Legal Corner

Your guy at the legal corner is becoming increasingly concerned about a fundamental lack of understanding, at all levels, including affiliates, regarding the effect of bankruptcies on the sale of real estate.
Is this really a big deal?
VREB and VPAR will be the least of your concerns: not only might you forfeit your commission, you can go to JAIL if you help a seller in bankruptcy sell real estate outside of the bankruptcy court's approval. The bankruptcy court takes this very seriously.
How do I know my seller is in bankruptcy?
Simple, they tell you. Or even better, you ask: either as a regular part of your listing process or because there is some signal that ought to trigger the question, e.g. really behind on payoff, foreclosure on hold, etc.
I would recommend you make it a regular part of your listing process. Ask them, write down the answer. And don't accept "yes, but everything is ok and I don't have to worry about it." Rather, ask for the name of their bankruptcy attorney and get documentation to that effect: if it is true he or she will have it.
Why do I need to know my seller is in bankruptcy?
Simple: it cannot be sold without the court's permission. And this happens automatically, there doesn't have to be an order saying they can't sell it. In point of fact, it is the other way around - you need something saying they can.
And you need to know this early because: (a) if they are in bankruptcy and you don't make accommodation for this in the contract then your sellers will have made a material misrepresentation under the current language of the REIN contract, and (b) it will take some lead time to obtain bankruptcy court approval to sell.
And, did I mention your listing and your commission might not be approved?
Isn't this someone else's job?
Well, yes and no. First, the seller should know they can't sell their house at their discretion when it is in bankruptcy. Second, the settlement agent can independently check to see if the seller is in bankruptcy via the PACER system. But the professional dealing with them first (not to mention before the contract is signed) is you, their smart, wise, and experienced agent.
Ok, so I ask and the answer is yes. What do I do?
One of two basic things will happen. Either the bankruptcy trustee will abandon the property because there is insufficient equity to make it worth a sale from the creditors' standpoint, in which case you will be able to take the listing and proceed; or, the trustee will take control of the property and the trustee will control the sale, in which case it will be for the trustee and the court to determine the manner of sale including, most importantly for you, who lists the property, how much, commission, expenses, etc.
Trust me; this is one area where it is NOT better to beg for forgiveness than to ask for permission.
Jail? Really? C'mon.
Absolutely! While I can't speak for all trustees, their attorneys, and the court, I can tell you that if they find out that you as a listing agent knew the seller was in bankruptcy and you permitted a false affidavit (recall the customary seller's closing affidavit asks whether they are in bankruptcy) to be submitted they are going to be very, very concerned.
So isn't it best not to know after all?
Perhaps you missed the part about your client's best interests?
Who do I call for help?
I am not a bankruptcy attorney, but I know more than a few excellent ones. Call or email me and if it is beyond giving you basic direction in connection with a closing or sale, I'll help you find the right attorney. Please feel free to email me at bdlytle@lytlelaw.com if you have any other questions or comments.

Hilton Village & Ordinary Care

Some new homeowners have been surprised (and not in a good way) to learn that structural alterations, exterior renovations or additions they had intended to make when they purchased Huntington Heights or Hilton Village property might be prohibited by the City of Newport News Planning Department's zoning guidelines for the "preservation of historic areas." (All structural alterations including building additions must be approved by the Architectural Review Board in advance and must receive a "Certificate of Appropriateness" before work can proceed.) This is not a phone call I would want to receive from a client two months after closing.
Whose fault was it for not disclosing this in advance? (And we all know how the blame game works.)
You know that Virginia law, and the standard REIN contract, requires a seller to disclose whether the seller's property is located in a Property Owner's Association (where covenants, conditions and restrictions will apply, and certain other requirements). But Huntington Heights and Hilton Village's restrictions are beyond the Act - because they don't arise as a result of statutory property owner's association issues. Accordingly, a seller is under no obligation to disclose them. So, sellers will say "don't look at me" and blame the settlement company.
A settlement company might make a point of disclosing them at some point, but I do not believe they are required to do so because the restrictions are by way of city ordinance, like zoning, not by matters involving a search of the title. Perhaps that is arguable, but even if so it really doesn't matter because by the time it might be disclosed by a settlement company it is too late for the buyer because the buyer is bound to purchase the property anyway (unless you are going to use another reason to back out, e.g. the home inspection, but that is another article entirely). And so the settlement company (not your VPAR affiliated settlement companies of course) will blame the agent.
What then about those buyer agents? As we have discussed many times, a buyer's agent's duties are set forth in Va. Code § 54.1-2132, which basically says an agent must exercise ordinary care in representing his or her client. Lawyers would say that this means the agent is to do what a reasonably prudent buyer's agent would do under the same or similar circumstances. Do buyer's agents in our area investigate zoning or covenant issues? No, I don't think they do unless they are expressly charged by a buyer to do so and the agent agrees, e.g. parking a work truck, hence one would not be negligent for failing to read covenants, investigate a buyer's future renovation plans, etc.
So, where does that leave us? Who can we blame?
Sometimes no one is to blame. But we can make a mental note that Hilton and Huntington Heights have these special restrictions and pass that information along when you have a buyer client and advise them to seek the advice of counsel or to speak to the City if they have any questions or concerns. A simple phone call to the City Planning Department (located at City Hall) can provide the buyer with any applicable special historic zoning regulations along with contact information for the appropriate Architectural Review Board (also available on the Web, see http://www.newport-news.va.us/plan/historicpres.html). This information could make all the difference in determining the suitability of a prospective home for your buyer. And you can be an extraordinary agent instead of an ordinary one.
Frankly, I'm going to blame the lender. Ha, just kidding!

Michelle Gay Peters is an attorney with Lytle Law, P.C. - Her practice emphasizes Estates, Trust and Real Estate - She may be reached at mgpeters@lytlelaw.com or 595-5655

You are in trouble, with a capital T, in VPAR City! You messed up, done the wrong thing, chose the wrong path, forgot the rules or didn't understand them, and generally have managed to make everyone in your professional world hate you: your broker, your client, and the other agent. Even your dog hates you.
I have represented agents locally and across the state in ethics matters, VREB proceedings, procuring cause disputes, and in malpractice cases, and so I thought I would take a moment and give you the benefit of my thoughts and experience regarding avoidance.
First, calm down. There is nothing worse than having someone accuse you of having done something wrong, particularly something that could cost you your license, and so most agents, in my experience, are too emotional, don't think clearly, and often react the wrong way, whether in anger or in fright, and all too often do or say something that makes things worse.
Second, talk to your broker or an experienced agent for advice and help. Get that help early, not when you've made the client so mad they've already filed the complaint. If it is truly serious, or you're not sure how serious it is, then come see me or one of the other lawyer affiliates for help.
Third, try to resolve the dispute or solve the problem before it gets to the complaint stage. Despite this seemingly slap-your-forehead-obvious advice, you would be surprised how often agents, particularly inexperienced ones, simply stick their head in the sand and hope the problem will go away. They don't want to confront it. They don't want anyone (especially their broker and client!) to know they've messed up. Rarely does a problem go away or solve itself, however, and so by playing ostrich you may well have lost the ability to get the problem resolved at all. And that inaction may well make a difference come disposition time if there is a founded complaint.
Fourth, speak - reasonably and with some empathy - with the upset person, or better yet, get your broker to do so. I would encourage firms to have an ombudsman for this purpose. Quite often, all someone wants to do is vent and obtain recognition from someone that things could have been handled better. Perhaps they want an apology. It is when they feel like they are being stonewalled or dismissed that they feel compelled to file a complaint or lawsuit. If the matter is truly potentially serious, however, do talk to your lawyer first because I would not want you to make any admissions that could be used against you later.
Fifth, in appropriate circumstances, suggest mediation, whether formal or informal, in an attempt to resolve the problem. Goodwill means something, so be open and willing to compromise. I have had some luck in these circumstances in me sending the person a letter, not one designed to assert aggressively my agent's position, rather one designed simply to explain it. The dialogue that often ensues can diffuse the situation.
Last, be realistic and don't beat yourself up over it. You made a mistake. It happens to the best of us, and you really are human despite what FSBOs think. Please email me at bdlytle@lytlelaw.com if you have questions, comments, or article suggestions.

Walk-Throughs and the Doctrine of Merger

This just in: your legal corner guru is aghast. Someone said I stuck my foot in my mouth at the last Night Court regarding handwritten provisions (not) trumping boilerplate ones. To quote LYTLE ON CONTRACTS, OPUS 1, CHAPTER 1: "Thou are clearly wrong and mistaken," and from CHAPTER 2: "Talk to the hand." However, since I had already written a different article for this month and I'm on a deadline from She Whose Deadlines Must Be Met, I will save that instructive riposte for next month in an article to be entitled "Rules to Live By in an Uncertain Contract." But I digress, as I love to do.

To the question at hand: Consider the following hypothetical: assume a REIN contract, buyer conducts a walk-through prior to closing and does not discover any problem with the heat and air then or at any time prior to closing, but after closing and recordation the buyer discovers the heating system was in fact not working and had not been working at the time of the walk-through (assume as a factual matter you can prove this). Can the buyer successfully sue the seller for the cost of repair?

The REIN contract provides, at paragraph 8, that "representations and warranties made by the Seller herein and all other provisions of this Agreement shall be deemed merged into the deed delivered at settlement and shall not survive settlement, unless otherwise provided herein." This clause states the legal doctrine of merger. The legal doctrine of merger simply means as a general proposition that contractual warranties do not survive closing; rather, they are "merged" into the final representations and warranties stated in the documents concluding the transaction, which in our particular case is the deed.

So, it is clear that the intention of the REIN contract is to have the contractual property condition warranties merged into the property title warranties stated in the deed, which of course do not cover heating systems. In fact, paragraph 8 is generally read by our local group to mean that if something is not in good working order at closing and not discovered in the walk-through prior to closing, then the purchaser would have no post-closing remedy against the seller. Much like the gentle reader who thought I misspoke at Night Court, that reading on its face, however, would be incorrect.

Virginia courts have consistently ruled that the doctrine of merger, at least with respect to a deed and a real estate transaction, does not incorporate or subsume non-title related warranties.

The case of Smith v. Nonken, et al., 54 Va. Cir. 259 (2000), is instructive. The parties used a standard VAR contract, which of course provided that the heating system was to be in good working order at settlement or possession. It also had our standard doctrine of merger language that was stated to apply to everything in the contract. The purchasers had a home inspection performed, later removed the home inspection contingency without any request to have the heating system repaired or noting that it was defective, and on the day of closing (after their walk-through) the buyer executed a document stating she accepted the property in its present condition and that the sellers had performed their obligations under the contract provision regarding the condition of systems and appliances.

First, the trial court considered whether the doctrine of merger (the VAR contract uses language nearly identical to the REIN contract in this regard) barred the purchaser's claim for damages for the faulty heating system. The trial court examined existing Virginia Supreme Court doctrine of merger cases and concluded that the doctrine of merger, even one expressly stated to bar collateral matters in the contract, would not bar a claim on collateral (non-title, e.g. heating) issues.

The court then examined the paper trail. The seller essentially argued: "Hey, they signed a home inspection contingency removal, they conducted a walk-through, and then they signed a walk-though agreement saying everything was ok … doesn't that count for something?"

The court said it did. Since the buyer signed, pre-settlement, a form that stated that the buyer had "inspected the property [and accepted] the property in its present condition and that the buyer [agreed] that the sellers had fulfilled their obligations per paragraph E [of the contract]," which was the section obligating the sellers to have the heating system in good working order at settlement, the court found the buyer had waived her right to have the heating system working at closing (or probably more correctly, accepted it as a matter of law). Frankly, the decision is a little confusing about this because we do not have the exhibits, but I am assuming this final document was similar to our REIN Walk-Through Report. In other words, had a Walk-Through Report not been signed the case may well have gone the other way because according to the court the buyer's claim survived closing and was not barred by the doctrine of merger.

The moral of the story is this: Listing agent: make sure the buyers sign and deliver the walk-through report prior to settlement. Selling agent: make sure the buyers conduct a thorough walk-through, but if you get through the deal without the form being signed your buyers may have a post-closing remedy in the event of a problem. And yes, as She Who Demands Mediation would remind us, that remedy starts with mediation per paragraph 17.

You may tell it to the hand at bdlytle@lytlelaw.com.

Yoda on Megan's Law

Just participated in a Night Court, I have. Much debate, dissension, and desire to kill to Jedi lawyers, there was. Good thing I had my light saber, it was. Anyway, compiled some of my wisdom for you, I have.

From the Dark Side of the Force:

SPRINGDALE, Ark. (AP)· A developer who says sales in a subdivision stopped after a sex offender and his wife bought a home has sued the couple and the real estate company that arranged the purchase. NGI Rental filed the $2 million lawsuit Friday against Randall Dee Collins and his wife, as well as the real estate company that arranged their new home purchase. Randall Collins, 39, was convicted of molesting young girls and is listed on the Arkansas Crime Information Center Web site. According to the lawsuit, his wife hired a real estate company to sell her old home, saying she had married a sex offender and that her home was too close to a school. A day after the couple bought a home in a new subdivision, the police department distributed fliers detailing Collins' case. The lawsuit claims residents indicated they would move if Collins did not leave the neighborhood, and that sales came to a standstill because the developer was required to tell potential buyers about Collins. The lawsuit also alleged Collins called the developer and offered to move for $250,000, "or he would stay there and kill their subdivision."

LUBBOCK, Texas (AP) - The sales pitch for this planned subdivision goes beyond the usual vision of attractive homes and amenities - homeowners will be required to pass criminal background checks and no convicted sex offenders will be allowed. It's a concept that might prove right for the times, said first-time developer Clayton Isom, one of three partners in a company creating Milwaukee Ridge on the outskirts of this West Texas city. Isom said he will penalize any builder who sells a home to a sex offender. He also said he will attempt to enforce the covenant on home buyers who later re-sell their homes, and that he will attempt to extend the background checks to juveniles living with their parents.

GOSHEN, AR (AP) - A new subdivision in northwest Arkansas is banning registered sex offenders from purchasing homes. A developer in the northwest Arkansas town of Goshen plans to run background checks on anyone who wants to purchase a lot. Developer Lonnie Graham says he's preventing registered sex offenders from moving into his subdivision to protect both the neighborhood and his investment. The McDonald family will soon break ground on their new home in northwest Arkansas.

In light of these developments, what should the Jedi do with respect to Megan's Law in our local solar system? The Jedi Code provides, at § 54.1-2131, that agents are obligated to exercise "ordinary care" in the exercise of the Jedi's duties to his or her client. (The Jedi Code also provides that leave a trail of bread crumbs near your clothes dryer, you should. That way, get lost, your socks will not. But digress I do.) Ordinary care defined as "that degree of care which ordinarily prudent and competent persons engaged in the same line of business or endeavors should exercise under similar circumstances." In other words, what a reasonably prudent agent would do under the same or similar circumstances, ordinary care is.

Does the reasonably prudent Jedi Buyer Agent check the neighborhood for sex offenders for a buyer? Not, I think. Perhaps you feel the Force compels you to do so. Hold up as a defense in court, "Stupid is as stupid does" will not. Trust me, tried this on more than one occasion Kenobi has. Explain and point them to the web site, you should. Take other opinions seriously you should not.

Does the reasonably prudent Jedi Site Agent check prospective buyers for sex offender status to protect their builder and developer client? Troubles me, this question does, because of the articles noted above, and a ripple in the Force, there is. But with no local practice by site agents to check buyers, the answer and the standard of care is not, I think. But discuss with your client, your broker, and your lawyer for guidance, instructions, and clarity, you should.

No doubt, much wiser you feel now. Welcome, you are. May the Force be with you.

At bdlytle@lytlelaw.com, contact Yoda, you may.

Party Time

No, your man on the legal corner is not referring to the upcoming holiday season, nor am I suggesting that we do not socialize enough. Who wants to socialize with a lawyer anyway? Rather, I would like to focus on parties to listing agreements.

The REIN listing agreement presumes that you are obtaining the signatures of all of the parties necessary to sell the property. Indeed, VREB has regulations that would prevent you from advertising and offering property where you do not have the permission of the (true) owner to do so, and without looking I am sure it violates the Code of Ethics also. Imagine that -- you can't advertise or sell property without the permission of the owner - what is the world coming to?
But, I digress. Our real questions: how do you know who should sign and what are the consequences if you do not obtain the signatures of the correct and necessary parties?

Realistically, you rely on what you are told. Truly, the only way to determine who owns any particular piece of property is to have a title examination performed and obtain a legal opinion as to the state of that title from an attorney. Now, I feel quite certain that you are not inclined to explain politely to that $350,000 York County listing prospect across the kitchen table that you can't quite take their listing until your lawyer has verified they really own the property. Not happening, nor should it.

Consequently, all you can do is accept what the client tells you and pay attention to information you learn during the course of obtaining and offering the listing. So, if a married couple represents to you that they own the house and you have no information that would lead a reasonably prudent agent to suspect otherwise, then I think you are perfectly okay to take that listing and move forward. However, if you take a listing from one child purporting to sell her deceased mother's house, then you should be put on notice that there may well be other heirs or a will involved because that is more often than not the case. Likewise, if you check tax records and see owners other than what you were told then you need to follow up and find out why.

If you permit a contract to be signed by the person you believed to be the owner, only to later learn he is not the only or true owner and he cannot obtain the necessary signatures from the other owners, then your seller would be in breach of contract (assuming the contract obligates the seller to provide clear title at closing). Whether you share any responsibility in that problem would likely turn on the information known or available to you as I have noted above. After all, sellers may not know any better, and they do rely on you to guide them if all that amounts to is to say "go talk to a lawyer."

Would you have a suit for commission based upon the misrepresentation, intentional or unintentional, of ownership status by a seller? I think so. The REIN Exclusive Right To Sell Standard Listing Agreement,, at paragraph 12(vii), says that the seller represents that he or she has the authority to sell the property. So, if that is not accurate, and the seller is unable to close after you have produced a ready, willing and able buyer, then the seller would be in breach of your listing agreement and liable for your commission.

So, the simple moral of the story is accept the sellers' ownership representation and take the listing, but if something puts you on notice that there may be other owners then you should exercise due diligence in an attempt to ascertain and contract with them: (a) because you need to protect your client if they truly do not know any better, and (b) so you can protect your right to a commission.

If you would like to invite the author to a party (or if you have questions concerning this topic, or suggestions for future topics), please e-mail me at bdlytle@lytlelaw.com.

Ordinary People

Your man on the legal corner, oft accused of making obscure, funny, clever references (at least I find them to be such), is not referring to the movie, nor am I suggesting we have dinner at that fine dining establishment in Gloucester. Rather, I want to talk about the duty you owe to your clients.

Va. Code § 54.1-2131 provides that agents are obligated to exercise "ordinary care" in the exercise of the agent's duties to his or her client.

Well, what does that mean? Black's Law Dictionary defines "ordinary care" as "that degree of care which ordinarily prudent and competent persons engaged in the same line of business or endeavors should exercise under similar circumstances." In other words, ordinary care is what a reasonably prudent agent would do under the same or similar circumstances.

Let us suppose then, that in representing your client something goes wrong or there is a mistake that causes your client to suffer or be injured. The broad question, assuming there are no other factors imposing liability, would be whether other agents would have done what the client alleges you failed to do.

If for example, the general practice among listing agents in this area is to measure the square footage of the house in order to arrive at a listing price, then it might well be negligence (read: a breach of ordinary care) if a failure to do so caused the property to be sold for less than fair market value. Similarly, if you mis-measure the property and recommend and offer the property for less than it should have been offered, then you will have performed negligently. What if, as a buyer's agent, you didn't measure the house to confirm what the MLS told you and your client about square footage? If reasonably prudent buyer's agents do not do that, and I do not think they do in our area, then you would not be guilty of negligence.

My experience has been that the most likely source of conflict and potential liability between agents and clients arises when a client suggests that the client's agent either had information and failed to disclose it or did not obtain information that would have been important to the client. A fairly recent Virginia Circuit Court case, Monica v. Hottel, Trustee (Lowden County 2004) addressed our issue in a procedural context.

The court noted that while the General Assembly has re-written the law of agency insofar as it applies to real estate agents and refused to impute knowledge or information among or between clients and licensees, the law still permitted an agent to be found negligent for not discovering and disclosing information that a reasonably prudent agent would have discovered and disclosed in the exercise of ordinary care. The Monica case involved discovering and disclosing the status of a subdivision affecting the property and client in question.

The lesson here is to stay informed and abreast of current developments. Go to company and VPAR training. Go to Night Court. Familiarize yourself with local practice and custom by talking to your peers. Ask experienced agents what they do. Talk to your broker. That training and education is key to an understanding of what the reasonably prudent agent would do under the same or similar circumstances.

You are required to provide ordinary care. (Can you imagine the marketing slogan: "Hey, let me handle your listing. I'll give you ordinary care!). I would encourage you, however, to provide extraordinary care, because by so doing a client will be hard pressed to claim you have failed to represent them ordinarily.

You may contact the author at bdlytle@lytlelaw.com if you have any questions or comments on this or any other topic, and I am always looking for topics!

Specific Performance

Everyone recognizes that a buyer and seller can sue each other - after mediation of course - in the event of a breach of contract.

Buyers have a special breach of contract remedy though, called "specific performance." That is, a court can order a seller to specifically perform the contract, which means that the court will order the seller to sell the property to the buyer. If the seller does not obey that court order then the seller can be held in contempt of court or the court can appoint a third party to execute the deed to the buyer on the seller's behalf.

Moreover, a buyer can file a notice lis pendens (Latin for pending litigation) in order to prevent the seller from selling the property to someone else while the lawsuit is pending. This document is filed in the courthouse land records, and constitutes record notice to any potential purchaser of the property that someone else claims an interest in it. As a result, other potential buyers cannot obtain clear title to the property thereby preventing its sale. This is a very powerful tool available to a buyer.

A recent case, Alaragy v. Dengler (VLW 004-8-178), out of Northern Virginia, illustrates this remedy clearly. In Alaragy the buyer and seller signed a time is of the essence contract calling for closing on June 30th, which was later amended by the parties to require closing on August 31st. The contract obligated the seller to provide the buyer with a written termite inspection no more than 30 days prior to settlement. The buyer had applied for financing and tentatively was approved, but the lender needed the termite inspection report in order to finally approve the loan and approve settlement. For reasons not published, it seems reasonably clear a dispute arose between the parties and the seller refused to provide the termite inspection report prior to the closing date. The seller argued providing the letter on the closing date was good enough because that is what the contract said. Of course, that prevented the buyer from getting final loan approval, which meant the buyer could not close. The buyer, having obtained the termite inspection report on the August 30th closing date, then faxed it to his lender, and the lender was ready and able to close on September 4th, but the seller refused to close after August 30th arguing that time was of the essence.

The buyer then filed suit seeking specific performance of the contract. The buyer alleged that the seller had breached by refusing to turn over the termite inspection report prior to the closing date. The court found for the buyer and ordered the seller to perform the contract and sell buyer the property.

The court wrote as follows: "Because the [Buyer] was ready, willing and eager to perform his duties as set forth in the contract, the delay in the [Buyer's] performance was due to the actions of the [Seller], and the [Seller] clearly stated his intention not to honor the contract, the [Buyer] should receive the remedy a specific execution of the contract, notwithstanding the [Buyer's] failure to tender the purchase price."

There is a lesson to be learned here. First, any party to the contract should be careful about relying on literal technicalities if that frustrates the performance of the other party. Second, when a buyer stands ready, willing and able to perform, and the seller refuses to perform, then the buyer may well be able to stop the seller dead in his tracks and force a sale. This can be particularly useful in the current market because too often we feel that a seller is trying to avoid performance because a better offer has come along.

Please do not hesitate to call or e-mail me bdlytle@lytlelaw.com if you have any questions regarding this article.

The Quest for the Packet Truth

Your man on the legal corner recently went on a pilgrimage seeking the truth about Association Packet Disclosures.

My first encounter along the road of enlightenment was with an agent copying an old association packet she had stashed away from 1979 to deliver to a buyer. What, pray tell, are you doing I asked? Saving my client a $100.00 by copying this package instead of requesting a new one she replied. But isn't your client supposed to request a new one? I don't think so -- the buyer can request an update if he wants one, that isn't our problem she noted in a huff. Of course, agent-friendly person that I am I kept my mouth shut, didn't point out that the contract really didn't say that, and resumed my journey.

Verily the road to enlightenment did not seem so lawyer-friendly, so I took a detour and entered a local brokerage. There, in front of my own eyes I witnessed the delivery of a packet by a listing agent to the receptionist, who signed for the agent. What, may I ask of you kind agent sir, is this new and strange procedure I have witnessed? I am delivering this packet to the firm as required and now the buyer has three days to decide whether he or she will cancel, he replied. I looked at the form and observed that wasn't exactly what it said, and also wondered, to myself of course, what would happen if the agent was off for the weekend or the buyer was out of town TDY. I was greatly puzzled. This did not seem satisfactory to me. Yet, I realize I am not wise in the ways of the agent and local practice, so again I kept my mouth shut.

Next, I came across an agent wandering in veritable listing wilderness. She had a wild look about her - clearly the look of an agent sent to the FSBO front lines - and I asked of her: oh wise agent, what do you do, packet-wise, when there is a FSBO? (Personally, it looked like there had been much pulling of the hair, but again, I know my limits). She told me she either got the package for the buyer or helped the seller do so. And so I queried, and how do you handle the 96 hour drop dead time for acknowledgment of receipt? I must say I have never heard an agent howl before … it scared me. I left.

And so, since I knew I would have to fit this article in a small space and get to the point sometime, I decided to consult the VPAR Oracle, and of the Oracle I asked: Oracle, it seems to me that the law implies, and the REIN contract seems to direct, the seller to obtain a current packet - is this so? It is, replied the Oracle. Ok, Oracle, and what of the 96 hours? Once the packet is delivered to the selling firm the selling agent has 96 hours to acknowledge delivery to the buyer or the seller can void the contract. Ok, Oracle dude, I countered, and so how does the three day right to cancel jibe with the 96 hour provision? Once receipt of the packet has been acknowledged or it is otherwise received, I (oops, I mean the Oracle) replied, then the buyer has three days to cancel from that point. You see, the 96 hour provision is sort of a kick-out the seller can use to force a start of the three days and make the buyer get on with it. And last O-Guy, I cheerfully said: what of the FSBO? The hell with FSBOs, let them deal with it themselves: and if they run the risk of your buyer backing out of the deal then that is their problem and they got what they paid for.

Power of Me

Naturally, your man on the legal corner would like you to think that the term power of attorney refers to the author, but I recognize your first thought probably is of the document. To that thought we then turn.

A power of attorney is a written document authorizing a person to act on one's behalf. The person giving the power is known as the principal, and the person receiving the power and authority to act on behalf of the principal is known as the "attorney-in-fact." This is really an agency not too unlike the agency with which you are familiar.

An attorney-in-fact only has the power expressly granted to him or her by the written power of attorney, which in our context is the buying or selling of real estate. It goes without saying then that the power needs to convey and grant all of the powers necessary to do the intended act. A general power of attorney is one that authorizes the attorney-in-fact to do nearly everything the principal can do acting in his or her own right, and a special power of attorney is limited to a particular purpose. For example, a general power of attorney would likely grant the right to sell real estate, and among other things, also grant the attorney-in-fact the right to write checks to pay bills. A real estate special power of attorney, on the other hand, would strictly limit the attorney-in-fact's authority to sell and convey a particular piece of property.

Under Virginia law, a power of attorney will terminate upon its revocation or upon the death or disability (legal incompetence) of the principal. Since we do not want to be in the business of determining whether a principal is insane or incompetent as of the closing (or negotiation of the contract, etc.) we need for the power to survive that disabling act, and that is accomplished by having words to this effect: This power shall survive the disability of the principal. If that language is present then we call it a durable power of attorney.

Settlement agents will need the original power of attorney to record along with the deed and deed of trust (I repeat we must have the original). As a general word of caution, you should notify both the settlement agent and the lender if the buyer is using a power of attorney well in advance of the closing so that both the settlement agent and the lender can review it.

In my office we have a checklist we go through to make sure the powers are acceptable. While I do not want agents making legal determinations regarding powers of attorney, it would not hurt for you to make a cursory review upon receiving one before you pass it on to your favorite, powerful, attorney of your choice for his review. Among the items to look for:

• Do we have the original or will we? We must have an original to record.

• Does the power actually give the power to do the thing it will be used for? For example, does it clearly and broadly authorize and empower a seller to sell, a buyer to buy and borrow, etc.

• Is the legal description accurate? Check the legal description very carefully; if it is a mailing address verify it; if it is a short legal description do the same. If there are discrepancies then the power is not acceptable, and you can not white it out and make changes!

• Are the names accurate? Make sure the names on the power match the names on the deed, deed of trust, etc.

• Fax to the lender. Send a buyer's power of attorney to the lender for them to review as they sometime have special requirements for a buyer power.

• Power for Veteran and VA loan? Powers for Veteran buyers may need special VA language. The lender can tell you if necessary on your deal and the power may need to be amended or re-done.

• Power limited in time? Check to see if the power has an expiration date - if so, has the date passed?

• Notary clause done and done completely and correctly? Was the notary clause properly executed and completed? Note that it does not need a seal but it does need a signature, identification and commission expiration date.

• Are there any conditions in the power that must be satisfied? Have they been?

• Is the power durable? This means does it have language like this: "This power shall survive the disability of the principal." If not then the power is probably not going to be acceptable.

Lastly, company policy will dictate whether it is permissible for you or your company to act as the attorney-in-fact for one of your clients in the transaction, but I recommend that you not do so. I cannot and do not speak for other settlement agents, but generally I will serve as an attorney-in-fact in one of my closings.
Feel free to send a powerful email to the author at bdlytle@lytlelaw.com if you have any questions or comments regarding this article, or suggestions for future articles.

Your man on the legal corner is quite concerned and has been for some time that agents who are also notaries are not paying attention to the requirements imposed by that office.

A notary acts as an official, unbiased witness to the identity and signature of the person who comes before the notary for a specific purpose. The person may be taking an oath, giving oral or written testimony or signing or acknowledging his or her signature on a legal document. In each case, the notary attests that certain formalities have been observed. The key function is to be certain that the person appearing before the notary is who that person claims to be. A notary who fails to perform notarial acts in accordance with the law may be sued for damages caused by their official misconduct or prosecuted criminally. The employer of a notary may also be liable for the notary's misconduct under certain conditions.

The most common mistake I think agents make when acting as a notary is to not require the act be done in their presence. A notary must have the person sign or acknowledge a pre-existing signature in the notary's presence. That bears not just underlining but repeating: the act must be done in the notary's presence. It is not permissible for you to notarize a signature that was not signed before you even if you are super-duper-absolutely-positively-cross-your-heart sure (the highest legal standard there is, of course) the person you think signed actually signed. So, for example, it is not appropriate for you to notarize a client's signature that was signed in California but not notarized there even if the client tells you over the phone that the signature is genuine. There may soon come a day when "in one's presence" will incorporate video conferencing or Internet cameras, but for now, at least in Virginia, they do not.

Another common mistake is that agent/notaries fail to require identification of someone who is not personally known to them. You may not take a person's word that they are who they say they are, and you may not take a third party's word that someone is who he or she says they are. That is simply not appropriate. Additionally, if a document or acknowledgement calls for the person to be under oath (uses the words affidavit or oath or sworn and subscribed) then you must swear the person in. Frankly, my experience has been that most notaries, not just agent notaries, frequently ignore this requirement. I realize that it can be embarrassing to ask someone to raise his or her right hand and swear to tell the truth, etc. but you must do so. Lastly, to resolve one common misconception, Virginia law does not require a notary to own a seal or use a seal on any document although lenders frequently want them.

Please feel free to email the author at bdlytle@lytlelaw.com if you have any questions about this article or have a topic to suggest for a future article.

A Real Estate Agent's Guide
To The Unauthorized Practice of Law
Part 1, Background

By Brian Lytle, Attorney
Legal Liability Committee Member

November 2003

As I hang out on the legal corner I frequently hear agents, usually more experienced ones, chastise their younger colleagues not to give legal advice lest they find themselves pursued by the practice of law police. And as a member of VPAR's Legal Liability Committee I too am concerned about that, but I think that warning is too often taken to the extreme with the result that agents fail to give their clients the benefit of their specialized knowledge and experience.

This is an extensive and complex topic and I cannot cover it in one article, so I will divide it into three. In this Part 1 -- Background, I will provide an overview of the regulatory framework and working definitions; in Part 2 -- Real Estate Provisions, I will cover in detail the provisions of Unauthorized Practice Rule 6, Real Estate Practice; and in Part 3 -- Practical Considerations, I will try to summarize the topic and deal with some real world issues.

The inherent power to regulate the practice of law begins with the Constitution of Virginia, which vests the judicial power of the Commonwealth in the Supreme Court. Thus, pursuant to the Court's inherent power the Court defines and regulates the practice of law through its rules and through its agency, the State Bar. The rules it has issued in this regard are called the Unauthorized Practice Rules and Considerations (and the General Assembly has made it a criminal act to violate them). The Court defines the practice of law as follows:

Generally, the relation of attorney and client exists, and one is deemed to be practicing law whenever he furnishes to another advice or service under circumstances which imply his possession and use of legal knowledge or skill. Specifically, the relation of attorney and client exists, and one is deemed to be practicing law whenever -

(1) One undertakes for compensation, direct or indirect, to advise another, not his regular employer, in any matter involving the application of legal principles to facts or purposes or desires.

(2) One, other than as a regular employee acting for his employer, undertakes, with or without compensation, to prepare for another legal instruments of any character, other than notices or contracts incident to the regular course of conducting a licensed business.

(3) One undertakes, with or without compensation, to represent the interest of another before any tribunal - judicial, administrative, or executive - otherwise than in the presentation of facts, figures, or factual conclusions, as distinguished from legal conclusions, by an employee regularly and bona fide employed on a salary basis, or by one specially employed as an expert in respect to such facts and figures when such representation by such employee or expert does not involve the examination of witnesses or preparation of pleadings.

(4) One holds himself or herself out to another as qualified or authorized to practice law in the Commonwealth of Virginia.

RULE 6, § 1 OF THE RULES OF THE SUPREME COURT OF VIRGINIA, UNAUTHORIZED PRACTICE RULES AND CONSIDERATIONS.

Don't you just love lawyers? You would think we would avoid circular definitions but it strikes me that saying "whenever he furnishes to another advice or service under circumstances which imply his possession and use of legal knowledge or skill" or "involving the application of legal principles to facts or purposes or desires" just avoids truly defining what we mean. But it is hard to come up with a ready definition. Try it yourself.

Commonwealth v. Jones & Robins, Inc., 186 Va. 30, 41 S.E.2d 720 (1947), was a Virginia Supreme Court case where a real estate broker was convicted of practicing law without a license for drafting deeds, notes, deeds of trust, leases, etc. for profit. Justice Holt (one of the dissenters actually) observed that under modern conditions neither professions nor business could function successfully in a straight-jacket and wrote:

The line between what is and what is not the practice of law cannot be drawn with precision. Lawyers should be the first to recognize that between the two there is a region wherein much of what lawyers do every day in their practice may also be done by others without wrongful invasion of the lawyers' field.

Chief Justice Holt continued with many examples where the regions overlap, and I note one that I believe is instructive:

Hospitals are something more than boarding houses. Nurses prepare charts which tell at a glance the progress of patients up or down. Technicians tell us the color of their blood. All of this is of great value to physicians. They take their art from empiricism into the atmosphere of science, yet no court, State or Federal, with or without a statute, has ever held that these instrumentalities are practicing medicine. The educational qualifications of doctors is certainly not less exacting than those required by lawyers, while public interest touching qualifications of doctors is not less vital than that which attaches to lawyers. The object, aim and purpose of a hospital, - the reason for its establishment and operation, is to render and perform medical treatment and nursing of a skilled character. It is the facility for affording the patient a higher and greater degree of nursing and medical attention than would be ordinarily possible outside of a hospital that makes it desirable. The opportunity to render such service enables a hospital to make a higher charge than a hotel or boarding house. The desirability of securing the needed service provides inducement for the patient to enter the hospital. The patient comes to the hospital for advice, aid and treatment - not to give either.

It seems to me one could easily substitute a real estate brokerage firm for the hospital in this quote with attendant changes substituting selling real estate for agents for nurses, etc.

In conclusion, in this article I wanted you to learn who regulates and defines the practice of law, to allow you to read the black letter definition for yourself, and to see some judicial discussion of the application of that definition. In my next article I'll focus on specific regulations and statutes that apply to the unauthorized practice of law in the real estate context.

Whose House is it Anyway?

By Brian Lytle, Attorney
Legal Liability Committee Member

August 2003

Sales are Subject to Existing Leases... and in fact, sales can be subject to oral leases. That is why a seller signs an affidavit at settlement saying there are no such leases and that no one else is in possession of the property at closing. It is also why the standard contract obligates the seller to deliver possession at closing. Note, however, that these provisions and documents only serve to give the buyer the right to sue the seller; they do not give the buyer the right to remove a tenant in possession of the property pursuant to a lawful lease. So, if your listing-to-be has a tenant then you need to request copies of any written leases or a summary of any oral lease. You should confirm those facts directly with the tenant. Moreover, you should disclose the existence of tenants in the MLS and you might need to accept offers subject to the tenants terminating their lease and moving out on or before settlement.

Property managers frequently encounter landlord tenant issues but sales agents rarely do. So, assuming the tenants do not have a valid lease or are holding over, how does one remove a tenant from property, and is the tenant obligated to allow the property to be shown to buyers?

When a landlord seller wants to have a tenant removed, either due to the tenant's rent default or because a tenant refuses to leave at the expiration of the lease term, the landlord must get the assistance of the courts. Virginia does not permit a "self-help" residential eviction - changing the locks to the door, cutting off utilities, etc. - even if the lease allows for it. One should note that in Virginia a lease can be oral - express or implied - and if a landlord has accepted any money from a tenant then there is at least a month-to-month tenancy requiring thirty day written notice of termination. Generally (the lease may require otherwise) the first step is for the landlord to send a five-day notice to pay or quit to the tenant. The landlord seller may then file an unlawful detainer (eviction action) with the court, which can ask for rent, late fees, attorney's fees if allowed in the lease, and other damages. The initial court date will be two to three weeks away. The tenant must be served with the pleadings and given the opportunity to defend. If the tenant contests the eviction at the initial return date then the matter will be scheduled for trial 20 to 60 days later. Assuming the landlord wins, either at the initial return date or the later contested trial date, then the landlord can obtain a writ of possession directing the sheriff to physically remove the tenant and the tenant's property if the tenant does not leave voluntarily. Note that tenants subject to the Virginia Landlord Tenant Act have a one-time right to redeem the lease after suit has been filed by paying all sums then due, including costs and attorney's fees. Lastly, a tenant is obligated to allow showings of the property only if there is a written lease and the written lease specifically and expressly requires the tenant to permit showings for the purposes of sale.

Please do not hesitate to call or email me if you have any questions or comments.

Change in the POA Act

By Mike Aheron, Attorney

July 2003

The Legislature has changed the provisions of the Property Owner's Association Act (the "Act") to delete the $150.00 requirement. The bill also defines when an association packet is not available. This became effective on July 1, 2003. Previously, the Act stated that Homeowner's Associations were exempt when the dues were less than $150.00 a year. The Homeowner's Associations also did not have to give a disclosure "packet" if the dues were less than $150.00 a year.

"Declaration" means any instrument, however denominated, recorded among the land records of the county or city in which the development or any part thereof is located, that either (i) imposes on the association maintenance or operational responsibilities for the common area or (ii) creates the authority in the association to impose on lots, or on the owners or occupants of such lots, or on any other entity any mandatory payment of money in connection with the provision of maintenance and/or services for the benefit of some or all of the lots, the owners or occupants of the lots, or the common area.

A person selling a lot shall disclose in the contract that (i) the lot is located within a development which is subject to the Virginia Property Owners' Association Act; (ii) the Act requires the seller to obtain from the property owners' association an association disclosure packet and provide it to the purchaser; (iii) the purchaser may cancel the contract within three days after receiving the association disclosure packet or being notified that the association disclosure packet will not be available; (iv) if the purchaser has received the association disclosure packet, the purchaser has a right to request an update of such disclosure packet in accordance with § 55-512; and (v) the right to receive the association disclosure packet and the right to cancel the contract are waived conclusively if not exercised before settlement.

For purposes of clause (iii), the association disclosure packet shall be deemed not to be available if (i) a current annual report has not been filed by the association with either the State Corporation Commission pursuant to § 13.1-936 or with the Real Estate Board pursuant to § 55-516.1, (ii) the seller has made a written request to the association that the packet be provided and no such packet has been received with 14 days in accordance with subsection E of § 55-512, or (iii) written notice has been provided by the association that a packet is not available.

Roanoke Valley REALTOR® - June Issue
Reprinted with permission

In My Judgment

By Brian Lytle, Attorney
Legal Liability Committee Member

May 2003

Lawyers frequently notify agents that a judgment has shown up in the title search and will impede or prevent closing. Why is that?

A judgment is a judicial declaration - an order if you will -- that someone owes money to someone else. That order (judgment) may be docketed (recorded) in the Circuit Court Clerk's Office (the same place where deeds are recorded), upon which recordation it becomes a lien on any property then or later owned by the judgment debtor(s). This forms the essence of the title problem: the seller is unable to deliver clear and marketable title because the judgment is a lien unless it is satisfied by payment. There are a number of points agents should keep in mind as they deal with settlement agents in resolving judgment issues.

First, a judgment against one spouse does not attach to property owned by the other spouse alone or owned by them jointly provided they hold title as tenants by the entirety with right of survivorship as is common law. In order to obtain this protection it is critical that the couple actually be married, which is why settlement agents sometimes ask sellers for continuous marriage affidavits. Quite often one spouse will have judgments that do not attach during marriage to marital property held as indicated, but they do attach when the parties divorce because the act of the divorce legally severs the tenancy by the entirety and transforms their title by operation of law to a tenancy in common. The judgment will attach to the debtor's interest in the property and run with the land until paid. If the deadbeat ex-spouse cannot pay then the innocent spouse will have to pay in order to transfer clear title.

Second, I'm sure agents are often frustrated with settlement agents announce they have a possible judgment only to later find out the judgment is not against the seller and the angst and work was not required. The reason this happens is because of a rule of law known as the Rule of Idem Sonans, which provides that misspellings are immaterial as long as the name sounds the same and the initial letters of the family names are the same. For example, Virginia case law says that Ed Bolen is the same as Edmund Bolden, that Any O'Klay is the same as Annie Oakley, and that W.D. Poyner is the same as W.D. Pointer. Likewise, initials and abbreviations of the names can be dissimilar yet still count for the purposes of constructive notice in the record: For example, Jake is the same as Jacob, Mike is the same as Michael, and Frank is the same as Francis. These are the reasons we call you to ask for Social Security numbers and further information.

Third, we frequently encounter a situation where we report a judgment lien only to be told that the sellers filed bankruptcy and discharged the lien. Hrrmph (and worse) the sellers (and the agents) say - you must be mistaken because that debt was listed and discharged! Unfortunately, however, while discharging the lien in bankruptcy does mean the judgment creditor cannot pursue collection of the debt with the sellers personally, it does not mean the debt automatically is discharged from any real estate to which it might have attached as a lien pre-bankruptcy. One is an action against the debtors, which is barred, while the other is an action against the property, which is not barred. There are bankruptcy mechanisms by which the lien can be released in bankruptcy, e.g. by avoiding it as a preference, and astute bankruptcy attorneys usually, but not always, take that action. Often we can persuade creditors to release it anyway.

Lastly, there are statutes of limitation regarding the enforcement of judgment liens. The basic rule is that no suit can be brought to enforce the lien of any judgment after twenty years have elapsed. This period may be extended by application but that is a fairly rare occurrence. There is another statute of limitations rule that provides that the judgment may not be enforced if the property was transferred from the judgment debtor to a grantee for value more than ten years ago. Remember, once a judgment attaches it attaches forever unless paid, discharged or barred.

Escalation Clauses

By Brian Lytle, Attorney
Legal Liability Committee Member

April 2003

Given the current seller market, buyers are forced to respond rapidly and dynamically to competing offers received by the seller. As often as not, a particular buyer and her agent do not feel as though they are able to manage that process as well as they would like, so buyers are resorting to escalation clauses in their offers to make sure they get the house, or to at least make sure they do not lose it by a relatively small amount of money.

The consensus of opinion is that an escalation clause is enforceable - it is not an unenforceable invitation to bid or too vague to enforce - provided the price could be readily determined by reference to some ascertainable standard. In other words, can a judge determine whether the parties actually agreed on a sales price?

If not properly drafted, an escalation clause can devastate your purchaser. For example, one must include a cap - a sales price ceiling - to the purchaser's escalating offer otherwise your purchaser may well find himself agreeing to buy the house for more than it is worth and for more than he can pay. Instant breach, complaint and lawsuit. Likewise, one must consider what we mean by our definition of "offer" since an offer can be less than one ostensibly higher because it contains concessions. Consequently, simply specifying the highest offer plus a number does not truly identify the best offer.

At the Association we are in the process of revamping the standard clause booklet and we are working on an escalation clause for members. Recently, at the contract writing seminar, we showed students a draft of our escalation clause. To give you an idea of how this process works, I have modified the clause twice since then.

Presently, the working clause is as follows:

Escalation clause

Uses: An escalation clause is used in a seller's market where multiple offers are expected, your buyer wants to make sure they do not lose the property over relatively minor amounts of money, and there is no time to negotiate in the traditional fashion.

Note: An escalation clause should only be used in a situation where the purchasers have been fully advised of the consequences of an escalating offer. They should be fully prepared to purchase at a higher number. Note particularly the "net of concessions" language so there is an apple-to-apple comparison.

Clause: Contract Price to be [insert number, e.g. $500.00] higher than the highest bona fide offer, net of concessions, received by Seller, not to exceed [insert cap number, e.g. $5,000.00]. The parties intend this agreement to be a binding contract, and not an offer to enter into a contract at a later date. The price determination will take place as set forth herein, but the fact that the price is not determined as of the time this contract is fully executed by both parties shall not defeat the existence of a contract. Listing Firm to provide Selling Firm with a copy of the next highest bona fide purchase agreement offer.

As always, I commend you to your broker and company policy when drafting or using this clause.

Vicarious Liability

By Brian Lytle, Attorney
Legal Liability Committee Member

March 2003

Vicarious liability may be defined as the liability one suffers for the act or acts of another. In the real estate agent context, vicarious liability concerns itself with whether a broker or firm is liable for the acts of its agents. And under traditional tort principles, as you were taught in your real estate class, a brokerage firm is liable for the acts of its agents. In the case of Meyer v. Holley, the United States Supreme Court very recently decided a very important real estate agent vicarious liability case.

In Meyer the Supreme Court considered whether an individual officer and owner of a corporate brokerage firm could be held personally liable for the acts of one of its agents. The agent was alleged to have made disparaging remarks to a racially mixed couple, thus violating fair housing laws. The high court held that corporate officers and shareholders could not be held personally liable for the acts of the corporation's agents, and reversed the United States Ninth Circuit Court of Appeals in California, which had extended liability to owners and officers.

The difference is in the distinction, and here it is significant. The issue is not whether the company is liable - under basic tort law the corporation itself is vicariously liable for the acts of its agents in all 50 states to my knowledge - rather, the issue is whether that liability can be extended not just to the company but all the way down to its owners even though they may be mere shareholders expecting insulation from liability, which is the sine qua non corporate benefit. Thus the issue presented by the Meyer case was whether the corporate veil could be pierced and the individual owners of the corporation held liable even though they may not have had any thing to do with the underlying offensive act.

The Ninth Circuit Court of Appeals had concluded that traditional vicarious liability rules did not control the personal liability of corporate shareholders and officers in Fair Housing Act cases, and that owners and officers might be liable "simply on the basis that the owner or officer controlled (or had the right to control) the actions of the employee." While that is indeed the law in some situations, the United States Supreme Court held it was not the law in Fair Housing Act cases.

This case should give some comfort to real estate brokerage firm owners, but recognize that it does nothing to relieve individual agents or brokerage companies from liability.

Disclosure/Disclaimer Proper Execution

By Brian Lytle, Attorney
Legal Liability Committee Member

February 2003

I CLAIM, YOU CLAIM,
WE ALL CLAIM TO DISCLAIM
There once was an agent named No-brainer,
Who in haste failed to deliver the disclaimer,
Who in haste failed to deliver the disclaimer,
Until after it was accepted,
Leaving her seller rejected,
With no choice in the suit but to name her.

Anon Tall Lawyer

Your man on the corner continues to hear grumbling about failure to get disclaimers and disclosures to buyers before contract acceptance.

Va. Code § 55-520 provides as follows:

A. The owner of . . . shall deliver to the purchaser the written disclosures or disclaimer . . .prior to the acceptance of a real estate purchase contract . . .The residential property disclaimer statement or residential property disclosure statement may be included in the real estate purchase contract, in an addendum thereto, or in a separate document.

B. If the disclosure or disclaimer . . . is delivered to the purchaser after the acceptance of the real estate purchase contract, the purchaser's sole remedy shall be to terminate the real estate purchase contract at or prior to the earliest of (i) three days after delivery . . . or (ii) five days after . . . [mailing], or (iii) settlement . . ., or (iv) occupancy . . ., or (v) the execution . . . of a written waiver . . ., or (vi) [loan application with disclaimer termination language].

So, in the haste to get an offer before the REIN electrons even begin their journey into cyber space, the buyer presents an offer without the disclaimer. Seller (after dutifully considering the other ten offers) signs and accepts buyer's offer. The disclaimer, with a smiley face Post-It™ note on it asking the selling agent to "please sign and return" is then sent to the buyer's agent, along with the executed contract. At closing, the buyer, mad over [insert your favorite buyer mad over a minor thing story here] says I am canceling pursuant to Va. Code § 55-520 and walks away. Whether the buyer can do so without penalty turns, of course, on how and whether the disclaimer was delivered, and the unabridged language of Va. Code § 55-520 is fairly clear regarding the possible outcomes so I will commend that to your self-analysis. Ask yourself though whether as a listing agent you have done your job well - particularly in this market - if you have left a buyer with an out, even if it is only for a few days and not until settlement.

Look, although I am but the (tall) oracle of judicial wisdom loitering on the agent corner, I recognize the practical problems here. I just think you can easily solve them. For example, it would be quite easy to scan the disclaimer, save it in Adobe pdf (or any other small file size format), and email it to any agent about to write an offer. Many of you have web sites - scan and post the disclaimer there for downloading. Note those options in agent remarks. Recall there is no statutory requirement for the disclaimer to be signed (and having dutifully read my previous articles you will know that a return email can be a signature in any event - right?) although the VREB prescribed form has a buyer signature line. You can fax it (and you can get an internet fax number that can be sent, received and accessed whether you or the recipient are at a fax or not). You can leave it at the property and require acknowledgement with any offer. I understand your Association - of which I am, ahem, Affiliate of the Year - plans to help solve this problem soon with a transactional platform, but until then you need to solve it.

You can see an example of such a posting at www.lytlelaw.com, where in the REALTORS^® Overview page I have posted a link to a sample pdf disclaimer. Call or email me if you have any questions or comments.

Title Insurance

By Brian Lytle, Attorney
Legal Liability Committee Member

January 2003

Your man on the corner frequently hears agents and buyers say that lender's title insurance protects a buyer to the extent of the loan. This is particularly true, they say, when there is little or no equity in the property. Nothing could be further from the truth.

A lender's title insurance policy affords a buyer no protection whatsoever. That insurance contract is between the lender and the title insurance company. Only the lender can make a claim on its policy. A lender will only make a claim on its title policy when the lender's security interest is impaired, and impaired is not the same thing as threatened. This is an important distinction, which I will address later.

Think of title insurance like car insurance. And assume on our metaphorical car that you have borrowed money in order to buy it. If your car is stolen and if you do not have insurance to cover that loss then you still owe the loan to the bank regardless whether you have the car or not. Just like with the car, our real estate buyer executed a note to his bank: trust me that nowhere does that note say "but if you lose the house the loan is forgiven." So, if the proverbial defrauded-prodigal-wife-in-the-chain-of-title shows up on the new buyer's doorstep and rightly says, "get out of my house" then your buyer still must pay the loan to the lender.

Suppose in our example the buyer then called the title insurance company and said I have lost my house, please pay the loan. The title insurance company would rightly say that the buyer is not its insured, the lender has made no claim on the policy, and it is not its problem. It would only be when the purchaser failed to make payments, thus driving the property into foreclosure, that the lender's security interest would be impaired (it would be unable to foreclose without clear title). But it would be the one making the claim, not the buyer, and it alone would receive payment. Note that since there is no collateral upon which to foreclose, there are no sale proceeds available to satisfy the loan.

At that point the title insurance company would indeed pay the loan off pursuant to the policy. In doing so they are "subrogated" to the lender's rights. Think of "subrogation" as the title insurance company legally stepping into the bank's shoes. And standing in the bank's shoes the title insurance company can turn to the buyer and say: you agreed to pay this loan, now pay. If the buyer does not pay then the title insurance company can sue the purchaser on the note. In other words, the title insurance company has purchased the note from the buyer and is entitled to those payments.

Therefore, the only mechanism by which a buyer is protected by title insurance is through a policy issued in the buyer's name, for the buyer's benefit. So, follow the advice of your Association's Weapon of Mass Instruction and disabuse your client of the notion she is protected by a lender's policy, else she will hear those fateful three words from everyone: "not my problem."

Release of Contract

"Please Release Me"

By Brian Lytle, Attorney
Legal Liability Committee Member

December 2002

The REIN form release serves three basic purposes. First, it clearly and unambiguously terminates the contract. Second, it releases both parties and agents from any claims against each other. Third, it specifies what is to happen to the deposit. Releases are clear, useful and to be obtained where possible.

Releases are not legally required, however, for a contract to terminate and end the obligations of the parties thereunder. The REIN contract has provisions that serve to terminate it on its own terms, e.g. the appraisal conditions in paragraph 10. But the REIN contract also expressly requires the parties to sign a release, as it does in paragraph 5(B) (loan qualification). The distinction could be useful if one has to sue for return of a deposit and probably would help the prevailing party obtain attorney's fees.

What happens when a buyer does not close but refuses to sign a release? Of course, the precise answer is fact dependent but generally I will advise listing agents to put the selling side on written notice of the seller's position regarding the buyer's failure to close and of the seller's intent to put the property back on the market. You should make a note in the "Agent Remarks" section of the listing to call attention to the pending contract still waiting on a release, and any subsequent contract should have a "subject to release of pending contract" provision. This problem almost always resolves itself by the time a new contract is received and ready to go - either the seller can avail herself of the thirty-day safe harbor provision of the REIN contract or I will be comfortable in rendering an opinion for my clients that they can proceed without more.

What happens when a seller does not close but refuses to sign a release? This is the more common occurrence in my experience, because it means the buyers - who feel they are innocent - can not get their deposit returned (and boy do they get mad). Here the tack is a little different: I also advise the buyers to put the sellers on written notice, but here the odds are much greater that the matter will be mediated and then litigated so our notice letter contains appropriate warnings in that regard. Here the buyers still need to be protected if the seller is insisting the buyers are somehow in breach by having a "subject to release from pending contract" provision in any subsequent offer they might make. I recognize that this provision may cause a practical problem for buyers in this market but it is the only 100% safe way to proceed early in the process - I will revisit that language and approve its removal depending on the circumstances as they develop.

As a reminder, brokers may not release the deposit absent written authorization, which almost always comes via the REIN release form. If there is no such written agreement then the broker must hold the money unless the broker can disburse it pursuant to the clear and explicit terms of the agreement of the parties after the broker has provided written notice of her intent to do so. After this notice there is a thirty-day protest period. If there is a written protest the broker should not pay the deposit. If no protest is received after the required notice then the broker may pay the deposit to the party entitled to it, but the broker still should be very careful and consult with counsel, who ought to recommend an indemnification agreement from the recipient of the deposit. Remember brokers, you have little to gain by paying the deposit without consent from all parties and an awful lot to lose.

And so we shall conclude this article, as your Legal Corner author is wont to do, with a popular culture reference. In this case, we hearken back to the golden voice of Englebert Humperdink and his hit, Please Release Me.

Please release me let me go.
For I don't want to sell to you any more
To waste our lives would be a sin.
Release me and let me sell again.
I have found a new buyer dear.
And I will always want her near.
Her loan app is good while yours is bad.
Release me, my darling, let me go.
Please release me let me go.

Contract Financing Terms Clear, Concise Language

"To be determined, or not to be determined:
that is our question"

By Brian Lytle, Attorney
Legal Liability Committee Member

November 2002

Quite often buyer's agents are faced with a lack of loan information (or are lazy or have a buyer with options) when they write an offer. As a consequence the agent inserts the phrase "to be determined" in paragraph 2 of the REIN contract instead of a number.

The uncertainty in a contract with that phrase is particularly acute because it is a condition precedent, or contingency if you will, to the buyer's duty to perform. And so to what would a judge look to analyze the terms of the contract? Determined by whom? Determined in what manner and when?

Good, bad, enforceable? Well two out of three: I think it is bad practice but it is probably enforceable. The Virginia Supreme Court has said: "The law does not favor declaring contracts void for indefiniteness and uncertainty and leans against a construction which has that tendency. While courts cannot make contracts for the parties, neither will they permit parties to be released from the obligations which they have assumed if this can be ascertained with reasonable certainty from the language used, in the light of all the surrounding circumstances. This is especially true where there has been partial performance."

Given that statement of the law I do not believe a judge would throw the contract out based on our imprecise language alone, but would analyze the circumstances of the offer and the determination.

For example, I suspect if you had buyers who qualified at normal loan-to-value ratios the judge would enforce the contract, especially if the buyer tried to back out late in the deal based on some generalized they "had a different loan in mind" explanation. On the other hand, if the buyers did not qualify for a 95% loan to value but did at 90%, and the evidence is that buyers only have marginally adequate savings, I think a judge would allow them out of the contract.

Using the terms "minimum down payment" and "maximum loan amount" instead of actual numbers is somewhat akin to using the term "to be determined." The use of these references is much less objectionable in my mind, however, because they are capable of fixed precision by reference to loan type. There is no arbitrary exercise or determination by the buyer.

As a lawyer my chief concern is whether the contract is enforceable, and I recognize that there are non-legal tactics and strategies involved in the use of these (and other) labels. But I would still caution you against their use: although the clauses are perhaps enforceable, both agents might not be serving their client well: the listing agent allows his seller to have the house tied up with an offer that may well not be
enforceable factually or legally in a market where there are options; and, the selling agent allows her buyers to sign a contract where they might be forced to accept financing they did not want or have their offer rejected because it is not as cleanly or competitively written as competing ones.

In the final analysis, Agent Hamlet, ask yourself whether 'tis nobler in the mind to suffer the slings and arrows of marginal provisions or to take arms against a sea of uninformed agents, and by opposing end them?

Material Changes

By Brian Lytle, Attorney
Legal Liability Committee Member

October 2002

The times they are a-changin'. Of course, that Bob Dylan song spoke to social unrest and change in the 60's, but things also are constantly changin' in the fast-paced world of real estate transactions.

When is an agent obligated to disclose transactional change? There are two particular sources of such a duty of which I want you to be aware:

First, VREB regulation 18 VAC 135-20-310 provides that "Actions constituting improper delivery of instruments include: .2. Failing to provide in a timely manner to all principals to the transaction written notice of any material changes to the transaction.." Surprised? I thought so. This is fairly broad language and would seem to encompass many circumstances we take for granted (and may not always disclose, timely or otherwise). For example, short sale declination, financial changes, title problems, repair problems, closing date issues, contingency removal issues, etc.

Second, with respect to changes, the REIN Standard Purchase Agreement only provides that ""Buyer shall notify Seller in writing of the occurrence of any material adverse change

Archive of Legal Corner and Legal Liability Articles

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The Blame Game

NOW YOU'VE DONE IT!

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Party Time

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A Real Estate Agent's Guide
To The Unauthorized Practice of Law
Part 1, Background

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Change in the POA Act

In My Judgment

Escalation Clauses

Vicarious Liability

Disclosure/Disclaimer Proper Execution

Title Insurance

Release of Contract

Contract Financing Terms Clear, Concise Language

Material Changes

Archive of Legal Corner and Legal Liability Articles

Bankruptcy FAQ's

The Blame Game

NOW YOU'VE DONE IT!

Walk-Throughs and the Doctrine of Merger

Yoda on Megan's Law

Party Time

Ordinary People

Specific Performance

The Quest for the Packet Truth

Power of Me

Swear, Agents as Notaries

A Real Estate Agent's Guide To The Unauthorized Practice of Law Part 1, Background

Whose House is it Anyway?

Change in the POA Act

In My Judgment

Escalation Clauses

Vicarious Liability

Disclosure/Disclaimer Proper Execution

Title Insurance

Release of Contract

Contract Financing Terms Clear, Concise Language

Material Changes

A Real Estate Agent's Guide
To The Unauthorized Practice of Law
Part 1, Background