LEGAL PULSE NEWSLETTER: YEAR-IN-REVIEW 2016

Welcome to the Year-in-Review edition of the Legal Pulse newsletter. In this edition, we
review legal authorities in the areas of Agency, Property Condition Disclosure, and RESPA. In
addition to our regular review of the recently-decided cases in the past quarter, we revisit a few
of the significant cases discussed in previous editions this year, summarize legislative activity
that has occurred in each of the states since our last review, and analyze trends observed in
2016. We also present an annual review of Fair Housing cases and legislative activity from the
past year.

Consistent with 2015, breach of fiduciary duty was the most frequently-addressed
Agency issue. Dual agency, vicarious liability, and other agency issues also came up in a
significant number of cases. A few cases resulted in rather large damage awards, but overall,
real estate professionals were successful in the vast majority of cases involving agency issues.
Last year saw a substantial amount of legislative and regulatory activity on agency issues.
Several jurisdictions modified their real estate licensing code to reorganize, restructure, or
redefine terms. Other statutory or regulatory changes defined or modified supervising or
principal broker duties and addressed licensee advertising. In addition, this year we began
specifically tracking Teams and Coming Soon Listing issues. We saw legislative activity on both
of those topics in 2016.

Once again, mold and water intrusion issues remained the predominant topic addressed
in Property Condition Disclosure cases. Those cases usually turn on whether the purchaser can
provide any evidence that the real estate representative had knowledge of the water problem.
One issue that arose in several 2016 cases was the effect of an as-is clause in a purchase
agreement or a contract provision in a representation agreement that seeks to limit the real
estate professionals duty to the purchaser. In this context, the courts tend to find that a
licensee still owes statutory or other duties to the property purchaser. Although licensees fared
well in 80% of the property condition disclosure cases, there were a couple of large damage
awards issued against licensees for failure to disclose structural and other defects.

There were fewer property condition disclosure legislative and regulatory changes for
the year. A few jurisdictions modified their disclosure requirements and issued amended
property condition disclosure statement forms accordingly. For instance, these new disclosures
require disclosure of whether property is in a special flood hazard area, contact information for
a homeowners association, contaminated flooring, solar panels, and length of ownership of the
property.

While we continue to see a similar number of cases alleging RESPA violations, the claims
have been unsuccessful. Most of these claims involved allegations of improper fees or kickback
schemes. An oft-cited allegation in 2015 was that a lenders captive reinsurance program
violated RESPA. In an important decision this year, a federal court recently determined that
captive reinsurance arrangements do not violate RESPA if the insurer pays market value for the
reinsurance, reversing the CFPB. An earlier determination by the CFPB had called into question
the use of MSAs by real estate brokerages. As we get further away from the foreclosure crisis,
many of these cases were dismissed because the events did not occur within the statute of
limitations. Many other cases were dismissed because the borrower could not provide factual
details of the alleged kickback scheme. The lenders were successful in all RESPA cases in which
liability was determined.

With respect to Fair Housing, 2016 was very similar to 2015. In 2016, the courts
dismissed the amended Fair Housing Act claims brought by the City of Miami against various
lenders. The City of Miami argued that the lenders engaged in discriminatory predatory lending
that caused harm in the city when the lenders foreclosed on the properties. Again, the largest
number of Fair Housing cases involved lending issues and involved allegations of discrimination
due to disability, race, or religion. Several cases also alleged that buildings did not meet FHA
accessibility standards. The buildings at issue suffered from a variety of deficiencies, including
high placement of switches and thermostats, lack of clear openings, and inaccessible mailboxes.
In legislative and regulatory activity, several states amended their housing discrimination laws.
Delaware added source of income and Illinois added military status as a protected category
under their respective anti-discrimination laws. Likewise, New York added age, sex, sexual
orientation, disability, gender identity, and military status to the list of grounds upon which a
licensee may not discriminate.

Tables at the end of this edition show how many cases, statutes, and regulations
appeared for major topic areas for the year, along with statistics regarding how liability was
decided in finalized cases. The first three tables present data for the usual three Major Topics
and Fair Housing. The remaining tables collect data for all topics we track for the Legal Pulse,
including some comparisons to 2015 data, and show 2016 data relating to liability, the dollar
range of damage awards, the top damage awards, and the top settlements.

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I. AGENCY

A. Cases

The cases from this past quarter address several key agency issues. A California Supreme Court
decision determined that a licensee associated with a brokerage firm serving as a dual agent
owes a duty equivalent to that owed by the broker to clients. We also review an opinion from a
case we discussed in an earlier edition of the Legal Pulse regarding the effect of text messages.
In this new decision, the court concluded that the broker did not have authority to enter into a
transaction on behalf of the client.

AGENCY CASES FROM EARLIER EDITIONS

Earlier this year, we examined the following two cases. Each case exemplifies an agency issue seen in
many 2016 cases. The Maguire case was one of the larger damage awards involving an agency issue in
2016. In that case, the broker was found vicariously liable for the acts of the licensee. In Wagner, the
Montana Supreme Court addressed the duty owed by a dual agent in a real estate transaction.

Maguire v. Burns, No. D067835, 2016 WL 2936835 (Cal. Ct. App. May 17, 2016). Buyers purchased a
vacant movie theater with plans to convert the property into a dinner theater. After purchasing the
property, the buyers learned the project was not possible, and they sued the brokerage firm and
licensee. The buyers claimed that the licensee did not adequately investigate use of the property,
misadvised them regarding property development, and failed to disclose an alternative option
agreement from the sellers. The court held that the licensee breached his duty to the buyers. The court
found the brokerage firm was also liable, but only for a portion of the damages. The appeals court
reversed the judgment and found the broker liable for all damages plus interest because the licensee
was acting within the scope of his employment. The broker was liable for $180,619.22.

Wagner v. MSE Technology Applications, Inc., 384 Mont. 436 (Aug. 30, 2016). A potential purchaser of
land sued the seller, purchaser, and a licensee, claiming they interfered with his attempted purchase.
The prospective purchaser and seller entered a purchase agreement, with the licensee acting as a dual
agent. A few months later, several meetings were held between the seller, an adjacent property
owner, the licensee, and a new purchaser. The plaintiff did not attend these meetings, and indicated
that she was not interested in purchasing the adjacent parcel, which contained the only existing road
providing access to the property. When the plaintiff did not close on the property by the closing date
specified in the agreement with the seller, the seller then closed the deal with the new purchaser. The
licensee assisted with the new transaction and claimed that the plaintiff indicated she was no longer
interested in the original property. The trial court granted judgment for all defendants on the
intentional interference claim. The trial court also granted summary judgment in favor of the licensee
on a professional negligence claim. On appeal, the appellate court reversed the courts decision with
respect to the licensee. The appellate court concluded that the potential purchaser presented some
evidence showing that the licensee may not have acted in the would-be purchasers best interest as
dual agent. The court reversed summary judgment and dismissal of claims in favor of the licensee.

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1. Horiike v. Coldwell Banker Residential Brokerage Company, No. S218734, 2016 WL
6833005 (Cal. Nov. 21, 2016)

An associated licensee owes the customer a duty equivalent to

the duty owed by the broker.

The purchaser and seller agreed that the broker, through its associated licensees, would act as
dual agent in the transaction for a luxury home. After the transaction was completed, the
purchaser discovered a large discrepancy between the square footage listed on the building
permit and that stated in the marketing materials for the property. The buyer sued the listing
licensee and broker for breach of fiduciary duty. The trial court concluded that the licensee who
listed and marketed the property and acted on behalf of the seller had no duty to the buyer,
and then instructed the jury that the broker could only be liable if a different associated
licensee of the broker breached the fiduciary duty. The jury found that the broker did not
breach a fiduciary duty owed to the buyer. The Court of Appeals reversed that decision.

In this decision, the California Supreme Court considered the duty owed by a listing broker to
the buyer when the broker is acting as a dual agent. The brokers duty to the buyer was not in
dispute. The Supreme Court determined that the associate licensee who listed the property
owed a duty to the buyer equivalent to that owed by the broker. According to the court, an
associate licensee represents a brokerage in a real estate transaction and does not have an
independent agency relationship with the client. An associated licensee has no power to act
except as a representative of the broker and undertakes the same duties as owed by the
broker. The California Supreme Court affirmed the judgment of the Court of Appeals.

2. St. Johns Holdings, LLC v. Two Electronics, LLC, No. 16MISC000090, 2016 WL 6191911
(Mass. Land Ct. Oct. 24, 2016)

Real estate broker did not have authority to bind the

seller to a real estate transaction.

The potential purchaser of a commercial property claims that it had an agreement with the
seller to purchase the property, and brought this action to enforce the agreement to purchase.

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In an earlier decision (discussed in the Third Quarter 2016 Legal Pulse), the court concluded
that a text message from the sellers broker was sufficient to constitute a written counteroffer
in the transaction. In this decision, the court considered whether the broker had the authority
to bind the seller to the counteroffer.

The court concluded that the broker did not have authority to bind the seller. A real estate
broker does not serve as a general agent, but instead is a special agent with restricted
authority. To establish authority on behalf of a client, the party needs to present evidence of its
authority. Here, the only evidence of the brokers authority was a statement from the seller
telling the buyer to work through [the broker]. This statement was not sufficient to establish
the brokers authority on behalf of the seller. The court dismissed the purchasers complaint.

3. Padilla v. Miller, No. B26684, 2016 WL 6236412 (Cal. Ct. App. Oct. 25, 2016)

Claims against real estate professionals were dismissed

because the sellers conduct in failing to honor
the agreement caused the plaintiffs damages.

Plaintiffs engaged the defendant real estate representatives to help them sell and buy rental
properties for use in a Section 1031 exchange transaction in order to minimize the plaintiffs tax
liability. The plaintiffs entered into an agreement with the seller of a property. The licensee
disclosed that he had previously represented the seller in buying that property, and he would
act as dual agent in the transaction. Ultimately, the seller breached the purchase agreement by
refusing to sell the property. After settling claims with the seller, the plaintiffs brought suit
against the real estate representatives for negligence and breach of fiduciary duty. The
plaintiffs allege that the real estate professionals breached their fiduciary duty by failing to
open escrow, failing to deposit the purchasers deposit into escrow, failing to notify the seller
that timing was critical because the transaction was part of a Section 1031 exchange
transaction, failing to identify alternate properties, and failing to use correct forms.

The trial court dismissed the complaint, finding that the seller was responsible for the
purchasers damages. Even if the real estate defendants failed to perform the duties identified
by the purchaser, the seller was still contractually obligated under the parties agreement. If the
seller had performed the agreement, the purchasers would not have suffered damages. The
appellate court affirmed dismissal of the claims. However, in a reversal of the trial court, the
appellate court granted the purchasers an opportunity to file an amended complaint.

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B. Statutes and Regulations

Arizona

The Arizona Department of Real Estate added a statement to its Substantive Policy Statement
on Real Estate Licensee Advertising. The new statement requires the designated broker to
supervise all advertising for real estate, cemetery, or membership camping brokerage
services.1

California

Several new and recently-amended statutes affect agency issues for California licensees. A new
statute clarifies that individuals working in the capacity of an outdoor advertising
representative do not constitute real estate brokers for purposes of real estate licensing and
regulation.2 One amended statute, which will become effective next year, addresses licensee
advertising. Under the amended statute, all solicitation materials and purchase agreements
must include the responsible brokers identity.3 Responsible brokers identity is amended to
mean the name of the broker or both the name and associated license identification number.4
Solicitation materials include print ads, advertising on electronic media, For Sale signs (which
were formerly excluded), and directional signs.5

Colorado

Amended regulations in Colorado state that a broker must determine if he or she possesses the
knowledge, experience, and training to provide requested brokerage services.6 If the broker
does not have the requisite knowledge or skills, the broker must decline to provide the services
or obtain the needed knowledge or obtain assistance in order to perform the services. On a
different topic, the regulations prohibiting a broker from inserting personal provisions into Real
Estate Commission-approved forms were also amended. A broker may include language
regarding payment of the brokers commission if this is a term of negotiation between the
principal parties of the contract to buy and sell.7

Georgia

Georgia amended two statutory sections relating to broker duties. A brokerage must review all
offers to buy, sell, lease, or exchange real property within the time of said offer.8 The former

1 Arizona Department of Real Estate, Substantive Policy Statement on Real Estate Licensee Advertising (2016).
2 Cal. Bus. & Prof. Code 10133.45 (2016).
3 Cal. Bus. & Prof. Code 10140.6 (2016).
4 Cal. Bus. & Prof. Code 10159.7 (2016).
5 Cal. Bus. & Prof. Code 10140.6 (2016).
6 4 Colo. Code Regs. 725-1:E-47 (2016).
7 4 Colo. Code Regs. 725-1:F-3 (2016).
8 Ga. Code Ann. 43-40-18 (2016).

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rule required this review to be conducted within 30 days of the offer. In another modification,
brokers must timely provide a copy of the closing statement from a real estate transaction only
if they are provided with a copy of the statement.9

Idaho

The Idaho Real Estate Commission issued a Guideline regarding Coming Soon Listings. The
Guideline states that if a licensee promotes a property as Coming Soon, but is actually
marketing the property to a select group of buyers, the licensee is engaging in misleading
advertising.10 Under those circumstances, the licensee is not acting with honesty and good faith
and in the best interest of the client.11

Illinois

Several amended regulations in Illinois address licensee advertising issues. Licensee advertising
must identify the licensee and the sponsoring broker.12 A licensee who is a managing broker
must indicate that status on advertising, except on For Sale signs.13 Also, advertising for a real
estate auction must contain the name and address of a licensed broker.14 If a sponsoring broker
is advertising a property that is subject to an exclusive listing agreement with another broker,
the broker wishing to advertise the property must obtain permission from the sponsoring
broker and must identify the sponsoring broker with the exclusive listing in the advertisement
for that property.15

Kansas

A new regulation in Kansas defines the requirements for brokers who supervise an office.
Supervising brokers must ensure that only licensed individuals perform activities requiring a
license and must review all contracts, forms, and advertising for compliance and accuracy.16 In a
change to another regulation, each licensee involved in a transaction as a statutory agent or a
transaction broker shall ensure the completeness and accuracy of the agency disclosure. 17

9 Ga. Code Ann. 43-40-25 (2016).

10 Idaho Real Estate Commission, Coming Soon Listings (2016).
11 Id.
12 Ill. Admin. Code 1450.715 (2016).
13 Id.
14 Id.
15 Ill. Admin. Code 1450.720 (2016).
16 Kan. Admin. Regs. 86-3-31 (2016).
17 Kan. Admin. Regs. 86-3-26a (2016).

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Louisiana

A revised Residential Agreement to Buy or Sell form issued by the Louisiana Real Estate
Commission now requires licensees to provide license numbers and brokerage firm names and
license numbers.18 Also, property sellers are required to provide utilities for use in appraisals.

Maryland

Maryland made a number of changes to its statutory scheme regarding licensee agency. The
amendments remove presumed buyers agency, and define a buyers agent as an associate
broker or salesperson who represents a prospective buyer or lessee under a written brokerage
agreement.19 The statutory changes also define dual agent, sellers agent, and sub-agent.20 A
licensee must disclose an agency relationship at the first contact with a client.21 If the first
contact is not face-to-face, the disclosure must occur in the same medium in which the first
contact occurs.22 Also, sellers representatives must display a disclosure notice at all open
houses.23 The Maryland Real Estate Commission issued the Open House Disclosure Notice that
must be posted by the sellers representative at open houses.24

Michigan

In Michigan, licensees must, at the time of execution of an offer to purchase, recommend to

the purchaser that the purchaser require the seller to provide fee title insurance in the amount
of the purchase price.25 Another amendment states that licensees shall not close a transaction
on terms different from those stated in the agreement.26

Nebraska

The Nebraska Real Estate Commission amended its regulations to require designated brokers to
maintain the following records for five years: (1) records relating to all consummated real
estate transactions; (2) all listing agreements (if the transaction was not consummated); (3) all
agreements entered, but not consummated; (4) all brokers price opinions and market value
analyses; and (5) records of all team members and team leaders.27

18 Louisiana Real Estate Commission, Louisiana Residential Agreement to Buy or Sell

19 Md. Code Ann. Bus. Occ. & Prof. 17-528 (2016).
20 Id.
21 Id.
22 Id.
23 Md. Code Ann. Bus. Occ. & Prof. 17-530 (2016).
24 Maryland Real Estate Commission, Open House Disclosure Notice
25 Mich. Comp. Laws 339.2515d (2016).
26 Id.
27299 Neb. Admin. R. & Regs. Ch. 3, 1 (2016).

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North Carolina

In North Carolina, a new statute provides that the practice of law does not include a real estate
brokers selection or completion of a preprinted form while acting as a representative in a real
estate transaction.28

New Mexico

Amended regulations in New Mexico require a qualifying brokers name and contact
information to be clearly and conspicuously displayed on all written documents generated by
the brokerage or presented to the client.29 The regulations require brokers in New Mexico to
display a copy of their license. An amendment to that regulation addresses that requirement in
the context of virtual offices. If the broker has a virtual office, the broker must display a photo
or image of the license on its website. 30 Another amendment requires all real estate
advertising to include the brokerage trade name and telephone number prominently displayed
in a type size not less than 33% of the type size used for the associate brokers name. 31 If this
disclosure is not practical for an electronic display, the disclosure may be linked to the display.
An additional amendment requires the qualifying broker to verify trust account reconciliation. 32

New York

In New York, licensee business cards must now include the licensees license type.33 Another
regulation change states that a broker may not receive compensation from more than one
party unless the broker has the consent of the client.34 The regulation used to require the
consent of all of the parties.

Ohio

Ohio revised its licensing statutes to require real estate brokerages to designate a principal
broker. The principal broker must oversee operations, maintain records, comply with trust
account rules, develop a written policy on agency, ensure advertising compliance, and ensure
that only licensees perform real estate activities for which a license is required.35 In another
amendment, the statute provides that a licensee does not breach any duty to the purchaser by
preparing or presenting contemporaneous offers for the same property.36 The licensee must

28 N.C. Gen. Stat. 84-2.1 (2016).

29 N.M. Code R. 16.61.16.9 (2016).
30 N.M. Code R. 16.61.16.9 (2016).
31 N.M. Code R. 16.61.32.8 (2016).
32 N.M. Code R. 16.61.23 (2016).
33 N.Y. Comp. Codes R. & Regs. tit. 19, 175.25 (2016).
34 N.Y. Comp. Codes R. & Regs. tit. 19, 175.7 (2016).
35 Ohio Rev. Code 4735.01-.081 (2016).
36 Ohio Rev. Code 4735.65 (2016).

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disclose, in writing, the contemporaneous offers to all clients for whom the licensee is
presenting offers for that property.

Wisconsin

Under an emergency rule adopted in Wisconsin, licensees must provide a copy of any
document prepared or received by the licensee to the person who signed the document.37
Licensees must also maintain all contracts, agency agreements, offers, leases, closing
statements, deposit receipts, and trust account records for two years. Under another
amendment, a licensee or broker may not submit a personal written proposal or offer to
purchase a property which the brokerage firm has listed.38

C. Volume of Materials Retrieved

Agency issues were identified 60 times in 57 cases (see Table 1 and Table 4; note that some
cases address multiple issues). Breach of Fiduciary Duty, Agency: Other, Dual Agency, and
Vicarious Liability were the most frequently addressed topics (see Table 2). Thirty-five statutes
and forty-eight regulations addressing Agency issues were retrieved (see Table 1). These items
addressed Dual Agency, Designated Agency, Agency Disclosure, Transactional Agency, Buyer
Representation, Teams, Coming Soon Listings, and Agency: Other.

II. PROPERTY CONDITION DISCLOSURE

A. Cases

The Property Condition Disclosure cases retrieved this quarter address a wide range of
disclosure topics. In one case, the Idaho Supreme Court considered the interplay between
contract provisions that attempt to limit a licensees disclosure duties and the duties imposed
on licensees by statute. In other cases, the courts considered whether a transaction broker
could be liable for failure to disclose defects, whether licensees could be liable for failing to
disclose the existence of holes drilled into the kitchen floor by the seller and the presence of
pet feces and urine, and whether licensees could be liable for misrepresenting the amount of
lakeshore and the enforceability of a covenant on the property.

37 Wis. Admin. Code REEB 15.02 (2016).

38 Wis. Admin. Code REEB 24.13(3)(b) (2016).

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 PROPERTY CONDITION CASE FROM EARLIER EDITIONS

A common issue that arises in Property Condition Disclosure cases is the extent to which a contract
provision in a purchase or representation agreement modifies the duties owed by a licensee. In the
third quarter Legal Pulse, we examined the Kjellander case, in which a Florida court considered a
contract provision stating that the purchasers would rely solely on the representations of the sellers
and third parties other than the licensee. Interestingly, in a similar case decided last quarter (see Path
to Health, discussed below), the Idaho Supreme court examined the licensees duties where a
provision in the representation agreement between the parties stated that the licensee and broker
had no duty to investigate certain issues.

Kjellander v. Abbott, No. 1D15-5475, 2016 WL 4992415 (Fla. Dist. Ct. App. Sept. 19, 2016). The
purchasers of a home sued the sellers, sellers representative, and purchasers home inspector for
undisclosed water damage, mold, and HVAC problems. The trial court entered summary judgment in
favor of the licensee on the basis of a contract provision stating that the purchasers would rely solely
on the representations of the sellers and third parties other than the licensee.

The appellate court disagreed with the trial courts decision. According to the appellate court, the
contract provision did not relieve the licensee of his required disclosure duties. The licensee must still
satisfy statutory obligations and duties to clients, including the duty of honesty and fair dealing, the
duty to disclose all known facts that materially affect the value of the property, and a duty not to
make misleading or fraudulent misrepresentations. The court reversed summary judgment in favor of
the licensee.

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1. Beckman v. Wells Fargo Bank, N.A., No. A15-1819, 2016 WL 5640664 (Minn. Ct. App.
Oct. 3, 2016)

Real estate professionals could rely upon information obtained from county
website about the property.

The listing for a property indicated that the property had 1500 feet of lakeshore across the
road. After the purchasers questioned the amount of lakeshore, the sellers representative sent
a parcel map showing 900 feet of lakeshore obtained from the countys website, and also told
the buyers there was an additional 600 feet of shoreline on a flowage. After closing, purchasers
allege that they discovered a number of defects on the property, including mold, urine and
water-stained walls and carpet, dead animals, water damage, and fire damage. The purchasers
also discovered that they owned less than 900 feet of lakeshore. The purchasers sued the seller,
sellers representative and broker, and their real estate representative and broker for fraud.
The purchasers were required to resolve their claims against their representative and broker
through arbitration. The court granted summary judgment for the seller, sellers representative
and sellers broker.

The appellate court affirmed summary judgment. There was no evidence that the listing
representative knew the property contained less than the stated amount of lakeshore. The
representative relied on the parcel map from the county website that showed 900 feet of
lakeshore, and there was nothing to suggest the representative had reason to doubt this
information. The as-is clause in the agreement did not bar a claim for failure to disclose
known defects. However, there was no evidence that the licensee made misrepresentations or
had any knowledge of problems at the property.

2. Moon v. Barr, No. 33614-0-III, 2016 WL 7106371 (Wash. Ct. App. Dec. 6, 2016)

Licensee could be liable for concealment of pet feces and urine in a home.

The purchasers of a home sued the seller, sellers representative, and sellers broker for alleged
concealment of pet feces and urine in the home. The trial court granted summary judgment in

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favor of the defendants. On appeal, the court affirmed dismissal of the misrepresentation and
breach of contract claims, but reversed dismissal of the fraudulent concealment and Consumer
Protection Act claims.

The appellate court determined there was no direct evidence that the sellers representative
knew of the animal feces and urine. However, there was circumstantial evidence that the
licensee had knowledge of the pet feces and urine because the licensee described the house as
trashed, would have smelled the strong odor when she was in the house, and used a lot of air
freshener when she was at the house. Based on that evidence, a court or jury could find that
the licensee had knowledge of the condition. When the purchasers daughter raised the issue of
the odor with the sellers representative, the representative was required to disclose her
knowledge of the defect. The alleged fraudulent concealment occurred within the course of the
licensees business, and the property was advertised to the public, so the purchaser sufficiently
stated a Consumer Protection Act claim for unfair business practices. The negligent
misrepresentation claim failed because the licensee did not represent the purchaser.

3. Ries v. Curtis, No. 15-1524, 2016 WL 6871890 (3d Cir. 2016)

Sellers representative was not liable for failing to disclose holes drilled in floor of
home because the representative had no knowledge of the holes.

After closing on a home, the purchasers discovered small holes drilled into the kitchen floor.
The sellers later admitted that they drilled the holes in order to drain water into the basement,
but did not tell the purchasers or their real estate representative about the holes. A doormat
concealed the holes during the selling process. The purchasers settled claims against the sellers,
and brought claims for fraud, deceptive trade practices, and violation of real estate disclosure
laws against sellers real estate representative and broker, alleging that they had concealed the
holes and an improperly graded patio. The trial court entered summary judgment for the real
estate representative and broker.

The purchasers could not prove that the representative or broker had actual knowledge of the
defects. The purchasers argument that the representative should have seen water or the holes
during an open house or showing was not enough to establish the licensees knowledge. The
appellate court affirmed the summary judgment for the real estate representative and broker.

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4. Troja v. Pleatman, Nos. C-160447, C-160460, 2016 WL 6672760 (Ohio Ct. App. Nov. 10,
2016)

Buyers representative did not owe a duty to disclose a crime

that occurred in the neighborhood.

After signing a contract to purchase a home, the purchasers learned that a man who had
stabbed a girl in the neighborhood lived next door to the home they were going to purchase.
The purchasers then refused to buy the home, and the seller brought this action to enforce the
agreement. The purchasers filed a third party claim against the licensee and broker who
represented them in the transaction. The purchasers allege that the licensee and broker
breached their fiduciary duties by failing to tell the purchaser about the crime, misrepresented
information when asked about criminal activity in the neighborhood, and engaged in a
conspiracy to defraud the purchasers. The purchaser and seller settled their claims out of court.

The trial court granted summary judgment for the licensee and broker. The appellate court
concluded that the crime was not material to the transaction. Therefore, the licensee did not
have a duty to disclose the crime because it was a nonmaterial fact that was not related to the
condition of the property. The buyers could have easily discovered the information themselves,
and there was no evidence that the real estate representatives had any knowledge of the
crime. The court affirmed summary judgment in favor of the real estate professionals.

5. Stauff v. Bartnick, No. 113507, 2016 WL 7323324 (Okla. Civ. App. Dec. 14, 2016)

Knowledge from a prior transaction potentially can be imputed to the brokerage.

The purchaser of a home sued the seller, the broker who served as transaction broker, and the
home inspector for negligence and violations of the Residential Property Condition Disclosure
Act. The purchaser alleges that the defendants failed to disclose numerous defects in the home,
including termites, water issues, and defects in the air conditioning system, ducts, and venting
for the hot water system. The buyer argued that the broker had knowledge of defects on the
property due to its involvement in the sale of the same property several years earlier, when the
seller purchased the property. Although a different licensee assisted in that transaction, the
previous disclosure statement and various inspection reports were retained in the brokers

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transaction file. The prior disclosure statement indicated flood damage and other reports
discussed termite issues. The broker testified that privacy concerns had caused the firm to
create a policy where files from prior were not shared with other licensees.

The trial court entered summary judgment in favor of the defendants. The appellate court
found that there were disputed questions of fact regarding whether the sellers and the broker
had actual knowledge of the alleged defects, which precluded summary judgment. A judge or
jury could conclude that the disclosure statement and inspection reports from the prior
transaction provided the broker with knowledge of the defects. The court also found that the
brokers policy prohibiting the sharing of transaction files to be contrary to the purposes of the
property condition disclosure law. Therefore, the appellate court reversed summary judgment
for the seller and the broker.

6. Path to Health, LLP v. Long, No. 42313, 2016 WL 6473015 (Idaho Nov. 2, 2016)

Real estate licensees could be liable for misrepresenting the zoning for the
property, even though representation agreement stated broker had no duty to
investigate zoning issues.

The purchaser of property sued his real estate representative and broker for breach of contract,
negligence, violation of the Consumer Protection Act, breach of duty of good faith and fair
dealing, and misrepresentation. The purchaser claims that the real estate representative
misrepresented that the property was zoned for commercial use when it was actually zoned for
residential use. According to the allegations of the complaint, the purchasers owners asked
the licensee about zoning for the property and the licensee indicated that he had checked the
zoning and assured them that the zoning would not be a problem. The trial court granted
summary judgment for the licensee and broker. The trial court concluded that the licensee and
broker could not be liable because the Representation Agreement between the parties stated
that the licensee and broker had no duty to investigate zoning issues.

The appellate court affirmed summary judgment on the negligence claim, but reversed
summary judgment on the contract and misrepresentation claims. Although a real estate
licensee is not required to conduct an independent inspection or to independently verify a
statement about the property, a licensee still owes a statutory duty to disclose all material facts
known or that they reasonably should have known. The statutory duties imposed upon
licensees are assumed to be written into the Representation Agreement. Even though the
broker did not have a duty to investigate zoning issues, a broker may not provide false
information and mislead clients. The court concluded there was sufficient evidence to allow
the claims to proceed because a judge or jury could conclude that the real estate

15
representatives statement that the zoning of the property was consistent with the purchasers
requirements was a misrepresentation.

7. Cobb Simmons v. Gammon, Nos. 32,936, 32,945 & 32,953, 2016 WL 6082126 (N.M. Ct.
App. Oct. 14, 2016)

Real estate firm was liable to purchasers for failing to disclose information
regarding enforceability of a covenant on the property.

The purchasers bought a property subject to a covenant creating a minimum lot size for the
property. The purchasers allege that the real estate representative negligently misrepresented
their ability to enforce the covenant against adjacent property owners. The trial court ruled
against the real estate firm, and awarded $123,000 in damages to the purchasers.

Evidence presented at trial showed that the real estate firm should have disclosed the waiver of
the covenant signed by the sellers, and that the firm was aware of the adjoining propertys
covenant violation. The appellate court determined there was substantial evidence to support
the decision and affirmed the award against the broker. The appellate court remanded the case
to the trial court for a determination of a reduction in the commission earned by the broker
and the amount of attorneys fees.

B. Statutes and Regulations

California

California amended its statute regarding the disclosure of a death on a property for sale. The
following facts are considered nonmaterial facts that do not require disclosure: (1) the death of
an occupant; (2) the manner of death of an occupant more than three years ago; and (3) the
occupant was living with HIV or died from an AIDS-related complication.39

Delaware

Delaware amended the Buyer Protection Act to make it applicable to transfers of vacant land
zoned for residential use and marketed as appropriate for the construction of a dwelling for 1-4
families. 40

39 Cal. Civil Code 1710.2 (2016).

40 Del. Code Ann. tit. 6, 2576 (2016).

16
Kentucky

Kentucky amended its Sellers Disclosure of Property Condition form to include disclosures
regarding (1) whether the property is located within a special flood hazard area, (2) contact
information for a homeowners association, and (3) notice of a written disclosure of
methamphetamine contamination.41

Louisiana

The Louisiana Real Estate Commission issued a revised Property Condition Disclosure form
requiring disclosures regarding contaminated flooring, solar panels, and the length of sellers
ownership of the property.42

Nevada

An Informational Bulletin issued by the Real Estate Division of the Nevada Department of
Business & Industry provides guidance regarding open range disclosures.43 The seller of a
property adjacent to open land must inform the purchaser that livestock grazing on the open
land may be permitted to enter the property, and that the property may be subject to
government rights of way.44 A listing representative who lists property adjacent to open range
land must investigate county or state records, or tell the seller to do so, to determine if the
open range disclosure is needed.

Oklahoma

The Oklahoma Real Estate Commission issued a revised Residential Property Condition
Disclosure Statement that includes a disclosure regarding whether a propane tank on the
property is owned or leased.45

C. Volume of Materials Retrieved

Property Condition Disclosure Issues were identified 59 times in 48 cases collected during 2016
(see Table 1). Mold and water intrusion continues to be addressed frequently in the cases,
along with Structural Defects, Sewer/Septic, and Other disclosures (see Table 2). Several other
issues were encountered as well. Three statutes and six regulations were retrieved. The volume
of cases and the number of statutes and regulations increased from 2015 (see Tables 4 and 6.)

41 201 Ky Admin. Regs. 11:350 (2016).

42 Louisiana Real Estate Commission, Property Disclosure Document for Residential Real Estate.
43 Nevada Department of Business Industry, Real Estate Division, Open Range Disclosure Informational Bulletin
(2016).
44 Id.
45 Oklahoma Real Estate Commission, Residential Property Condition Disclosure Statement.

17
III. RESPA
A. Cases

Over the past few years, we have seen several cases in which borrowers challenged a lenders
captive reinsurance scheme as a violation of RESPA. This quarter, a federal court made a
significant ruling on this issue. The court determined that captive reinsurance arrangements do
not violate RESPA as long as the mortgage insurer pays market value for the reinsurance. The
court overturned a determination by the CFPB regarding the captive insurance that had called
into question the use of marketing service agreements by real estate brokerages. Other cases
retrieved this quarter involve the familiar situation in which the borrower alleges a RESPA
claim, but fails to provide enough factual detail to support the claim.

RESPA CASE FROM EARLIER EDITION

We revisit the following case from earlier this year, in which the court determined that the wife of a
borrower, who had not signed the promissory note, did qualify as a borrower for purposes of bringing a
RESPA claim.

Frank v. J.P. Morgan Chase Bank, No. 15-CV-05811-LB, 2016 WL 3055901 (N.D. Cal. May 31, 2016). The
plaintiff and her husband owned property as husband and wife, but only the husband signed the
mortgage note. After the husband passed away, the plaintiff attempted to assume the loan obligation.
She asserted RESPA violations and claimed that the lender refused to communicate with her. The lender
argued that the plaintiff did not have standing to bring a RESPA claim because she did not sign the note
and, therefore, was not a borrower. The court held that the plaintiff was a borrower because her
interest in the property was at stake, the property was owned as husband and wife, and the plaintiff
was obligated under the Deed of Trust for the property. The lenders motion to dismiss was denied.

18
1. PHH Corp. v. Consumer Financial Protection Bureau, No. 839 F. 3d 1 (D.C. Cir. Oct. 11,
2016)

Captive reinsurance agreements are not prohibited under RESPA as long as the
mortgage insurance companies do not pay more than reasonable market value
to the reinsurers for services actually performed.

PHH is a mortgage lender. In some circumstances, it requires borrowers to obtain mortgage

insurance. Under a captive reinsurance arrangement, PHH created a subsidiary that provided
reinsurance to mortgage insurers, and PHH often referred borrowers to insurers that used the
subsidiarys reinsurance. In an enforcement action, the Consumer Financial Protection Bureau
determined that PHHs captive reinsurance arrangements violated RESPAs anti-kickback
provisions. PHH appealed this enforcement action to the federal court.

Although referral fees are disallowed under RESPA, the court concluded that if the payment
was made for the reasonable market value of services actually provided, it is a bona fide
payment. Captive reinsurance arrangements do not violate RESPA if they involve a bona fide
payment. The court remanded the case to the Consumer Financial Protection Bureau for a
determination of whether the mortgage insurers paid more than reasonable market value to
the reinsurer. The case is now on en banc review before the full D.C. Circuit.

2. Masoud v. J.P. Morgan Chase Bank, No. 15-CV-2523-L-JMA, 2016 WL 5719832 (S.D. Cal.
Sept. 30, 2016)

Statute of limitations prevented borrowers lawsuit alleging that lender and

servicers made misleading payments between them that were designed to
create a windfall.

A borrower alleged that the lender and mortgage servicers made payments between them that
were misleading and designed to create a windfall. The facts underlying the cause of action
occurred in 2005. The statute of limitations for RESPA claims involving improper payments or
kickbacks is one year. Thus, the claim was barred by the statute of limitations. The court
dismissed the claim.

19
3. Suruki v. Ocwen Loan Servicing, LLC, No. 15-CV-00773, 2016 WL 7178549 (N.D. Cal. Dec.
8, 2016)

Borrower failed to provide facts to show that the lender and servicers received
fees for services that were not actually performed.

A borrower alleged that the lender and mortgage servicer defendants accepted charges for the
rendering of real estate services which were in fact charges for other than services actually
performed. The borrower failed to provide sufficient facts to support those allegations. The
court dismissed the claims.

B. Statutes and Regulations

Alabama

The Alabama Real Estate Commission modified its regulations regarding closing statements. A
licensee is no longer required to provide the actual, detailed closing statement to the buyer and
the seller at the time of closing.46 However, the licensee must still provide an estimated closing
statement to the parties.

Utah

Regulation amendments in Utah state that an inducement gift is permissible if the principal
broker or licensee offering the gift complies with underwriting guidelines that apply to the
loan.47 Closing gifts are permissible.

C. Volume of Materials Retrieved

RESPA issues were identified 42 times in 34 cases (see Table 1). The cases overwhelmingly
involved kickbacks, but also addressed disclosure of settlement costs and affiliated business
arrangements (see Table 2). The volume of cases was very similar to 2015 (see Table 4). One
statute and one regulation addressing RESPA issues were also retrieved this year (see Tables 1,
6).

46 Ala. Admin. Code r. 790-X-3.04 (2016).

47 Utah Admin. Code R. 162-2f-401l (2016).

20
IV. FAIR HOUSING

A. Cases

This quarter, we have updates to two Fair Housing cases discussed in last years Legal Pulse.
One of these updates addresses accessibility standards in the design and construction of a
residential apartment building. Another case decided in the fourth quarter of 2016 involves
very similar design and construction issues. In both cases, the properties did not meet
accessibility requirements and the owner and/or builder will be making changes to the
buildings. Other decisions from this past year involved claims regarding predatory and
discriminatory lending and discriminatory advertising.

1. Bowman v. RLB Investment Partners, LLC, No. 4:15-CV-00857, 2016 WL 7326622 (E.D.
Tex. Dec. 16, 2016)

Builder was found liable when building design and construction

failed to meet accessibility standards.

The plaintiff is a veteran who uses a wheelchair. He alleges that defendants apartment building
does not meet accessibility standards as required by the Fair Housing Act, and he brought suit
against the owner and builder of the building. The plaintiff claims that wall switches and
thermostats in the units were placed too high, the building contained insufficient clear
openings, and there was no accessible route to the mailboxes. In a prior decision, the court
denied the defendants motion to dismiss the claims. In this decision, the court found that the
building did violate Fair Housing Act accessibility requirements and granted summary judgment
in favor of the plaintiff. The court ordered the owner and builder to submit a remedial plan to
the court describing how they will remedy the FHA violations.

2. United States v. Nistler, No. 6:16-CV-00094, 2016 WL 6462189 (D. Mont. Oct. 28, 2016)

Builder entered consent decree when the design and construction of several
properties failed to meet accessibility standards.

21
The United States sued various owners, developers, builders, and the architect involved in the
design and construction of properties that failed to meet accessibility standards. The complaint
alleged that the properties had noncompliant thresholds, contained outlets that were placed
too high, and did not have accessible routes. The defendants entered into a consent agreement
under which they will make retrofits to the buildings to make the properties accessible. Under
the agreement, the defendants also agreed to design and construct accessible buildings with
respect to future construction, and to train employees involved in design and construction
regarding the accessibility guidelines.

3. City of Miami v. Wells Fargo, No. 13-24508, 2016 WL 1156882 (S.D. Fla. Mar. 17, 2016);
City of Miami v. Bank of America, No. 13-24506, 2016 WL 1072488 (S.D. Fla. Mar. 17,
2016); City of Miami v. J.P. Morgan Chase Bank, No. 1:14-CV-2205, 2016 WL 1621632
(S.D. Fla. Mar. 18, 2016)

The City of Miami failed to provide sufficient facts regarding

alleged discriminatory lending to support its Fair Housing
Act claims against various lenders.

In this series of related cases, the City of Miami sued various lenders for an alleged pattern of
discriminatory mortgage lending in violation of the Fair Housing Act. The City claimed that the
lenders steered minority borrowers into predatory mortgages with higher cost and risk, and
discriminated against those borrowers in refinancing. The City sought damages for reduced tax
revenues due to foreclosed vacant properties in the city and its expenditures for services to
address unsafe conditions at the vacant properties.

In earlier decisions, it was determined that the City had standing to bring a FHA claim, and the
City was given an opportunity to provide additional facts to show that its claims were not
barred by the statute of limitations. The City amended its complaint, and the respective lenders
moved to dismiss the claims. In these decisions, the court determined that the City failed to
properly state a claim. The allegations lumped the parties together and failed to identify
specific information about the loans, such as the type of loan, when the loan closed, and how
the loan was discriminatory. Without these facts, the City could not establish a violation
occurring within the statute of limitations period. The court granted the lenders motions to
dismiss.

22
4. Miami Valley Fair Housing Center, Inc. v. The Connor Group, No. 3:1-CV-83, 2015 WL
9582550 (S.D. Ohio Dec. 31, 2015)

Court did not enter permanent injunction imposing advertising restrictions

on group found to have violated fair housing laws.

Miami Valley Fair Housing Center argued that an advertisement posted by The Connor Group
discriminated on the basis of sex and familial status in violation of fair housing laws. A jury
determined that the advertisement was discriminatory. Following that verdict, Miami Valley
sought a permanent injunction against The Connor Group. Among other things, the permanent
injunction would prohibit The Connor Group from using the words single or man in
advertisements in a manner designed to target single people or males to rent or buy property.
The court denied Miami Valleys request for an injunction. There was no evidence that The
Connor Group was continuing to engage in the same practices or was currently doing anything
in violation of the fair housing laws.

5. Fair Housing Rights Center in Southeastern Pennsylvania v. Post Goldtex, No. 15-1366,
2016 WL 2865733 (3d Cir. May 17, 2016)

Fair Housing Act design and construction accessibility standards do

not apply to converted buildings built prior to 1991.

The Fair Housing Rights Center sued the owner of a commercial building that had been
converted into residential housing units. The Center claimed that the building violated the
design and accessibility requirements of the Fair Housing Act. The district court dismissed the
claims, finding that converted buildings constructed prior to 1991 are exempt from the
accessibility requirements. Relying on an interpretation of the FHA issued by the Department of
Housing and Urban Development stating that the design and construction requirements do not
apply to converted buildings, the appellate court agreed with the district courts decision. The
Court of Appeals affirmed dismissal of the claims.

23
B. Statutes and Regulations

Delaware

The Delaware Fair Housing Act was amended to prohibit discrimination on the basis of source
of income in housing, real estate-related transactions, and brokerage services.48 For purposes
of the Act, source of income means any lawful source of money paid directly by or on behalf
of a renter or buyer of housing, including government or private assistance. 49 A party may still
consider the sufficiency of the renter or buyers income and the credit rating, as long as
sufficiency and sustainability of income and credit requirements are applied in a commercially
reasonable manner and without regard to source of income.50

Illinois

Under the Illinois Human Rights Act, licensees may not discriminate in the performance of
licensed activities on the basis of ones military status.51

New York

The New York Department of State modified its regulation regarding unlawful discriminatory
practices by real estate brokers and salespersons. This amendment adds age, sex, sexual
orientation, disability, gender identity, and military status to the protected grounds upon which
brokers and salespersons may not discriminate.52 Furthermore, a new section of the regulations
states that a finding by a court or local agency that a licensee engaged in discrimination in the
performance of licensed real estate activities constitutes presumptive evidence of the
licensees untrustworthiness and may lead to discipline, including revocation.53

C. Volume of Materials Retrieved

Fair Housing issues were addressed in 25 cases in 2016, which is a decrease from the number of
similar cases we saw in 2015 (see Tables 1, 4). The cases principally addressed Lending and
Design-and-Build issues (see Table 2). Three statutes and two regulations were located (see
Tables 1, 6).

48 Del. Code Ann. tit. 6, 4601-4607 (2016).

49 Del. Code Ann. tit. 6, 4602 (2016).
50 Del. Code Ann. tit. 6, 4607 (2016).
51 Ill. Admin. Code 1450.710 (2016).
52 N.Y. Comp. Codes R. & Regs. tit. 19, 175.17 (2016).
53 N.Y. Comp. Codes R. & Regs. tit. 19, 175.17 (2016).

24
V. VERDICT AND LIABILITY INFORMATION

A. Agency Cases

Liability was determined in 32 Agency cases in 2016, and the licensee was found liable in 354
(see Table 3) of those cases.

B. Property Condition Disclosure Cases

Liability was determined in 15 Property Condition Disclosure cases in 2016, and the licensee
was found liable in 355 (see Table 3) of those cases.

C. RESPA Cases

Liability was determined in 31 RESPA cases in 2016, and the real estate professional was not
liable in any of those cases (see Table 3).

D. Fair Housing Cases

Liability was determined in 19 Fair Housing cases in 2016, and only 2 cases56 (see Table 3)
resulted in liability for the real estate professional.

54 Maguire v. Burns, No. C067835, 2016 WL 2936835 (discussed in the Agency section above; damages of
$180,619.22); Fong v. Sheridan, A144286, 2016 WL 1626221 (Cal. Ct. App. Apr. 21, 2016) (remanded for
determination of damages); Luong v. McMillan, 2016 WL 3941107 (Tex. Dist. Ct. May 26, 2016) ($4,700 in damages
plus interest). In addition, 2015 jury reports retrieved in 2016 indicate that judgments were entered against the
real estate professional in the following cases: 3405/3407 Slauson Ave. LLC v. Stinson, 2015 WL 11233802 (Cal.
Super. Ct. May 14, 2015) ($571,636 in damages); Bourgoin v. Nabizada, 2015 WL 10819001 (Fla. Cir. Ct. Dec. 17,
2015) ($358,000 in damages); Neal v. Smith, 2015 WL 10684628 (Cal. Super. Ct. May 26, 2015); Trinh v. Lee, 2015
WL 10987082 (Cal. Super. Ct. Apr. 22, 2015) (verdict of $1,049,882; representative liable for 40%; broker liable for
20%); Alhambra Bowling Center Inc. v. Mandarin Realty 1 Corp., 2015 WL 10937008 (Cal. Super. Ct. Sept. 8, 2015)
(damages of $631,000).
55 Cobb Simmons v. Gammon, Nos. 32,936, 32,945 & 32,953, 2016 WL 6082126 (N.M. Ct. App. Oct. 14, 2016)
(discussed in Property Condition Disclosure section above); Kim v. Nickel Real Estate Inc., 2016 WL 1367816 (Tex.
Dist. Ct. Jan. 12, 2016) ($548,692 in damages); Fong v. Sheridan, A144286, 2016 WL 1626221 (Cal. Ct. App. Apr. 21,
2016) (remanded for determination of damages); In addition, 2015 jury reports retrieved in 2016 indicate that
judgments were entered against the real estate professional in the following cases: Holzerland v. Rightway
Development, Inc., 2015 WL 11121305 (Md. Cir. Ct. Nov. 16, 2015) ($66,610 in damages); 3405/3407 Slauson Ave.
LLC v. Stinson, 2015 WL 11233802 (Cal. Super. Ct. May 14, 2015) ($571,636 in damages); Gweh v. Wiley, 2015 WL
11089879 (Pa. Comm. Pl. Aug. 4, 2015); Trinh v. Lee, 2015 WL 10987082 (Cal. Super. Ct. Apr. 22, 2015) (verdict of
$1,049,882; representative liable for 40%; broker liable for 20%); McCarthy v. Prudential Fox & Roach, 2015 WL
12555951 (N.J. Super. Ct. July 2, 2015) ($685,000 in damages).
56 Equal Rights Center v. Equity Residential, No. CCB-06-1060, 2016 WL 1258418 (D. Md. Mar. 31, 2016); Bowman
v. RLB Investment Partners, LLC, No. 4:15-CV-00857, 2016 WL 7326622 (E.D. Tex. Dec. 16, 2016) (defendants must
submit remediation plan to the court).

25
VI. TABLES

Table 1.
Volume of Items Retrieved for 2016 by Major Topic
Major Topic Cases Statutes Regulations

Agency 57* 35 48

Property Condition Disclosure 48** 3 6

RESPA 34 1 1

Fair Housing 25 3 2
* Includes 8 Agency jury verdicts from 2015 that were retrieved in 2016
** Includes 9 Property Condition Disclosure jury verdicts from 2015 that were retrieved in
2016

Table 2.
Volume of Items Retrieved for 2016 by Issue
Issue Cases Statutes Regulations

Agency: Dual Agency 12 3 4

Agency: Buyer Representation 5 4 1

Agency: Designated Agency 0 2 2

Agency: Transactional Agency 2 2 2

Agency: Subagency 0 1 0

Agency: Disclosure of Confidential Info. 0 0 0

Agency: Vicarious Liability 14* 1 0

Agency: Breach of Fiduciary Duty 25* 1 0

Agency: Disclosure of Financial Ability 0 0 0

Agency: Agency Disclosure 0 5 9

Agency: Minimum Service Agreement 0 0 0

Agency: Pre-listing 0 0 0

26
 Issue Cases Statutes Regulations

Agency: Teams 0 4 3

Agency: Coming Soon Listings 0 0 1

Agency: Other 13 22 33

Property Condition Disclosure: Structural Defects 7* 0 0

Property Condition Disclosure: Sewer/Septic 5* 0 0

Property Condition Disclosure: Radon 0 0 0

Property Condition Disclosure: Asbestos 0 0 0

Property Condition Disclosure: Lead-based Paint 0 0 0

Property Condition Disclosure: Mold and Water 13* 0 0

Intrusion

Property Condition Disclosure: Roof 0 0 0

Property Condition Disclosure: Stucco 0 0 0

Property Condition Disclosure: Flooring 0 0 1

Property Condition Disclosure: Imported Drywall 0 0 0

Property Condition Disclosure: Plumbing 1 0 0

Property Condition Disclosure: HVAC 2 0 0

Property Condition Disclosure: Electrical 0 0 0

Property Condition Disclosure: Valuation 2* 0 0

Property Condition Disclosure: Short Sales 0 0 0

Property Condition Disclosure: REOs 0 0 0

Property Condition Disclosure: Insects 3* 0 0

Property Condition Disclosure: Boundaries 1 0 0

Property Condition Disclosure: Zoning 4* 1 0

27
 Issue Cases Statutes Regulations

Property Condition Disclosure: Off-site Adverse 0 0 1

Conditions

Property Condition Disclosure: Meth Labs 0 0 1

Property Condition Disclosure: Stigmatized 1 1 0

Property

Property Condition Disclosure: Megans Laws 0 0 0

Property Condition Disclosure: Underground 1 0 1

Storage Tank

Property Condition Disclosure: Electromagnetic 0 0 0

Property Condition Disclosure: Pollution 3 0 0

Property Condition Disclosure: Other 16* 3 4

RESPA: Disclosure of Settlement Costs 5 1 1

RESPA: Kickbacks 30 0 1

RESPA: Affiliated Business Arrangements 4 0 0

RESPA: Marketing Service Agreements 1 0 0

RESPA: Other 2 0 0

Fair Housing: Handicap Design/Build 6 0 0

Fair Housing: Advertising/Target Marketing 2 3 2

Fair Housing: Steering 1 0 0

Fair Housing: Lending 17 0 0

*includes one or more jury verdicts decided in 2015, but retrieved in 2016

28
 Table 3.
Liability Data for 2016 by Major Topic
Major Topic Liable Not Liable % Liable % Not Liable

Agency 3 29 9% 91%

Property Condition Disclosure 3 12 20% 80%

RESPA 0 31 0% 100%

Fair Housing 2 17 11% 89%

Table 4.
Distribution of 2016 Cases by Major Topic with Comparisons to 2015 Data
Major Topic 2015 Count 2016 Count

Agency 53 57 +4

Property Condition Disclosure 34 48 +14

RESPA 31 34 +3

Employment 6 5 -1

Fair Housing 31 25 -6

Technology 4 8 +4

Antitrust 2 0 -2

Third Party Liability 20 20 0

Ethics 3 0 -3

29
 Table 5.
Distribution of 2016 Cases by Issue with Comparisons to 2015 Data
Issue 2015 Count 2016 Count

Agency: Dual Agency 8 12* +4

Agency: Buyer Representation 12 5 -7

Agency: Designated Agency 0 0 0

Agency: Transactional Agency 0 2 +2

Agency: Subagency 1 0 -1

Agency: Disclosure of Confidential Info. 0 0 0

Agency: Vicarious Liability 4 14* +10

Agency: Breach of Fiduciary Duty 33 25* -8

Agency: Disclosure of Financial Ability 0 0 0

Agency: Agency Disclosure 0 0 0

Agency: Minimum Service Agreements 0 0 0

Agency: Pre-listing 0 0 0

Agency: Teams N/A 0 0

Agency: Coming Soon Listings N/A 0 0

Agency: Other 16 13 -3

Property Condition Disclosure: Structural Defects 7 7* 0

Property Condition Disclosure: Sewer/Septic 3 5 +2

Property Condition Disclosure: Radon 0 0 0

Property Condition Disclosure: Asbestos 0 0 0

Property Condition Disclosure: Lead-based Paint 0 0 0

30
 Issue 2015 Count 2016 Count

Property Condition Disclosure: Mold and Water 15 13* -2

Intrusion

Property Condition Disclosure: Roof 1 0 -1

Property Condition Disclosure: Stucco 0 0 0

Property Condition Disclosure: Flooring 0 0 0

Property Condition Disclosure: Imported Drywall 0 0 0

Property Condition Disclosure: Plumbing 2 1 -1

Property Condition Disclosure: HVAC 2 2 0

Property Condition Disclosure: Electrical 1 0 -1

Property Condition Disclosure: Valuation 1 2* +1

Property Condition Disclosure: Short Sales 0 0 0

Property Condition Disclosure: REOs 0 0 0

Property Condition Disclosure: Insects 5 3* -2

Property Condition Disclosure: Boundaries 6 1 -5

Property Condition Disclosure: Zoning 1 4* +3

Property Condition Disclosure: Off-site Adverse 1 0 -1

Conditions

Property Condition Disclosure: Meth Labs 0 0 0

Property Condition Disclosure: Stigmatized Property 0 1 +1

Property Condition Disclosure: Megans Laws 0 0 0

Property Condition Disclosure: Underground Storage 0 1 +1

Tank

31
 Issue 2015 Count 2016 Count

Property Condition Disclosure: Electromagnetic 0 0 0

Property Condition Disclosure: Pollution 1 3 +2

Property Condition Disclosure: Other 3 14* +11

Employment: Wrongful Termination 1 0 -1

Employment: Personal Assistants 0 0 0

Employment: Independent Contractors 3 3 0

Employment: Wage and Hour 2 2 0

Fair Housing: Handicap/Design and Build 7 6 -1

Fair Housing: Advertising/Target 0 2 +2

Fair Housing: Steering 3 1 -2

Fair Housing: Lending 22 17 -5

Fair Housing: Coming Soon Listings N/A 0 0

Technology: State Internet Advertising 0 0 0

Technology: Social Networks 0 0 0

Technology: Privacy 0 0 0

Technology: Anti-Solicitation 1 0 -1

Technology: Data Breaches N/A 0 0

Technology: Cyber Fraud N/A 0 0

Technology: Drones N/A 0 0

Technology: Copyright N/A 2 +2

Technology: Other 3 6 +3

Antitrust: Price-Fixing 0 0 0

32
 Issue 2015 Count 2016 Count

Antitrust: Group Boycotts 1 0 -1

Antitrust: Advertising 1 0 -1

Antitrust: Tying Agreements 0 0 0

Antitrust: Other 0 0 0

RESPA: Disclosure of Settlement Costs 7 4 -3

RESPA: Kickbacks 28 30 +2

RESPA: Affiliated Business Arrangements 2 3 +1

RESPA: Marketing Service Agreements N/A 0 0

RESPA: Other 4 1 -3

Third Party Liability: Appraisers 7 10 +3

Third Party Liability: Inspectors 6 5 -1

Third Party Liability: Other 7 5 -2

Ethics: Reliance on NARs Code of Ethics 1 0 -1

Ethics: Enforcement of NARs Code of Ethics 2 0 -2

DTPA/Fraud 42 51 +9

33
 Table 6.
Distribution of 2016 Statutes and Regulations by Major Topic with Comparisons to 2015 Data
Major Topic 2015 Count 2016 Count

Agency 46 83 +37

Property Condition Disclosure 21 9 -12

RESPA 3 2 -1

Fair Housing 2 5 +3

Technology 16 7 -9

Antitrust 0 0 0

Third Party Liability 0 0 0

Table 7.
Distribution of 2016 Statutes and Regulations by Issue with Comparisons to 2015 Data
Issue 2015 Count 2016
Count

Agency: Dual Agency 0 7 +7

Agency: Buyer Representation 2 5 +3

Agency: Designated Agency 6 3 -3

Agency: Transactional Agency 1 5 +4

Agency: Subagency 0 1 +1

Agency: Disclosure of Confidential Info. 0 0 0

Agency: Vicarious Liability 0 1 +1

Agency: Breach of Fiduciary Duty 2 1 -1

Agency: Disclosure of Financial Ability 0 0 0

34
 Issue 2015 Count 2016
Count

Agency: Agency Disclosure 8 16 +8

Agency: Minimum Service Agreement 0 0 0

Agency: Pre-listing 1 0 -1

Agency: Teams N/A 7 +7

Agency: Coming Soon Listings N/A 1 +1

Agency: Other 27 55 +28

Property Condition Disclosure: Structural Defects 1 0 -1

Property Condition Disclosure: Sewer/Septic 0 0 0

Property Condition Disclosure: Radon 1 0 -1

Property Condition Disclosure: Asbestos 0 0 0

Property Condition Disclosure: Lead-based Paint 0 0 0

Property Condition Disclosure: Mold and Water 1 0 -1

Intrusion

Property Condition Disclosure: Roof 0 0 0

Property Condition Disclosure: Stucco 0 0 0

Property Condition Disclosure: Flooring 0 1 +1

Property Condition Disclosure: Imported Drywall 0 0 0

Property Condition Disclosure: Plumbing 0 0 0

Property Condition Disclosure: HVAC 0 0 0

Property Condition Disclosure: Electrical 0 0 0

Property Condition Disclosure: Valuation 0 0 0

35
 Issue 2015 Count 2016
Count

Property Condition Disclosure: Short Sales 0 0 0

Property Condition Disclosure: REOs 0 0 0

Property Condition Disclosure: Insects 0 0 0

Property Condition Disclosure: Boundaries 0 0 0

Property Condition Disclosure: Zoning 0 1 +1

Property Condition Disclosure: Off-site Adverse 0 1 +1

Conditions

Property Condition Disclosure: Meth Labs 0 1 +1

Property Condition Disclosure: Stigmatized Property 0 1 +1

Property Condition Disclosure: Megans Laws 0 0 0

Property Condition Disclosure: Underground Storage 1 1 0

Tank

Property Condition Disclosure: Electromagnetic 0 0 0

Property Condition Disclosure: Pollution 6 0 -6

Property Condition Disclosure: Other 11 6 -5

Fair Housing: Handicap Design/Build 0 0 0

Fair Housing: Advertising 1 5 +4

Fair Housing: Steering 0 0 0

Fair Housing: Lending 1 0 -1

Fair Housing: Coming Soon Listings N/A 0 0

Technology: State Internet Advertising 8 2 -6

36
 Issue 2015 Count 2016
Count

Technology: Social Networking 1 0 -1

Technology: Anti-Solicitation 0 0 0

Technology: Privacy 7 0 -7

Technology: Cyber Fraud N/A 0 0

Technology: Drones N/A 4 +4

Technology: Copyright N/A N/A N/A

Technology: Other N/A 2 +2

Antitrust: Price-Fixing 0 0 0

Antitrust: Group Boycotts 0 0 0

Antitrust: Advertising 0 0 0

Antitrust: Tying Agreements 0 0 0

Antitrust: Other 0 0 0

RESPA: Disclosure of Settlement Costs 1 2 +1

RESPA: Kickbacks 1 2 +1

RESPA: Affiliated Business Arrangements 1 0 -1

RESPA: Marketing Service Agreements N/A 0 0

RESPA: Other 0 0 0

Third Party Liability: Appraisers 0 0 0

Third Party Liability: Inspectors 0 0 0

Third Party Liability: Other 0 0 0

37
 Table 8.
Distribution of 2016 Cases by Liability
Determination of Liability Count % of Total

Agent/Broker Liable 25 22%

Agent/Broker Not Liable 90 78%

Table 9.
Distribution of 2016 Cases Awarding Damages by Amount
Amount Count Percentage

$5 million or more 0 0%

$1 million to 4,999,999 0 0%

$500,000 to 999,999 1 14%

$100,000 to 499,999 4 57%

$50,000 to 99,999 0 0%

$10,000 to 49,999 0 0%

Under $10,000 1 14%

Unknown 1 14%

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 Table 10.
Largest Damage Awards in 2016
Damage Award Issue(s) Case State

$548,692 Property Condition Disclosure: Kim TX

Structural Defects

$465,048 Third Party Liability: Inspectors 2928 Camino Del Mar CA

LLC

$371,229.50 Deceptive Trade Practices Act/Fraud Four S Investments WA

$180,619.22 Agency: Breach of Fiduciary Duty, Maguire CA

Agency: Buyer Representation,
Agency: Vicarious Liability

$123,000 Property Condition Disclosure: Other Cobb Simmons NM

$4,700 Agency: Breach of Fiduciary Duty; Luong TX

Deceptive Trade Practices Act/Fraud

Table 11.
Largest Damage Awards Reported in Jury Reports Retrieved in 2016, but Cases Decided in 2015
Damage Award Issue(s) Case State

$1,049,882 Property Condition Disclosure: Trinh CA

Valuation, Agency: Dual Agency;
Agency: Vicarious Liability

$685,000 Property Condition Disclosure: McCarthy NJ

Zoning

$631,000 Agency: Dual Agency; Deceptive Alhambra Bowling CA

Trade Practices Act and Fraud Center

$571,636 Agency: Breach of Fiduciary Duty, 3405/3407 Slauson CA

Property Condition Disclosure: Other Ave.

$358,000 Agency: Breach of Fiduciary Duty; Bourgoin FL

Deceptive Trade Practices Act/Fraud

39
 Table 12.
Top Settlements in 2016
Settlement Issue Case State
Amount

$180,000 Agency: Other Stage Coach CA

$100,00 Property Condition Disclosure: Other Mason NV

40