Category Archives: Law

Do you know where to find info on septic systems and your responsibilities?

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A client of mine is planning on selling a property soon and he’s trying to get his proverbial “ducks in a row” before going on market.  He asked me about what his responsibilities are with regard to his septic system and he also wanted to know if he needed to do an inspection or pumping of the system prior to selling.  If you are not familiar with this process either as a buyer or seller, here is a great website with details about septic systems for you to learn about.  It’s specific to King County so if you live outside this area you’ll want to see if your own county has a similar website with info for you.

If you just want to learn more about septic systems (also called onsite sewage systems) and how to use them properly and care for them you can read through this information, also from King County.

When to sue for an undisclosed defect

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This post is not legal advice. For legal advice, consult an attorney, not a blog.

You just bought a house! 🙂 Congratulations! You just discovered that foundation is cracked, although the seller said the foundation was fine… 🙁 My condolences…

The next logical question: can you get some recovery from the seller given his failure to disclose and/or concealment of this defect? The absolute first step in answering that question is to determine the amount of money it will cost to fix the problem. There is only one certainty in litigation: it’s expensive. Where the cost to fix the problem is less than the amount you would expect to incur in attorney’s fees and costs, it may very well be in your best interest to bite the bullet and pay for the repair without seeking compensation.

Let’s assume your cracked foundation will cost $50k to repair. That is more than enough to seriously consider threatening and possibly proceeding with a lawsuit. The next step would be to consult an attorney who could analyze your facts and render an informed opinion as to the likelihood of your prevailing. If you’ve got “good facts” (e.g., seller affirmatively represented condition of foundation, crack appeared to have been purposefully concealed, you performed your own inspection that did not identify the crack), then it may be time to take the very serious step of suing the seller (assuming he refuses to compensate you voluntarily).

But what about those attorney fees? They will still eat up most, if not all, of what you seek to recover. (In the case of Stieneke v. Russi, which I discussed in my last post, the cost of repair was $72k, but the attorney fees and costs through appeal were $175k.) Will you be able to recover those from the seller too?

The answer to that question is a very definite “probably” — hardly the assurance you are looking for. Some courts (particularly those in Eastern WA) have determined that this type of claim (fraud) is unrelated to the contract for sale, so that even though the contract contains an attorney’s fees clause (which allows for an award to the prevailing party), no fees are available. Other courts (particularly those in Western WA) have determined that, because the contract is central to the dispute, the attorney’s fees provision would apply. Given this degree of uncertainty in the law, there is a chance that you may win but still end up losing money given your legal costs.

One final note: the attorney’s fees clause in the contract, if it applies, cuts both ways. So, if you sue and lose, you very well may be liable for the seller’s legal fees and costs, in addition to your own. In that case, your total cost for the unsuccessful suit could approach $100k, even if you don’t appeal. Accordingly, it is essential to get good legal advice about the merits of your case and the likelihood of prevailing before filing suit.

Free Credit Monitoring…available for a limited time

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Due to a settlement from a class action lawsuit where they were accussed of reselling personal and financial consumers information for marketing purposes, Transunion is offering free credit monitoring.   Selling the information is a violation of Fair Credit Reporting Act.   You only have until September 24, 2008 to apply for your benefit of either free credit monitoring or possibly a cash payment.

You are eligible if you have had credit from January 1, 1987  until May 28, 2008.   This includes mortgage loans, credit cards, auto loans, student loans…if you’ve had credit over the past 21 years, this is worth checking out!

Here are your choices:

  1. Sign up for six months of credit monitoring services. If you select this option, you can also register to possibly receive cash benefits in the event of a cash distribution or file an individual lawsuit against the Defendants.
  2. Sign up for nine months of enhanced credit monitoring services. If you select this option, you will not receive any further benefits, including a cash payment, and you will not be able to file an individual lawsuit against the Defendants.
  3. Register to possibly receive a cash payment. If you select this option, you can also sign up for six months of credit monitoring; however if you receive a cash payment, you cannot file an individual lawsuit against the Defendants.

Of course you can always chose to do nothing!

You can call TransUnion’s settlement number at  (866) 416-3470  or visit the website: www.listclassaction.com to file your claim.

It’s about time these Trigger Leads came to an end!

Form 17 — an addendum to the contract?

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As always, this is not legal advice. If you want legal advice, consult an attorney, not a blog.

Is the Form 17 part of the purchase and sale agreement (PSA)? Should it be listed in the “Addendum” paragraph of the PSA? In a word: NO! (At least if you’re the seller — if you’re the buyer, then YES!)

First, some background: Here in Washington, a seller is required to provide a fairly comprehensive Seller Disclosure Statement to any buyer of real property. Our local MLS provides this to sellers as its “Form 17,” so everyone in the biz refers to this legally required disclosure statement as the Form 17. Pursuant to the statue, the Form 17 “is for disclosure only and is not intended to be part of any written agreement between the buyer and the seller,” i.e., it is not supposed to be part of the PSA. On the first page of a PSA, there is a section in which the various addendums to the PSA should be listed so that there is a clear description of the complete contract and its terms.

In practice, many agents (and unrepresented parties) will list the Form 17 along with the various addendums that are typically included in the PSA (e.g., financing contingency, title contingency, inspection coningency, etc.). If you are a seller, this is a significant mistake. Conversely, if you are a buyer, this provides you with some leverage if the seller fails to disclose or misreprsents a defect in the house.

By listing the Form 17 as an addendum to the contract, the parties incorporate the Form 17 into the contract notwithstanding the statutory language. In that event, if the seller fails to disclose or misrepresents a defect, then the seller has arguably breached the contract. This would give rise to a breach of contract claim against the seller, which is an easier claim to prove than a claim of fraud, the typical claim arising out of a seller’s misrepresentation. Moreover, the PSA contains an attorney’s fees clause. Thus, if the buyer were to prevail on the breach of contract claim, he would also be entitled to an award of his fees and costs incurred (which will very likely exceed the cost to repair the undisclosed defect). Fees and costs typically are not available on a fraud claim (although the case below calls that proposition into doubt, a topic of a future post).

A very recent case helps to illustrate this point. Stieneke v. Russi, decided July 1, involved a seller’s failure to disclose a leaking roof. At trial, the court concluded that the Form 17 was part of the contract, even though the buyers signed it four days after mutual acceptance. The trial court reasoned that a seller should not be able to easily avoid liability for the contents of the Form 17. The court found that there was “an understanding” between the parties that the Form 17 was “part of the deal.” Accordingly, the seller was liable for breach of contract.

On appeal, the appellate court reversed the trial court. The appellate court focused on several issues, including the fact that there was no mention of the Form 17 in the PSA itself. Had the PSA referenced the Form 17 in the “Addendums” section, thus specifically including the Form 17 in the terms of the contract, the appellate court would have had a much more difficult time concluding that the Form 17 was not part of the contract.

So, if you’re a seller and you receive an offer showing the Form 17 as an addendum, prudence would dictate that you strike that term and present the counteroffer back to the buyer. There is no reason to include the Form 17 in the contract, and indeed the legislature did not intend for it to be part of the contract as indicated by the statutory language. On the other hand, if you’re a buyer, go ahead and list the Form 17. Why not? It is common practice among agents and there is a good chance the seller will accept this term. In that event, you will have some additional protection to insure that the contents of the Form 17 really do reflect the actual knowledge of the seller. If the Form 17 does not reflect the seller’s actual knowledge, then you will have a good claim against the seller for the costs you incur as a result.

[Footnote: the damages in the Stieneke case, the cost to repair the leaking roof, was $72k, but the attorney’s fees and costs were $175k. Clearly, as a buyer it is really, really good to preserve any ability to recover your fees and costs in the event you have a claim against the seller. In a future post, I’ll discuss other interesting aspects of this case, including the basis for this award of fees even though there was no breach of contract claim.]

Hands-free law starts July 1st – That means Realtors too!

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Look Ma, No Hands!

Washington State will go ‘hands free’ for cell phone use in the car on July 1st, so agents (and everyone else) shouldn’t be driving around with one hand up to their ear anymore. Well…that’s the intent anyway. The Washington State Patrol says you could face up to a $125 fine, although it is suppose to be a secondary offense. Real Estate agents are notorious for this, myself included. Fortunately, for several years I have had an integrated hands-free system in my car (Acura RL) which has given me a head start on being compliant.

I thought I would mention some options for agents, or for that matter anyone who spends a lot of time on the phone in their car, who are just taking the plunge into the deep blue-tooth ocean of products to help them figure out which device might be better suited for them. But don’t just go out and buy one of these devices. Do your research and check with your provider about what they offer and recommend. These days many products and services are specific to wireless vendors, like Verizon, Sprint, and AT&T.

hands-free driverFirst of all, you’ll need a bluetooth capable cell phone. Many, if not most, of the newer cell phones have this capability. But if yours doesn’t, you’ll need to upgrade. These days people change out their cell phones pretty frequently anyway. But if you have been waiting, now is probably a good time. Just be sure you understand how your cell phone plan will be affected and hopefully your carrier won’t force you into signing a new extended service contract.

If you have a newer model car that has integrated bluetooth capabilities you’ll want to check which phones work with it (not all do) and use the products they recommend, if possible. This information should be in your manual. When my car was introduced integrated blue-tooth was still new and it did not specifically support my phone and service (a Palm Treo w/Verizon), but fortunately I was able to trick it (read “hack”). It would be a real drag to decide to buy a $50,000 car because of it’s bluetooth capability only to find out it won’t work with your phone or service.

If you don’t have integrated bluetooth in your car, then you should consider getting either a headset or component speaker system. Most headsets these days just fit in or around your ear and are pretty small. They often use a microphone technology that relies on the vibration of your jawbone, much like your inner ear, which keeps it very small and helps with noise cancellation – cool huh?

Here are some hands-free bluetooth earbud and speakerphone options from $65 to $125:

Bluetooth Jawbone HeadsetThe New Jawbone – Jawbone is the hot bling-bling of the bluetooth world right now. Their marketing is aimed at the fashion-conscious among us. This is perfect for the agent who is most worried how it will fit in with their wardrobe. The have good noise canceling technology too.

Bluetooth Jabra SP5050 SpeakerphoneJabra’s SP5050 – This unit is made to be clipped to your visor and has a speaker system built in. Jabra is well known and were the first to come out with hands-free bluetooth headsets and use digital signal processing (DSP) technology.

BlueAnt’s Supertooth 3 – Another visor clip-on speakerphone, the Supertooth 3 announces the name or ID of the caller when the phone rings – just say ‘OK’ to Bluetooth Blueant Speakerphoneaccept the call. This device is suppose to be very easy to install and it uses ‘Text-to Speech’ software. The voice prompts provide guidance and assistance install and to help pair the device and upload your cell phone’s address book. When a call is received, the Supertooth 3 announces the incoming caller’s name or number. Just say ‘OK’ to accept the call. You also have a choice of 6 languages.

Bluetooth Venturi MiniVenturi Mini – The Venturi Mini directs incoming calls to the cars speakers and includes a FM A2DP audio player and no headset or wires are needed. With phonebook download the incoming caller appears on the Venturi Mini and your car radio simultaneously. This unit plugs into your lighter plug in and offers USB support too, which means you can charge other devices.

You’re going to need to configure your bluetooth cell phone with your hands-free integrated car system or your bluetooth hands-free device. (wireless headset or speakerphone). Once you pair the device and phone you’ll need to do some set up and preferences. Carefully read the manuals regarding hands-free dialing with your Address book and configuring everything to match your network (Verizon, Sprint, AT&T). Most likely you’ll need to “train” the system to recognize your voice and / or connect phrases with numbers. You may need to tell it when you say “Call Jim” to dial the appropriate number.

Take the time to do this and it will be worth your while. This is what the “hands-free” is all about. Now you can impress youir clients with your tech-savvy skills and stay out of jail at the same time!

Any RCG Readers want to jump in and share their favorite hands-free bluetooth goodies?

What do Governor Gregoire's actions mean for local Countrywide employees and short selling homeowners?

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Is Governor Gregoire just a little too late in regards to Countrywide’s lending tactics? Aren’t we merely days away from the Bank of America takeover?

As I drove back to the office today after teaching yet another short sale class, I heard the news on KIRO 710 AM that Governor Gregoire is seeking to pull Countrywide’s lending license because of an investigation that uncovered predatory lending practices aimed at minorities.  WA State will fine Countrywide 1 million dollars for discriminatory lending practices and attempt to collect an additional 5 million for back assessments due.

From Governor Gregoire’s website:

DFI is required to examine every home-lender licensed in the state of Washington. The agency conducted its fair lending examination of Countrywide last year. At that time, DFI looked at roughly 600 individual loan files and uncovered evidence that Countrywide engaged in discriminatory lending that targeted Washington’s minority communities. The agency also found significant underreporting of loans during its investigation.

“The allegation that Countrywide preyed on minority borrowers is extremely troubling to me,

Our New Responsible Mortgage Lending law

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Just when you thought you had seen the most stupid law from our legislature regarding real estate omitting common sense, here comes another! House Bill 2770 aims to make what was a federal offense a state class-B felony. While it is aimed at mortgage brokers, it has wide sweeping implications to real estate agents, buyers, sellers, home inspectors, contractors, and just about anyone else who has even a limited financial interest in a real estate transaction involving a mortgage.

cross my fingersThis law provides that a residential mortgage loan may not be made unless a disclosure summary of all material terms is placed on a separate sheet of paper and has been provided by a financial institution to the borrower and that a financial institution may not make or facilitate the origination of a residential mortgage loan that includes a prepayment penalty or that imposes negative amortization under certain circumstances. And here’s the catch-all clincher: The law says that certain acts and omissions by any person in connection with making, brokering, or obtaining a residential mortgage loan are unlawful.

While part of the law attacks important issues like negative amortization and pre-payment penalties, it’s the broad definition regarding the disclosure of material facts relating to a property that causes me the greatest concern.

Example: Buyer purchases a home “subject to inspection

Not showing a less-than-3% SOC commission? That's unethical and illegal

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This is not legal advice. For legal advice, consult an attorney directly, not a blog.

It’s common knowledge (based on those comments, at least) that some buyer’s agents will not show properties with an SOC of less than 3%. Is that a problem? In a word, Yes.

First, the ethics: The term “ethics” in this context refers to the code of conduct by which a professional is expected to perform his or her duties. “Ethics” in this sense usually — but not always — correlates with what a layperson would consider “right” and “wrong.” Generally speaking, “ethics” in the professional sense imposes an obligation to perform a professional duty in a fair and reasonable matter.

Admittedly, I am not up to speed on the rules of ethics that would apply to a real estate agent. Many agents are also Realtors, and I know that they are thus subject to a particular code of ethics. Attorneys are subject by law to the Rules of Professional Conduct, rules of ethics formulated by the State Supreme Court. I am unaware of any similar rules that apply to agents.

With that disclaimer, it certainly seems like this conduct SHOULD be considered unethical. Surely an agent has an ethical duty to diligently work for the client, including the identification and showing of any property that is or may be suitable for the client. From an ethical perspective, I would even argue that this applies to properties with no SOC whatsoever. Admittedly, in that circumstance, the agent has every right to and should discuss this with the client, as the agent need not work for free. Thus, the agent should, either at the initiation of the representation or when the issue arises, discuss with the client whether and how the agent will be compensated if the agent finds a house that does not offer an SOC. The parties may agree that, in that instance, the client does not expect and has no right to receive information from the agent about that property. Regardless, with this conversation, whatever its outcome, the client can knowingly consent to any limited scope of representation, and consent is the key when dealing with an ethical issue.

Now, the legality: This conduct is almost certainly illegal (at least where there is something more than a 0% SOC), but there is very little chance that it will give rise to liability. How is it illegal? RCW 18.86.050 is the relevant statute. It requires a buyer’s agent to “make a good faith and continuous effort to find a property for the buyer,” except that the agent need not “show properties as to which there is no written agreement to pay compensation to the buyer’s agent.” In addition, the agent is relieved of this obligation entirely IF the buyer agrees otherwise in writing after receiving the required “Laws of Agency” pamphlet. So, assuming the property offers a commission in some amount (i.e., greater than zero), I believe the agent has a legal duty to bring that property to the client’s attention.

So why no liability if the agent fails to do so? That turns on general legal principles applicable to wrongful conduct. Where such conduct causes an injury, the wrongdoer is liable for the harm caused. Here, assume an agent fails to show a “dream house” to the client because of a 2% SOC. The client subsequently buys another house for the same price. The client then finds out that he was denied an opportunity to buy his dream house because his agent did not tell him about it. What is the injury? Given that they are the same price, there is no way to quantify the client’s injury. Under those circumstances, it will be difficult to find the agent liable. Note, however, that if the house actually purchased cost MORE than the dream house, the client may be able to recover the difference.

From a practical perspective, too, there is little chance of the agent being held liable. The whole claim turns on what the client did not know. So, in order to even raise the claim, the client has to learn that his agent failed to inform him of his dream house. Needless to say, it is hard to even fathom a situation where the client would learn of this information after the fact.

So, it ends up being one of those unfortunate facts of life where — as of today, given the laws as they exist — there is no real remedy for the injured party. Unethical? Yes. Illegal? Probably? Any way to stop the behavior? Unfortunately, probably not.

Distressed Property Law

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There has been a lot of confusion, anger and fear surrounding the new Distressed Property Law. I’m not going to jump on the bandwagon and do a critical analysis of the law, tearing apart each section.  The WA Assoc of Realtors has put their educational seminar online for free here for all of us.  Instead of all the ranting and raving taking place on other blogs attacking this law, feel free to pause and re-live these foreclosure rescue scam case studies from  2004, 2005, 2006  and 2007 which may help us better understand the reasons why we have this new law.

At the height of the bubble run up in 2005, there were hundreds of people attending foreclosure auctions, planning on making millions in real estate, usually after attending a get-rich-quick seminar.  Even today, the get-rich-quick hucksters are still luring in the same type of person who thinks there’s a magic diet pill that will help you lose those last ten pounds, and who thinks there’s still a way to make six figures with no experience, or in the case of this company, $2,000 per hour.

Readers on this blog and elsewhere have been highly critical of our state lawmakers for being reactionary and passing laws only after they would have done any good.  In this case, our legislature has tried to be pro-active and place boundaries around “distressed property transactions.