeping records for seven years.⁷

1. Laches is a defense that may be used if there is no statute of limitations that applies. “Laches in a general sense is the neglect, for an unreasonable and unexplained length of time, under circumstances permitting diligence, to do what in law should have been done. More specifically, it is inexcusable delay in asserting a right ....”
2. The buyer brought additional claims not discussed in this summary, negligence and/or wantonness, and violations of the Real Estate Consumer's Agency and Disclosure Act (RECAD), which were claims that arose from dispute about disclosure of problems with the house's foundation.
3. Idaho Code Ann. § 54-2050 (2020) (as amended by H.B. No. 477)
4. Idaho Code Ann. § 54-2051 (2020) (as amended by H.B. No. 477)
5. Idaho Code Ann.  § 54-2038 (2020) (as amended by H.B. No. 476)
6. Id.
7. Wyo. Stat. Ann. § 33–28–123 (2020) (as amended by H.B. 214)