HOW TO STAY OUT OF TROUBLE IN A TROUBLED WORLD Title Stream APPENDIX: Purchase Agreement - pg.9 | White Vs. Strange Case - pg. 18 Defining Trouble 1. Trouble as a Licensee a. Fees, fines, suspension of license 2. Trouble with liability to clients 3. Trouble with the “deal” a. Keeping buyers and sellers under contract through to Act of Sale 4. Keeping your clients out of trouble Relationship Between Real Estate Agents and Buyers/Sellers 1. Agent or Mandatary? a. Mandate is a contract by which a person, the principal, confers authority on another person, the mandatary, to transact one or more affairs for the principal. La Civ Code art. 2989 b. Real Estate Agents i. A real estate “agent” as that term is used in real estate law, particularly the Louisiana Licensing Law is a “licensee acting under the provisions of this Chapter in a real estate transaction,” meaning someone licensed to conduct real estate activity in Louisiana. La R.S. 37:1431 ii. For example, a agent in the case of a listing agreement, can be compared to an employee. The agent accepts the “job of selling his “employer’s” (the owner’s) property, but the agent has no legal authority to bind the owner. His true “job” is to find eomeone to buy, not to act for the owner and actually transfer the property by signing the act of sale. 2. Mandate (Power of Attorney) a. The contract of mandate is not required to be in any particular form. Nevertheless, when the law prescribes a certain form for an act, a mandate authorizing the act must be in that form. La Civ Code art. 2993 b. Example: Power of attorney granting the mandatary the authority to transfer title to real estate is required to be in the same form as the act of sale authentic act 1 Listing Agreements Three types: 1. NonExclusive Listing Agreement a. Owner of real estate may place it in the hands of as many brokers as he sees fit, and several brokers are employed. The one who produces a customer and is the “procuring cause” of the sale is entitled to the commission. 2. Exclusive Agency a. Precludes the owner from employing other brokers during the term of the listing agreement but does not preclude the owner from selling the property himself. 3. Exclusive Right to Sell – Standard form used by Brokerages a. Entitles the broker to commissions on all sales during the life of the contract including those made by the owner regardless of the agent’s role as procuring cause, absent any exclusions b. If the owner has been negotiating with prospective purchasers before engaging a broker, the owner should specifically list those prospective purchasers as exclusions from the listing agreement that gives the broker exclusive right to sell. Duty of Care Every act whatever of man that causes damage to another obliges him by whose fault it happened to repair it. LA Civil Code art. 2315 Every person is responsible for the damage he occasions not merely by his act, but by his negligence, his imprudence, or his want of skill. LA Civil Code art. 2316 Example: Negligent Misrepresentation Buyers were aware of a prior termite infestation, but they were assured by the real estate agent that the rest of the house, other than the attic, which was indicated on the report, was structurally sound. It would be a question of fact as to whether the real estate agent had negligently misrepresented to buyer the amount of damage which had been caused to the home by termites. Example: Buyer has the duty to inspect the property before the deadline. If the buyer misses the inspection deadline and later wants to back out of the contract due to a condition of the property that he should have ascertained, the agent might be in breach of the duty of care in making sure the buyer understands the terms of the purchase agreement. 2 Detrimental Reliance A party may be obligated by a promise when he knew or should have known that the promise would induce the other party to rely on it to his detriment and the other party was reasonable in so relying. Recovery may be limited to the expenses incurred or the damages suffered as a result of the promisee's reliance on the promise. Reliance on a gratuitous promise made without required formalities is not reasonable. LA Civil Code art. 1967 Example: Inspections and Due Diligence – Agent hires inspector (for account of Buyer); agent deals exclusively with inspector; agent get inspection report and deals with repair issues; response to Seller, etc Disclosures 1. Seller’s duty to disclose a. Seller of residential real property must furnish purchasers with a Property Disclosure Document, which may be in the form promulgated by the LREC or another form that contains substantially the same information. 2. Buyer’s rights and Seller's consequences for failure to disclose a. If the property disclosure document is not delivered until after purchaser makes an offer, purchaser can terminate any resulting real estate contract or withdraw the offer for up to 72 hours after receipt of the disclosure. This termination or withdrawal will always be without penalty to purchaser and any deposit must be promptly returned to purchaser (despite any agreement to the contrary) 3. Duties of Real Estate Licensees and Consequences for failure to fulfill duties a. Agents are not liable for error, inaccuracy, or omission in a disclosure, unless the agent has actual knowledge of the error, inaccuracy, or omission b. Agents are required by law to inform clients of their duties and rights in connection with Property Disclosures Purchase Agreement 1. Duty of licensee to use purchase agreement forms (LA R.S. 37:1449.1) a. No licensee shall alter the purchase agreement form; however, addendums or amendments to the purchase agreement form may be utilized 3 i. This prohibits handwriting and initialing outside of the blank spaces ii. Initialing the provided lines at the bottom of each page is important to prevent a “slip page.” 2. Writing an effective offer a. Purchase agreements should be filled out completely, leaving no blanks (write N/A if blanks do not apply) b. Purchase agreement must be signed by all owners (sellers) and all buyers. c. Information gathering is key to avoiding future problems i. Obtain copy of the act vesting title to the current owners 1. Helpful in determining legal description ii. Obtain information on owners’ and their status 1. Individuals a. Single/Married/Divorced b. Dead, alive, interdicted, bankrupt 2. Legal Entities a. Who has authority to bind the entity? 3. Property Description a. Legal Description of property being sold b. Listing of movables included in sale i. Include on lines 20 – 22 if being transferred to buyer with no value ii. Include on lines 27 – 28 if being excluded from the transfer iii. Include on lines 288 293 if being transferred to buyer, but part of consideration for the purchase price 4. Deadlines, Dates, and Times a. Date of Contract (Line 3) b. Act of Sale (Lines 38 42) i. to be executed before settlement agent or Notary to be chosen by Buyer, on (date) ii. Any change of date must be mutually agreed upon in writing and signed by Seller and Buyer. c. Financed Sale i. Buyer to make written loan application no later than days after date of acceptance (Line 73) 4 d. Leases/Special Assessments (Lines 138 143) i. Sale is conditioned upon Buyer’s receipt of copy of all written leases, excluding mineral leases, and unpaid special assessments from Seller within 5 calendar days of acceptance… Buyer will have 5 calendar days after receipt of aforementioned documents to notify Seller whether they are acceptable to Buyer. e. Inspection and Due Diligence Period (Lines 150 187) i. Line 157 Inspection period of calendar days from first day after acceptance ii. Line 172 Buyer’s option to request remedies of deficiencies from seller in writing gives seller 72 hours to respond iii. Lines 175 182 Additional 72 hours from date of seller’s response or date seller’s response was due, for buyer to a) accept Seller’s response, b) accept property in current condition, or c) elect to terminate agreement f. Private Water/Sewerage (Lines 191 199) i. See new sewer/private water addendum g. Merchantable Title/Curative Work (Lines 230 240) i. If curative work is required, the parties agree to extend closing date to a date not more than calendar days from date of Act of Sale stated herein. h. Final Walk Through (Lines 242 246) i. Buyer’s right to reinspect property within 5 days prior to Act of Sale, or Occupancy to determine if Property is in same or better condition and insure all agreed upon repairs have been completed. ii. Seller agrees to provide utilities and immediate access to property. iii. How to avoid trouble is it better to reinspect property 5 days prior to closing, 1 day prior, or 1 hour prior to closing? 5 There could be advantages and disadvantages on case by case basis i. Deadlines (Lines 284 286) i. All “calendar days,” as used in this agreement, end at 11:59 in Louisiana. j. Expiration of Offer (Lines 351 354) i. This offer is binding and irrevocable until k. Acceptance, Rejection, Counter Offer (Lines 374 391) i. Date and time of acceptance or counter offer controls some of the other deadlines within the agreement. 5. Inspection and Due Diligence Period (Lines 150- 187) a. Within Inspection period, if buyer is not satisfied, he may terminate agreement or indicate in writing the deficiencies and desired remedies.