The California Association of REALTORS(R) recently released three new and 23 revised forms for use in real estate transactions. To read John Giardinelli’s summary of those forms, please click on the following link: http://srcar.org/assets/2013/12/December2013_Newsletter_New_Forms.pdf
BY: SYLVIA J. SIMMONS, ATTORNEY AT LAWCASEY MCINTOSH, PARALEGAL
The California Association of REALTORS® (C.A.R.) released several new and revised forms on July 29th. The following is a brief summary of those forms and what their changes mean to real estate practitioners.
Two new forms replace the Seller Instruction to Exclude Listing (SEL). REALTORS® should take note that C.A.R. does not monitor the legal validity of any prior form version and the C.A.R. User Protection Agreement only applies to the most current version of a form.
Seller Instruction to Exclude Listing from the Multiple Listing Service (SELM)
The SELM provides a request by the seller to the broker to advise the MLS that the seller wants to completely exclude the property from the MLS. Paragraph 6, “Impact/Reduction of Exposure,” has been added to expound on the fact that any reduction in exposure may lead to a reduction in the number of offers made and may negatively impact the sales price. Paragraph 7, “Seller Opt-Out,” has been reformatted to make it easier to identify the time limitation on the exclusion.
Seller Instruction to Exclude Listing from Internet (SELI)
The SELI provides a request by the seller to the broker to advise the MLS that the seller wants to (1) opt-out of Internet display of the property or its address and/or (2) try to prevent comment features or value estimate features on MLS-related internet sites.
Revised Forms – 8 Listing Agreements
According to C.A.R., it is okay to use prior revisions for each of the following forms.
Commercial and Residential Income Listing Agreement (CLA)
The CLA now includes the following new provisions:
Manufactured Home Listing Agreement for Real and Personal Property (MHL)
The MHL contains all the same additions as added to the CLA.
Probate Listing Agreement (PL)
The PL contains the same additions as added to the CLA regarding the MLS (1 through 5 above), but not the dispute resolution language.
Residential Listing Agreement (RLA)
The RLA boxed language regarding the MLS is revised to be the same as in the CLA (now includes “presenting all offers,” “clubs or groups,” “excluding it from the MLS”, and “reduction in exposure”). Also, “DRE” is changed to “BRE.”
Residential Listing Agreement-Agency (RLAA)
Residential Listing Agreement-“Open” (RLAN)
Trust Listing Agreement (TLA)
Vacant Land Listing Agreement (VLL)
Each of these forms contains the same additions as made to the CLA regarding the MLS (1 through 5 above). Also added to each form is a warranty by seller that seller is the owner, no other persons or entities have title to the property, and seller has authority to execute the form and sell the property.
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The new forms released on July 29th emphasize the benefits the MLS offers to sellers and brokers, including the exposure that listing a property in the MLS offers. This implies that the property will sell more quickly and with less stress (and legwork) for both the seller and the broker.
As always, real estate practitioners should thoroughly understand the forms presented to their clients for signature. If a REALTOR® has any questions or concerns about which form is appropriate or how to complete a form, the broker, brokerage attorney, or other qualified legal counsel should be consulted.
Full newsletter available here.
NEW APPELLATE COURT DECISION: CALIFORNIA CORPORATE BROKERS NOT LIABLE TO THIRD PARTIES
BY: TAMAR GABRIEL,ATTORNEY AT LAW
A recent case decided by the California Court of Appeal will have an effect on how the scope of a California Corporate Broker’s liability is defined. In Sandler v. Sanchez, the appellate court’s ruling limited liability of a designated officer (sometimes referred to as “corporate brokers” or “brokers of record”) to the corporation, not to third parties.
In this case, the Sandlers, along with another party, sued 765 South Windsor, LLC, Gold Coast Financial, a real estate brokerage corporation, and Carlos Sanchez, Gold Coast’s designated officer/broker. According to the allegations in the operative third amended complaint, Keith Desser, a real estate salesman, president, and sole shareholder of Gold Coast and a principal of South Windsor, solicited the Sandlers to loan $600,000 to South Windsor to finance improvements to an eight-unit apartment building for the purpose of converting the units to condominiums. Desser, however, failed to reveal $600,000 was not enough money to do the improvements and that there was not enough equity in the property to secure their loan, which was a junior loan. When the primary lender refused to extend the first note, which was imminently due, the property was foreclosed by the holder of the first trust deed, which left the Sandler’s note unsecured. In addition, Desser used the $300,000 of the loan proceeds, which he obtained by amending the escrow instructions, for his personal expenses.
The Sandler’s third amended complaint asserted a cause of action for breach of fiduciary duty against Sanchez. Although the complaint did not allege Sanchez played any role in the transaction, or even knew of it, the Sandlers alleged that Sanchez, as Gold Coast’s designated officer, owed them a duty to supervise Gold Coast’s employees, including Desser, in accordance with California Business and Professions Code Section 10159.2. The Sandlers alleged that had Sanchez fulfilled his duty to supervise, he would have learned about Desser’s material misrepresentations and either disclosed them to the parties or cancelled the loan transaction. The Sandler’s complaint also alleged Desser was Sanchez’s agent and Sanchez, as Desser’s principal, is liable for Desser’s tortuous acts committed within the scope of that agency.
Sanchez demurred to the third amended complaint, arguing he owed no duty, as a fiduciary or otherwise, to the Sandler parties. Sanchez argued that while a claim for breach of fiduciary duty would lie against Gold Coast and Desser, there can be no liability against him as a matter of law absent allegations he authorized or personally participated in the wrongful conduct. He also argued he was not Desser’s principal and, therefore, could not be held vicariously liable for Desser’s misconduct. The trial court agreed with Sanchez and sustained his demurrer to the third amended complaint without leave to amend. The court thereafter signed an Order dismissing the action against Sanchez. On appeal from an order dismissing an action after the sustaining of the demurrer, the appellate court independently reviewed the case and ultimately agreed with the trial court’s decision.
Gold Coast Financial is a corporation. In California, a corporation can be a licensed real estate broker. In order to form such an entity, the corporation must designate a licensed individual broker as the entity’s designated officer. Sanchez was the designated officer of Gold Coast Financial. As such, pursuant to California Business and Professions Code Section 10159.2, he was “responsible for the supervision and control of the activities conducted on behalf of the corporation by its officers and employees…including the supervision of salespersons licensed to the corporation…” Therefore, Sanchez was responsible for supervising Desser (even though salesperson Desser also happened to be the sole shareholder of Gold Coast). The court reviewed the governing law. It noted that Section 10159.2 imposes a duty on the designated officer to supervise the corporate broker’s employees. However, the main issue in this case was to whom is that duty owed? Here, although Section 10159.2 imposes a duty of supervision on the designated officer of the corporate broker, it does not, on its face, expressly state to whom tat duty is owed. After reviewing other cases as well as legislative history that brought this sction into being, the court concluded that smilar to a section governing contractors, the rlevant code section was “regulatory and disciplinary in nature. It did not create a duty to tird parties and therefore could not be a basis fr the broker’s personal liability.”
On the question of whether Sanchez was vicariously liable, as a corporate employer, for te tortious acts of the agents committed within te scope of the agency or employment, the court ruled that absent special circumstances, it i the corporation, not its owner or officer, that is te principal or employer and thus subject to vicarious liability for torts committed by its employees or agents. Accordingly, the Court held that under traditional agency principles, it is Gold Coast, as Desser’s employer, not Sanchez, who may be held liable for Desser’s torts committed within the scope of his employment. The Court ruled that the right to control is insufficient by itself, under traditional agency principles, to establish a principal/agent or employer/employee relationship. For an agency relationship to exist there must be an affirmative manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other to so act. Mere inaction or malfeasance would not create such a relationship between two employees.
The significance of this appellate decision for real estate agents and brokers is that the failure to supervise could lead to discipline from the Department of Real Estate, and could even be grounds for action by the corporation against the designated officer. However, unless the broker had participated in the bad behavior there can be no liability imposed by an injured third party.
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BY: TAMAR GABRIEL,ATTORNEY AT LAW
CASEY MCINTOSH, PARALEGAL, researched and contributed to these articles.
California Business and Professions Code Section 10137 governs the circumstances under which a licensed real estate broker can compensate a person from the commissions obtained in a real estate transaction.
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REAL ESTATE CONCERNS: TO WHOM CAN COMMISSIONS BE PAID?
Specifically, this Code Section states that “it is unlawful for any licensed real estate broker to employ or compensate, directly or indirectly, any person for performing any of the acts within the scope of this chapter who is not licensed under the broker employing…” It further states that “no real estate broker shall be employed by or accept compensation from any person other than the broker under whom he or she is at the time licensed.” Unfortunately, the Code still seems to allow for some confusion as to the payment of third parties, former employees, and other aspects of commission payments that brokers are often faced with.
Pursuant to an interpretation by the California Department of Real Estate, the commission earned in a real estate transaction belongs solely to the employing broker. The employing broker must be involved in the distribution of commissions under his or her license. Any violations are subject to temporary suspension or revocation of his or her license. In light of this, a salesperson can instruct the employing broker to pay his or her commission to a third party, but that payment can only be made if the third party did not perform acts for which a real estate license is required. Business and Professions Code Section 10137 correlates with the Real Estate Law (Business and Professions Code Section 10000, et seq.) and is intended to prevent payment for unlicensed acts.
Commission sharing or splitting is not prohibited by Business and Professions Code Section 10000, et seq. However, prior to entering into an agreement for commission splitting or sharing, it is important to check with an attorney to make sure the agreement does not violate other laws pertaining to real estate, such as the Federal Real Estate Settlement Procedures Act (RESPA). In a situation where commissions are legally split or shared, the commissions still belong to the employing broker. Agents may work together and decide to share or split the commission only if the entity that they are sharing or splitting with has not performed any acts for which a real estate license is required. If the entity that the agent is sharing or splitting a fee with does have to perform the acts of a licensed real estate person, then he or she must also be licensed. Even then, it is only legal to share or split fees if the licensee was acting within the course and scope of his or her license.
Commissions earned by former employees also present a problem for brokers. Compliance with the Code requires brokers to issue checks for commissions to the former employee’s new employing broker. If such a person does not exist for whatever reason, it is the Department’s policy that an earned commission can be paid directly to a former employee. This remains consistent with an Attorney General Opinion dealing with the payment of earned commissions to suspended licensees.
Lastly, confusion often arises with regards to dual employment. This is most likely due to the fact that it may seem that brokers are allowed to work for two companies while agents are not. In reality, however, Business and Professions Code Section 10137 allows real estate brokers to act as salespeople or broker-associates for another broker. Real estate agents, however, are only allowed to work for one broker and may only accept compensation from their employing broker. This is to ensure that one employing broker is directing and controlling the licensed activity of an employed salesperson.
The bottom line when it comes to real estate commissions is that they are under the control of the employing broker. Commissions can be paid to someone else—it is one of the major perks of being a real estate agent! This includes third parties and suspended former employees, but Business and Professions Code Section 10137 was enacted to provide guidelines for the payment of compensation and to ensure that consumers are protected from unscrupulous people who attempt to perform the actions of a real estate broker or real estate agent without a license.