This past month, I experienced wonderful changes in my life which drew me temporarily away from my passion for blogging about property rights. On May 1st, I started my own solo law practice, Cowherd PLC. The new law firm continues my professional focus on the types of legal matters discussed in “Words of Conveyance.” On May 27th, my lovely wife and I welcomed our beautiful newborn daughter into the world. I would like to thank my friends and family for their love and support, including those who follow this blog. As a parent, I want the best home environment for my child to grow up in. As a trial attorney, I want to advocate for rights that are precious to clients.
When smart prospective buyers search the market for a home, they need to investigate the property. Typically, buyers use home inspectors to help them. Unfortunately, some defects cannot be easily discovered during the home inspection. For example, a structural defect may be concealed by drywall or other obstructions. With other houses, flooding problems may only be apparent after heavy rains.
Often, buyers will ask the seller’s agent whether there is a history of flooding or other problems. Agents know that if potential buyers learn negative information about the property they may move on to another listing. After a buyer completes a sale, the property may turn out to have defects that were concealed or contrary to representations made in the sales process. Who is legally responsible in those situations? Can a buyer sue a sellers real estate agent? Virginia courts considering this question draw varying conclusions.
“Great Party Room:”
The Circuit Court of the City of Norfolk recently considered whether a buyer can sue a sellers real estate agent under the Virginia Real Estate Broker’s Act. Megan Winesett is an active duty servicemember who bought her first home in 2010. The property listing described the basement as a “great party room.” During the walk-through, Ms. Winesett asked her own agent about basement flooding. The buyer’s agent told her that the seller’s agent explained that flooding was not a problem. A few years later, Winesett renovated the property and discovered rotting and termite damage in vertical support beams in the basement under her kitchen. She also found cracks in her foundation.
Buyer’s Relationship with the Seller’s Agent:
Winesett sued the seller, seller’s agent, her own agent and the real estate brokerages for $75,000 for repairs plus $350,000 in punitive damages. She sued the seller for fraud and the realtors for violation of the Real Estate Broker’s Act (“REBA”). The seller’s agents sought to dismiss the lawsuit on the grounds that the statute does not create a private cause of action against the agents. They argued that the REBA only allows for professional discipline by the Real Estate Board and not lawsuits by individuals. In a 1989 decision, Allen v. Lindstrom, the Supreme Court of Virginia observed that:
The [seller’s agents]’ primary and paramount duty, as broker and broker’s agent, was to the sellers, with whom they had an exclusive contract. While there may be some type of general duty to the public owed by every realtor, it is not the type of duty that converts into a liability against a seller’s agent for improper conduct to one in the adversary position of prospective purchaser, where there is no foreseeable reliance by the prospect on the agent’s actions.
In that case, the Court rejected the buyer’s attempt to sue the listing agent for violation of a duty arising out real estate agent regulations.
Ms. Winesett brought her case against the agents on the Virginia Real Estate Broker’s Act, which also governs the practices of real estate agents. That statute creates duties for agents (licensees) to their own clients and also the opposite parties in the transaction:
Licensees shall treat all prospective buyers honestly and shall not knowingly give them false information. A licensee engaged by a seller shall disclose to prospective buyers all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee. Va. Code Sect. 54.1-2131(B).
The Act requires such disclosures to be in writing. The realtor doesn’t need to be an expert in every issue. An agent is entitled to pass on information provided by the seller, the government, or a licensed professional. However, the agent may not rely upon information provided by others if he has actual knowledge of falsity or act in reckless disregard for the truth. Va. Code Sect. 54.1-2142.1.
On May 21, 2015, Judge Mary Jane Hall denied the seller’s agent’s motion, finding that the REBA does create a private cause of action for buyers against seller’s agents for violations. Judge Hall focused her analysis on language in the statute providing that, “This includes any regulatory action brought under this chapter and any civil action filed.” This case is currently set for trial in August. While the Court allowed this claim to move forward, Ms. Winesett bears the burden of proving it at trial.
Judge Hall’s legal conclusion is not consistently reached by all courts in Virginia. Unlike other consumer protection statutes, the REBA does not contain specific provisions about how a civil action may be brought and what remedies are allowed.
In 2004, the Circuit Court of Loudoun County entertained the same issue and concluded that a buyer is not entitled to a private cause of action against a seller’s agent for violation of the REBA. In Monica v. Hottel, Judge Thomas Horne decided instead that a buyer may allege a negligence per se claim against the seller’s agent for violation of the duty of ordinary care set forth in REBA.
I have a few observations about what these recent decisions mean to current and prospective real estate owners in Virginia:
Although they construe the REBA in different ways, these recent court decisions demonstrate a trend towards greater consumer protection against predatory conduct in the real estate industry. In my experience litigating cases under common law fraud, consumer protection statutes, breach of contract and warranty law, I have learned that there is usually a legal theory that provides a consumer with a remedy. However, claims have a defined time period in which they may be brought. If you fell victim to dishonest conduct in your real estate purchase, discovered that a defect was concealed during your property inspection or your requests for relief under a warranty are being stonewalled, contact a qualified real estate litigation attorney before the passage of time may prejudice your rights. As an owner, you make a tremendous commitment and personal sacrifice to acquire and keep real estate. You are entitled to the legal protections owed by others.
P. Fletcher, “Homeowner Can Sue Agents Under Brokers’ Act,” Va. Lawyers Weekly, (Jun. 5, 2015)