Trust and the Real Estate Transaction Bar Bulletin ·
July 2013 ·by Michael Spence
A recent case from Division I of the Court of Appeals makes it crystal clear that buyers of residential real property can no longer blindly trust the seller’s disclosures in RCW 64.06’s Seller Disclosure Statement – known widely as the “Form 17”.
The case, known as Douglas v. Visser, 295 P.3d 800 (2013), is the latest in a series of cases signaling a return to the legal principle of caveat emptor in residential real estate transactions. By the Court’s own admission, the facts of Douglas v. Visser are “egregious”.
Terry Visser, a real estate broker, and his wife Diane, purchased a property in Blainein 2005, with the intent of renovating and renting it. They ran into financial trouble and decided to “cheap out” on the repairs and sell the property. When their laborer told them that the floor joists were too soft to screw the flooring down, Visser told him to somehow “find a way to attach the wood”. When he told them that the wood underneath the bellyband was rotted, Visser instructed him to “cover it with trim … cover it in caulking, use a bunch of nails, paint it and seal it”. The laborer did as told. Visser then put the property on the market, and received an offer to purchase it from Canadians Nigel and Kathleen Douglas.
Douglas was given a Seller Disclosure Statement with either no answer or the “don’t know” box checked for many of the questions. The Douglases sent Visser a series of followup questions and requested a copy of the Vissers’ prepurchase inspection report. Visser submitted handwritten responses to the questions, which they considered inadequate. The inspection report was never provided. The Douglases next had their own inspection, and their inspector discovered a “small area of rot and decay near the roof line” and a “rotted sill plate”. He told the Douglases that these were not structural problems, but that they should be repaired if conditions degraded rapidly.
The Douglases did nothing further regarding the physical condition of the house, and the transaction closed. Shortly afterward, the Douglases discovered the extent of the problems and called the inspector back. When he removed a ceiling tile, insulation and water came down from behind it. Alarmed, Visser hired a mold specialist, who told them that it would be cheaper to demolish the house and rebuild than to repair the existing structure.
Two subsequent inspections revealed that Visser had knowingly concealed mold and rotted wood conditions. The Douglases sued the Vissers for fraudulent concealment, negligent misrepresentation, violations of the Consumer Protection Act, breach of contract and breach of Visser’s duties as a real estate broker. Given this level of deception and the “egregious” conduct of Visser, one would expect that the Court would easily rule in favor of the Douglases. And that’s what happened at the trial court.
However, on appeal the Washington Court of Appeals reversed the trial court and held in favor of Visser, stunning nearly everybody in the real estate and legal communities. To understand why, a little history is necessary.
To understand why, a little history is necessary.
In 1988, the Court of Appeals (Division I) decided in Puget Sound Services v. Dalarna Management , 51 Wn. App. 209 (1988) that a buyer had a duty to inquire further after discovering potential water leakage that was “readily discernible”. In that case, the buyer’s inspector noted water stains and loose tiles, but the buyer did not inquire further. It was only after the sale closed that the buyer discovered that the water damage was much worse than expected. Dalarna is Washington’s leading caveat emptor case.
Just six years later, the Washington State Legislature passed RCW 64.06, the “Seller Disclosure” statute. RCW 64.06 requires the seller of residential property of 4 units or less to provide the purchaser with a “Form 17″ within 5 days of mutual acceptance. That form, which is not part of the transaction, requires the seller to disclose any defects in the physical condition of or the title to the property. RCW 64.06 represented a statutory counterpart to the “caveat emptor” holding of Dalarna.
Reading these together, the buyer has a common law duty to investigate under Dalarna, but at the same time, the seller has a statutory duty to disclose under RCW 64.06. Those duties overlap, however, and there was a lot of uncertainty in the gray area between the two.
In 2007, the gray became clearer as the result of Alejandre v. Bull. 153 P. 3d 864 (2007) In Alejandre, the seller of a Walla Walla house failed to disclose problems with the septic system that she knew existed. The septic tank pumper noted problems with the “back baffle”, but stated that there were no “obvious malfunctions” with the system as a whole. The buyer failed to investigate further, and after the system failed, he sued the seller. In a surprising decision, the Washington Supreme Court held in favor of the seller, who had undoubtedly lied on the Form 17, because the purchase and sale agreement had allocated the risk of economic loss to the buyer through the inspection contingency and other language. The decision was a milestone because it was the first major case in which the seller had lied on the Form 17 and gotten away with it.
Douglas v. Visser represents even a more aggressive move in this direction. In addition to failing to disclose the defects on the Form 17, the seller had actively directed his laborer to conceal the defects. Reading these cases together, the seller may now intentionally conceal a defect and lie about it, and as long as the buyer’s inspector has some indication of a potential problem, and if the buyer fails to investigate further, the seller will survive a lawsuit.
Why you can’t trust a real estate agent. By Paul Michael on 5 April 2007 36 comments Surely a real estate agent would want to get you the very best price for your home. After all, they earn commission. The more they sell it for, the more they make, right? Well, the popular book Freakonomics , which I’m reading and devouring right now, proves this is not the case. Now, I’m not saying all real estate agents are doing this, neither are the book’s authors Steven D. Levitt and Stephen J. Dubner. But it does cast a huge shadow of doubt over the entire real estate industry. Judge for yourselves. Here’s the game, and how it’s played. It’s all based on incentives…what’s in it for you, what’s in it for them. And it also plays on your fears. Fears that you don’t know how to sell your home, that it will be on the market for years and that, of course, you won’t get the best price. So, you call a real estate agent and use their huge knowledge of the market to sell your home quickly, easily and for the very best possible price. And that’s the sticking point. Due to the way commission is structured, it’s not in the real estate agent’s best interests to get you the best price for you home. Let me repeat that…it is not their priority to get you the most money for your house. No, they want a good price, but they want a quick sale. It is far more profitable to get you to take the first reasonable offer that comes along, than wait another week or two and get $310,000 instead of $300,000. The incentive problem. Let’s looks at that more closely. At first it seems well worth the wait. Two weeks for $10k. For you, it is good. Of that $10k you get around $9400. The other $600, that’s the 6% commission fee, gets split 3 ways. Half goes to the buyer’s agent. Then the real estate agent gets $150 and her firm gets the other $150. $150? For all that time and extra work? Not so great now, and you know, I’d feel the same way. Just look at the numbers. It’s simple math. Sell the house now for $300k, make $18k commission and get $4500 cold hard cash. Or, wait for two weeks or more, do a lot more hard work, sell for $310,000, and get $4650 cash. It’s clearly not worth the wait, when you could sell early and start work on another commission. This is the problem. Big incentive for you, tiny incentive for the expert. And the experts have many tricks up their sleeves to ensure a quick sale and easy ride. The code words used in Real Estate ads. There are good words, and bad words. Most of the time, you can make an educated guess. Consider these terms when selling a home. Five are good, five bad. Could you tell which? • fantastic • granite • spacious • state-of-the-art • ! • Corian • charming • maple • great neighborhood • gourmet Well, here’s the answer. The words in italics are good. Why? Because they say something positive and definite about the house. You may or may not like granite, but there’s no denying the implication of rich and aspirational. The same goes for corian, maple, state-of-the-art and gourmet. Whatever you feel, you cannot deny the meaning. Now look at the other words. Spacious? What does that mean? Is it impractical, badly laid out, cold, roomy, who knows? Charming is just as banal and ambiguous. And as a writer, I know that using anything like fantastic or ! means you have nothing of substance to say. When a house is fantastic, you don’t have to say so….it sells itself. And great neighborhood basically means it’s not the best house on the block. When you know how to read the code, and it’s not difficult to figure out, you know what the agent is trying to do. Through the use of this language, they’re saying “this house isn’t so hot…maybe you should make a lowball bid, it may just get accepted.” And when a bid does come in that’s lower than you’d like, hey guess what, you should take it. After all, that nicer home across the way hasn’t sold yet and it’s been on the market for months. What happens when a real estate agent sells her own house? That’s when the data get’s even more interesting. She’ll use descriptive words that mean something. Terms like “move-in-condition” and “granite” will be on there. Ambiguous phrases like “immaculate” and “wonderful!” will not. Studies performed by Levitt and colleague Chad Syverson also proved that real estate agents hold out for more money when they sell their own homes. Of the 100,000 home sales they looked at, real estate agents kept their homes on the market for 10 extra days and made 3.7% more money. So, what next? The Internet is your friend. Information that used to be at the disposal of the experts is now readily available. Do some homework. See what is selling, for how much and where. And don’t let the real estate agent pressure you into taking a lower bid because the market is “just in a terrible state right now.” As sure as night follows day, the same agent will tell a buyer “pay more, the market is really moving.” It’s truly a cat and mouse game.
WHY PEOPLE DON’T TRUST REAL ESTATE AGENTS There is a trust problem in real estate. It’s our mission to fix this phenomenon. First, let me be clear – I’m not writing this to disparage real estate agents. After all, I am one myself, and I believe most are competent and well meaning. I am, however, here to shine a blazing spotlight on two misaligned and out-of-date business practices under which most traditional agents work and many earn tremendous incomes. Unfortunately, these business practices are so egregious that they largely contribute to massive mistrust of the entire industry. The very definition of trust is belief that someone or something is reliable, good, honest, and effective. When I tell people about my background and then get around to revealing my current profession, the inevitable question or nonverbal reaction incurs–Oh, why would you choose that profession? It’s no surprise that, according to a 2013 study conducted by Choice Home Warranty , 67.5% Americans surveyed mistrust real estate agents, and with the emerging generation of 18-24 year olds mistrust is near 73%. Pretty appalling and shocking for a $70 billion business, and disheartening for agents who give it their all every day. Here are the two fundamental flaws of the traditional real estate brokerage model. First, your buyer agent’s commission is based on the price you pay for a home. The more you pay, the more your agent earns. So when it comes down to critical deciding factors, such as what is the best initial offer or which property will build more equity in the long run or which will have stronger rental appeal, can customers really count on agents to provide objective advice? My point is not whether agents would give self-motivated advice. Most of the agents I know would never do such a thing. My larger point is that it just doesn’t make any sense to put agents in that position in the first place. Fundamentally, the buyer agent’s best interests should always be aligned with their customer, not with the listing agent. Second, listing agents no longer earn the full 3% to sell your home, and customers know it. Listing agents will always provide necessary value when negotiating and managing transactions and closings. However, in terms of actually selling your home, the MLS (Multiple Listing Service) and automated marketing systems does most of the work. It used to be that outbound marketing was an integral part of the home selling process—sending postcards, making calls, running newspaper ads, etc… Nowadays, because the vast majority of buyers are finding their homes online, the listing agents have a lot less work to do than before. Today, it is sufficient to list a home on the MLS, place an interactive “For Sale” sign at the property, and implement an aggressive online marketing program. Thanks to the internet, prospective buyers (and their agents) will find your home through search portals like Trulia, Zillow, and Realtor.com. In fact, 90% of buyers begin their search on these portals which each utilize the same MLS information. Any other outbound sales tactics are miniscule in comparison. So if a listing agent tries to convince you they have some “secret sauce” for selling you home, ask them if the biggest ingredient is bologna.
Why Some People Don’t Trust Real Estate Agents Posted by Jessica Schweppe Find me on: LinkedIn Google+ Feb 10, 2015 7:00:00 AM Tweet inShare 0 In today’s Agent Insights post, Debi La Rosa – a mortgage professional in Phoenix, Arizona – talks about what makes a real estate agent seem untrustworthy. Steer clear of these bad agent behaviors to maintain a positive, trustworthy reputation. Here’s Debi: I recently read an article, written by another real estate agent, about why some real estate agents have a stellar reputation and why some cannot be trusted. The article applied to both how other real estate agents and the general public perceives an agent’s trustworthiness. I wanted to share with several of the possible reasons why some agents develop a bad reputation: Writing Not-So-Accurate Home Descriptions: A new home hits the MLS and the description claims that the property is move-in ready – but when the client and real estate agent walk into the home, they find quite the opposite. There is a hole in the wall in one of the bedrooms, stained carpeting and water spots on the ceiling. In this case, not only are the client’s expectations not met, showing the home without previewing it first and trusting the description reflects poorly on the agent. Coaching the Seller to Stretch the Truth on Property Condition Disclosures: If a client reads the property condition disclosure and decides to buy the home – then later finds out it wasn’t honest or accurate, that’s a quick way to lose trust. For example, let’s say upon receiving the home inspection, the buyer finds out the home’s roof had been damaged by hail and to fix the problem, the seller nailed the shingles back in place, leaving holes in the rafters. We all know the seller is the one completing the disclosure, but the buyer’s agent ultimately discovers that the listing agent coached the seller on how to answer some of the questions. Honesty is always the best policy. Not Communicating in a Timely Manner: There are agents who don’t return their phone calls, don’t present offers in a timely manner and their voice message says they only return calls at certain times of the day. When news comes through on a pending deal, the agent may even wait days to pass it along to buyers or sellers. Manage client stress and provide steller customer service by making communication a major focus. “Buying” a Listing: Some agents will list a home at a higher price than the market dictates just because the seller wants them to, hoping that there will be no showings and that the agent will eventually be able to convince the seller to lower the price. But when that doesn’t work, the listing can sit on the market for months, losing showings and potential buyers because it’s not priced appropriately. Again, honesty is critical when it comes to pricing. Sellers hire you for your expertise – make sure you use it! Follow these rules of thumb to keep a good, honest reputation. Your collegues and clients will thank you for it!
What is a Trust Sale? BY PETER GIOVANNOTTO • FEBRUARY 10, 2015 PETER GIOVANNOTTO While most kids were spending their summers on baseball fields or in waterparks, Peter was touring properties with his father, learning how to estimate their value. Instead of children’s board games, Peter played real life Monopoly in his family’s business of buying and managing apartment buildings, condominiums and single-family homes. Real estate is clearly in Peter’s DNA, and his deep-rooted experience in the business gives him a marketing savvy beyond his years. TAGS INHERITANCEREAL ESTATETRUST SALE You may have heard the term “trust sale” or have seen real estate announcements in which the seller is named as “So-and-So Trust,” but do you know what a trust sale is and what’s involved? If not, here’s a quick primer for you. WHAT IS A “TRUST” AND WHAT IS A “TRUST SALE”? A trust is a legal entity that can hold the title to a property or other assets for one or more people or entities. A trust sale is simply when a property that is owned by a trust is sold. In order for a trust sale to occur, all of the beneficiaries of the trust must agree to the sale, unless one person has been designated to be in control of the trust. WHEN IS A TRUST USED? Usually a property is put into a trust when the original owner has either passed away or is no longer able to manage his or her affairs. It is becoming common for property owners to put their home in a trust instead of a will. WHO IS A “TRUSTEE”? The trustee is the person who controls the trust and manages its assets. The trustee may be one of the beneficiaries of the trust or an independent person. WHY IS A TRUST SALE USED? Privacy is one reason a property is put into a trust because the trust, instead of individuals, will be named in any public documents regarding the property sale. Another reason is that a trust can be established which directs the proceeds go to all beneficiaries in predetermined amounts, even if one person is in charge. In cases of family disharmony, this can be a way for the property owner to make sure that the heirs receive proceeds according to their wishes, while making sure that a responsible party of their choosing is in charge of the details. There can be significant tax benefits to putting real estate into a trust, including the reduction of estate and gift taxes. Trusts can also protect your assets from creditors and lawsuits, and allow heirs to avoid the delay and cost of probate court. HOW IS A TRUST SALE HANDLED DIFFERENTLY? A trust sale is handled like a regular sale, except the name of the seller is the name of the trust. The trustee signs documents and provides disclosures just as a traditional seller would. Barring special circumstances, the purchase should run in a normal fashion and on a regular timeline. SPECIAL CONSIDERATIONS The agent will need the trust documents to show that the individuals or individuals selling are allowed to sell the property held in the trust. The agent will pass the trust documents to the title company, and the title company will go through them and see HOW the sellers can sell (who has signing authority, etc). Depending on the trust, the title company may need to get a tax ID number for the trust, and may need a death certificate if heirs are selling the property. The trustee of the trust makes decisions regarding the sale. The difficulty with selling properties in trusts is that often multiple people, who may or may not get along, are involved and may have different goals in regards to the property. To successfully manage a trust sale, an agent needs excellent personal and communication skills. I have experience with trust sales and would love to help you if you are in this situation.
Source: What is a Trust Sale?
Deed of trust (real estate) From Wikipedia, the free encyclopedia In real estate in the United States, a deed of trust or trust deed is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender. The equitable title remains with the borrower. The borrower is referred to as the trustor, while the lender is referred to as the beneficiary. Contents [hide] 1 Overview 2 Power of sale and trustee’s sale 3 Terminology 4 References Overview Transactions involving deeds of trust are normally structured, at least in theory, so that the lender/beneficiary gives the borrower/trustor the money to buy the property; the borrower/trustor tenders the money to the seller; the seller executes a grant deed giving the property to the borrower/trustor; and the borrower/trustor immediately executes a deed of trust giving the property to the trustee to be held in trust for the lender/beneficiary. In reality, an escrow holder is always used so that the transaction does not close until the escrow holder has the funds, grant deed, and deed of trust in their possession, so that the transaction can be “rolled back” if one party is unable to complete its part of the deal. Deeds of trust differ from mortgages in that deeds of trust always involve at least three parties, where the third party holds the legal title, while in the context of mortgages, the mortgagor gives legal title directly to the mortgagee. In either case, equitable title remains with the borrower. Both mortgages and deeds of trust are essentially security instruments in the form of conveyances; that is, they appear to provide on their face for absolute conveyances of legal title, but it is implicitly understood that the borrower is retaining equitable title and the conveyance is intended to merely create a security interest. This confusing situation is a legacy of the archaic (and now-obsolete) common law requirement of livery of seisin, under which English common law courts had refused to enforce shifting fees (that is, a gage for years that was supposed to automatically expand to fee simple title if the underlying debt was not repaid). A deed of trust is normally recorded with the recorder or county clerk for the county where the property is located as evidence of and security for the debt. The act of recording provides constructive notice to the world that the property has been encumbered. When the debt is fully paid, the beneficiary is required by law to promptly direct the trustee to transfer the property back to the trustor by reconveyance, thus releasing the security for the debt. Deeds of trust are the most common instrument used in the financing of real estate purchases in Alaska, Arizona, California, Colorado, the District of Columbia, Idaho, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, North Carolina, Oregon, Tennessee, Texas, Utah, Virginia, Washington, and West Virginia, whereas most other states use mortgages. Besides purchases, deeds of trust can also be used for loans made for other kinds of purposes where real estate is merely offered as collateral, and are also used to secure performance of contracts other than loans.
A Transaction Involving Property that Is an Asset of a Living Trust Is Subject to Unique Considerations Published May 6, 2013 | By Craig Forry 4 Q: I am considering purchasing a residence from a seller who I suspect is a trustee of a living trust, but that has not been clarified. Should I be concerned that I may be purchasing the property from a living trust, and what should I be aware of during the transaction? A: An inter vivos or living trust is not itself a legal entity like a corporation, it is simply a collection of assets and liabilities. Legal title to real property that is an asset of the trust is held by the trustee(s), and both the sale contract and instrument of conveyance should be executed by the trustee, or co‐trustees. The purchase and sale of property that is an asset of a trust is subject to unique considerations that should be recognized by both the seller and buyer to avoid legal disputes. The California Association of Realtors provides a Trust Advisory (Listing) form (TAL, 4/08) that should be used by a broker representing the seller of a property that is a trust asset. It provides a description of the obligations that are normally imposed on sellers of real property containing one‐to‐four dwelling units that are exempted, and those that should still be complied with.
Why You Can’t Trust Real Estate Agents When Buying A House by MIKE HOLMAN Most prospective house hunters or sellers think they have a “good” agent. Either it’s someone who they previously worked with or perhaps a referral from a friend or a co-worker. One of the big reasons for having confidence in their agent is a belief that the agent is “on their side” and “honest” etc etc. I would suggest however that by a certain point in the process, your agent is your enemy and you are negotiating against them more than the other party. This post deals with the buy side of the house buying game. The next post will deal with the sell side. In the beginning: happy friends When a house buyer first signs up with an agent, things are usually pretty rosy, the agent assures the person that they can find an appropriate house for a price you can afford and everything will be great. The agent has “lots” of experience and knows the area inside out. At this stage of the game, you and your agent are mostly on the same page. You want to buy a house and they want you to buy a house. Your agent will most certainly want to get the process over with sooner rather than later, but that’s usually the case with the buyer as well. During the search: uneasy allies Agents know that they need to spend a fair bit of time with a buyer, especially ones who want to look at a lot of houses. After a while however it’s not worth it for an agent to continue a long search especially if their contract is running out. This is the time when the agent will start trying to convince the buyer to lower their standards and raise their prices. Sometimes this is educational if the buyer has unrealistic expectation, but mainly this is to speed up the process so the agent can get paid. I should point out however that real agents are normally quite useful during the search since they often know more than you do about the general real estate and can get you access to private showings. The other big benefit is their access to sale price information for similar houses.
Disclosures for Trust SaleAsked by Queenie Chen, San Diego County, CA • Thu Sep 19, 2013There’s a property Im very interested. I found the title is vested in someone as trustee of a trust. But the original trustee already died, and the seller who is authorized to sell the house just lived there many many years ago. So I am worried the seller can disclosure nothing about this house. So usually, which disclosures I still should get in this situation? Thank you