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Broker Liability Litigation for Civil and Enforcement Lawyers
The level of anti-consumer and anti-competitive residential real estate practices is at an all-time high. Real estate licensing laws that got their start in consumer protection have mutated into laws that protect the industry that they were designed to regulate. Abound are laws that legalize previously illegal conduct, laws that prevent consumer class action lawsuits, and laws that seem to encourage deceptive and unfair business practices. These so-called licensing laws have provided Realtors with a false sense of immunity from lawsuits and may have created a trail of liability that exceeds those protections.
As an example, a remedy often available in undisclosed dual agency cases (common law fraud) is a rescission. Imagine the potential a rescission remedy might have for a foreclosure defense lawyer whose client was a victim of the undisclosed dual agency. If the lawyer could prove that the client was subjected to the undisclosed dual agency, the liability could be shifted away from the client and on to the real estate brokerage that sold him the house. By third partying the brokerage into the case, the lawyer could provide his client with a treasure trove of client remedies.
All lawyers who have a cause of action against a real estate brokerage should first do a fiduciary analysis to determine if advantages exist such as the extension of the statute of limitations, burden of proof shifting, fee forfeiture, rescission, criminal prosecution or punitive damages.
1. Fiduciary Law – Summary of Basic Principles
Note: We have not provided specific case law on the below principles because this law largely resides in state common law and is voluminous and varies state-by-state. However, a great starting point for research in this area is the Restatement of Agency 2d or 3rd.
Fiduciary Analysis – Lawyers Start Your Broker Liability Cases Here
2. Lawsuits and Causes of Action that Need to be Litigated
- Real estate brokers and firms that abuse supervisory duties and their duties to clients in order to steer clients to affiliated business arrangements. Brokers often provide incentives to managers based upon the capture rate of the agents they supervise.
- Real estate brokers and firms that abuse supervisory duties in order to increase the frequency of dual agency transactions.
- Real estate brokers that increase client exposure to dual agency transactions through the use of market manipulations such as:
- Pocket Listings – brokers abuse their position of trust and reliance and persuade clients to limit market exposure of property only to in-house buyers. This severely limits market demand and assures broker will collect excess in commissions.
- Financial incentives to in-house agents or disincentives to cooperating brokerage firms
- Intentionally pulling listing data from free redistributors of data in order to reduce market exposure of listings.
- Claiming copyrights on client data in order to limit market exposure of listings to the company website.
- Broker “designates” an already conflicted agent as a client representative (i.e., a manager).
- Broker improperly supervises “designated agents” because the broker is a dual agent and conflicted.
- Presumption of undisclosed dual agency is not overcome by designated agency forms. Although “disclosure” of risks may be statutorily satisfied, conduct inconsistent with fiduciary duties is not exempted and presumptions of breach of duty still exist in a dual agency situation (brokers are still dual agents).
Interference with Fiduciary Relationships – Conspiracy to Commit Bribery
- Listing brokers and agents representing sellers routinely offer secret compensation (often termed “bonuses”) to buyer brokers without the buyer’s knowledge or informed consent. The Realtor Associations in each region that own MLS’s typically facilitate this practice by providing hidden fields that only agents can see.
- Commercial bribery statutes typically define the term to include corruptly offers, gives, or agrees to give, directly or indirectly, any benefit, consideration, compensation, or reward to any fiduciary of a person with the intent to influence the person’s performance of duties as a fiduciary in relation to the person’s employer’s or principal’s business.
- Real estate brokers who meet in private (at Realtor Association forms committees) and alter standard form purchase agreements in such a way that causes an increase in fees for their affiliated business arrangements.
- Real estate broker groups like the MLS and Realtor Associations that facilitate commission fixing through limitations on data.
- Brokers who avoid negotiating their fee by telling buyer clients that they work for free because the seller is paying their fee.
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