Update On Realtor Being Sued

I read the following article regarding the resolution to the lawsuit filed against a Realtor in Carlsbad with a slight sigh of relief that the agent was vindicated and had done no wrong, but was shocked to read the last line that all his lost business and legal fees were gone with no chance for recourse!  What is this country coming to when someone can take you to court for what is determined to be a false accusation, but not be responsible for the thousands of dollars the lawsuit costs you.  I remain speechless....

Home buyers not duped, jury finds Carlsbad couple lose lawsuit claiming they overpaid for house By Lori Weisberg UNION-TRIBUNE STAFF WRITER April 11, 2008 A Carlsbad couple who sued their real estate agent, claiming he duped them into overpaying for a $1.2 million home, said they have no regrets about taking the case to court, despite a unanimous jury verdict yesterday that the Realtor had done nothing wrong. The case, which attracted national attention, involved the purchase of a 3,700-square-foot Aviara-area home in the summer of 2005, when housing prices in San Diego County were still climbing. Marty and Vernon Ummel, who moved to the county after selling their Bay Area home for more than $1 million, argued they would never have bought the upscale tract house near the Aviara Four Seasons golf course had their real estate agent told them that other homes on their same street had sold for substantially less within the same time frame. "Of course, it's devastating and shocking that the standard of care (provided by an agent) doesn't seem to include having the agent tell you about houses that sold on your block for much less money," Marty Ummel said. "I believe it's the agent's responsibility to do his due diligence and inform his clients of any material fact that would impact their willingness to buy or not buy. "But I don't have a single regret. I really thought we were doing the right thing. The jury spoke, but what they decided hurts the real estate industry. It says the Realtors don't have to do their due diligence." The 10-woman, two-man jury apparently had little trouble reaching a decision, delivering a unanimous verdict within two hours yesterday afternoon. Jurors were charged with determining whether the Ummels' agent, Michael Little of Re/Max Associates, had breached his "fiduciary duty" and committed "negligent misrepresentation" when handling their home purchase. The original lawsuit included a number of other allegations, including fraud, but the Ummels' attorney later removed those. Also named in the lawsuit was the Carlsbad area Re/Max office where Little worked. In reviewing all the evidence, the jurors remained unconvinced that Little had done anything unprofessional, jury forewoman Wendi Brick said. "We felt that yes, he had acted on their behalf, and we felt he met his fiduciary duties as defined," she said. "In any kind of purchase, especially one that big – and most of us have had our own situations we'd been through – the bottom line really stops with you. Whose final responsibility is it to sign a contract? It's yours. "It's just a very sad situation for everyone. You could tell the strain on everyone." Little said he has had a difficult time carrying out his real estate business since the lawsuit was filed in 2006. "I feel incredibly relieved and vindicated," Little said. "It has been more than two years of quite problematic times for me, and I'm happy to get it behind me. I've just had a very difficult time working, approaching clients. You just get leery. "I sit on pins and needles. I've never had problems with anyone in my career, and now I look at things through a different looking glass." Marty Ummel, 60, and her husband, Vernon, 71, had asked for a damage award, claiming their home at the time they purchased it was worth $150,000 less than what they paid. Before finally agreeing to buy the house on Amanta Court in May 2005, the Ummels say they had repeatedly reminded Little they were out-of-town buyers unfamiliar with the San Diego County real estate market and wanted to make sure that the $1.2 million purchase price was a good value. Little assured them that it was, they said in their lawsuit. They also claimed that Little never provided them with lists of comparable properties that had sold in the immediate area. According to county assessor records, one Amanta Court home sold for $1,025,000 on July 29, 2005, the same day the Ummels closed escrow, and the other sold for $1,095,000 three months earlier. Each house is identified as having the same square footage as the Ummels' house. Little's attorney, David Bright, argued there were valid reasons the houses sold for less. One house had a lap pool, which was unappealing to many prospective buyers, and the sellers were also asking to lease back the home for two years, Bright pointed out. "This is a manufactured case," Bright told the jury. "It's nothing more than an effort to renegotiate a deal at Mr. Little's expense." Attorneys on both sides said there is no opportunity in this case for Little or the Re/Max office to recoup attorney fees. Marty Ummel declined to say how much she and her husband had spent on their lawyer fees.

Disclosures

I was just talking to someone that asked me if they should disclose a drainage problem seeing as how the chance of rain is nil until next winter. When in doubt, disclose!

Your Realtor is responsible for all the paperwork and negotiating but they aren't mind readers. Your Realtor must see that the proper disclosure forms for the city and county are delivered with the contract, but it's the homeowners responsibility to disclose any known defects or conditions that would affect the value, appeal or useability of the home. I am assuming the Realtor is not aware of the issues not being disclosed and that the Realtor has given the seller a disclosure form to fill out.

Disclosing up front rarely kills a deal, but when the buyer finds out later that something was not disclosed there could be a huge problem. When in doubt, disclose, no matter how trivial.

From Todays Union Trib

I'm not sure what to read into this mornings article on SignOnSanDiego but I'm sure there's more to come.

Bush administration widens homeowner aid REUTERS 7:43 a.m. April 9, 2008 WASHINGTON – The Bush administration will loosen rules that underpin the largest U.S. homeowner aid program in order to help more borrowers who have seen their home drop in value and are facing foreclosure, a senior administration official said on Wednesday. Brian Montgomery, head of the Federal Housing Administration, told lawmakers that his program would encourage lenders to erase some of a failing loan amount in order to receive a government guarantee of timely payments. "We will permit and encourage lenders to voluntarily write down outstanding principal," Montgomery told the House Financial Services Committee, in his written statement. Montgomery stressed that the he wanted to preserve the self-funding structure of FHA and not put taxpayers on the hook for failing loans. Unlike a proposal by Democratic lawmakers, the plan outlined by Montgomery would not required a big cash-infusion to get started. "This new administrative change will ensure the integrity of the FHA insurance fund over the long-term, protect the taxpayer, and guarantee that FHA will be around to help struggling homeowners in the future," he said in his prepared remarks. Washington policymakers have faced increasing pressure to help staunch increasing foreclosures that are threatening to drive the U.S. economy into a deep recession. The Federal Housing Administration is a Depression-era program that underwrites a borrower's monthly mortgage payments and so helps him win more favorable loan terms. The program was conceived to help low-income borrowers but policymakers have lately focused on its potential to help today's troubled borrowers who are at risk of losing their home. (Reporting by Patrick Rucker; Editing by Tom Hals)

Capital Gains and 1031's

When it comes to capital gains avoidance, I've seen some misleading information on the web lately thats either outdated or just misunderstood by the poster.  I'm going to give it my best shot here to clear up a few things, or at least explain them as I understand them. 

 

My first comment is actually advice.  If you're considering selling your home or an investment property, see a CPA for tax advice.  I was just talking to a lady last week who thought there was no capital gains tax any more.  Trust me, there is.

 

To avoid paying some of the capital gains on a property it must have been your primary residence for two of the previous five years (it does not have to be continuous and uninterrupted, could be four six-month stays) and (so Ive been told) not have been a 1031 exchange in the past.  You can avoid paying taxes on up to $250,000 gain for a single person or $500,000 for a married couple. 

 

Now for what I don't know, hence the need for a tax advisor or CPA.  I don't know if this gain is computed from your original basis or from what you paid for the home.  If for instance you sold a home prior to this law taking effect, ten years ago or however long ago it was, for $100,000 gain and used that profit for a down payment on your present home, would that $100,000 gain count towards your sum total gain?  I don't know.

 

Also, I was told (though I haven't confirmed it) that if you did do a 1031 into the property you now live in (and it was an investment property for some period of time before you moved into it) then you must live in it all five of the five years prior to you selling it (escrow closing date).  If anyone knows the specifics of these rules please comment below.

New FHA Limits

Effective April 4, 2008 the new FHA 30 year fixed product will allow the new increased loan amounts:

1 unit $ 697,500
2 units $ 892,950
3 units $ 1,079,350
4 units $ 1,341,350

To Buy Or Not To Buy? That Is The Question.

I was just sitting here thinking about the question it seems is asked of me most often.  "So is it a good time to buy?"  My answer is ... Hell Yeah.  Not because I'm in the business.  If I had cash for a down payment I'd buy something for myself today.  I said buy, not to get stupid.  Make sure you cash flow, which means enough of a down payment to keep the payments in line with rent potential. 

Rates are down and prices are too, but this alignment of the planets won't last forever.  Sure prices may drop more (but not according to the latest blurbs I have been reading), but if you don't buy and then rates go up, your potential for good cash flow goes South.  One can talk about rates, appreciation etc, but you need to make your monthly nut and thats what cash flow is all about. 

My broker sent out a memo stating that escrow closures are up, which he said is inidicative of prices increasing in six months or so.  I'm the first to say no one has a crystal ball, but if there are signs of changes it doesn't make sense to ignore them.  It is an election year and I'm never sure how distorted the economic picture gets during the months leading up to the election.  More later....

My Thoughts On The Lawsuit

I haven't been watching this case mentioned below real close but heard in a class yesterday that they have picked a jury.  I have such mixed emotions on the case.  I'm sure I don't have all the details, but my gut screams somethings wrong with all this.  Yet another person who doesn't want to be held responsible for ther own actions.  If they paid too little for the house, can the seller also sue the Realtor when the place next door sells for more?  From what I've read the buyers are mad that they paid more for their house than another one that closed the day they presented their offer.  Besides the fact that I always let my buyers make the final decision on how much to offer (with my guidance of course, but it is their decision), the buyers agent couldn't have known what the other home sold for until after escrow closed.  I need to think on this more.  If the Realtor did anything underhanded then he should be held accountable, but I'm not so sure this isn't just some rich couple having their lawyers try to recover money from a bad decision they made.

Who Decides How Much is Too Much?

The following article from the San Diego Union Trib outlines a case here in San Diego.  It raises a lot of questions such as who decides how much a home is worth.  Do agents or buyers? 

 

Homeowners suing agent over high purchase price

By Lori Weisberg
San Diego union Tribune Staff Write

March 31, 2008

Anyone who bought a home near the peak of the once-sizzling real estate market no doubt has found it painful to watch prices tumble with no end in sight. But in the case of one North County couple, it's not the volatile market they blame but their real estate agent, who they say duped them into overpaying.

And they're going to court to prove it.

Tomorrow, Vernon and Marty Ummel, who purchased a $1.2 million home in Carlsbad three years ago, will try to convince a jury that their real estate agent defrauded them when he failed to inform them that similar houses on the same block were selling for more than $100,000 less than what the Ummels had paid.

Jury selection is expected to begin tomorrow morning in the Vista courtroom of Superior Court Judge Lisa Guy-Schall.

Although legal experts say the case is intriguing, most doubt it will spawn a raft of lawsuits in which disgruntled buyers go after real estate agents alleging they were led astray.

Experts also question whether the Ummels will be able to prevail, recognizing that ultimately, the Ummels were the ones who decided to pay what they did in 2005 for their two-story, 3,700-square-foot tract home in a neighborhood just north of the Four Seasons Aviara golf course. In those days, prices throughout the county were still climbing.

"The real estate broker has an obligation in good faith to tell the buyers what he knows about pricing information and that there were houses selling for less than what the buyer was prepared to buy. And the buyers have an obligation to wake up and smell the roses before they buy and get as much information as they can," said George Lefcoe, a professor of real estate law at the University of Southern California.

"As an agent, you'd have to basically lie and cheat on this one, and the buyers would have to be as innocent as angels."

The Ummels, who moved to San Diego County after selling their San Rafael home in Northern California for $1.15 million, have declined to talk about their case, as has their attorney, because of the pending trial.

The lawyers representing Michael Little, the Re/Max Associates agent who sold the Ummels their home, also have said they will not comment. Little, too, said he cannot talk about the case until after the trial.

Earlier this year, the law firm representing Little and the Encinitas brokerage he works for sought a delay in the trial and a change of venue because of a January article in TheNew York Times in which the Ummels discussed their case shortly before it was supposed to go to trial.

Guy-Schall decided to keep the case in North County but agreed to a delay.

"The plaintiffs are not victims of a subprime loan scheme, nor are they victims of the declining real estate market," attorneys for the Re/Max agent wrote in court papers supporting their request for a delay. "Plaintiffs simply think they paid too much for their home when they purchased it. Nevertheless, plaintiffs have now painted themselves as the 'poster children' of the current crisis."

In the past, the Ummels have not been shy about discussing the circumstances surrounding their purchase. They've made it their mission to publicize their anger with their Realtor, beginning with Marty Ummel's weekly picketing of Re/Max offices in 2006. By the time they filed their lawsuit in July 2006, prices in San Diego County had started to fall.

Earlier this year, the couple were featured in an NBC "Today" show report about their lawsuit in which Marty Ummel, 60, once again expressed her anger.

"We feel we were misled, we are disappointed, we do feel angry," she told an NBC reporter. "We worked hard, and to think we've done that all of our lives and then for a Realtor not to tell us . . . that there was a house selling for much less."

Ummel said at the time that she was confident she and her husband would win in court, but she said that if nothing else, they are at least "trailblazers" in their quest to reform the real estate industry.

"We want disclosure," she said.

When Vernon Ummel, 71, and his wife decided in late 2004 to sell their Northern California home and search for property in San Diego County, the real estate market was red-hot. Every month, median home prices were posting year-over-year percentage increases in the double digits.

By April 2005, when the Ummels began working with Little, the market was still healthy, though price increases had started to moderate. The couple had a verbal agreement with Little to have him work as their real estate agent, as well as help secure a loan for the purchase of a property, according to the Ummels' lawsuit.

Although there was no written contract, agents representing buyers are legally obliged to represent their best interests, according to the legal counsel for the California Association of Realtors.

Before agreeing to buy their home on Amante Court in May 2005, the Ummels say, they had reminded Little repeatedly that they were out-of-town buyers unfamiliar with the county real estate market and asked him if the $1.2 million purchase price was a "good present-day price." He assured them it was "a very good value," according to court papers. The house had been listed for between $1,175,000 and $1,245,000.

The Ummels also claim in their lawsuit that Little never provided them with lists of comparable properties that had sold in the immediate area. Court papers filed by Little's lawyers state that the Ummels had indeed reviewed 40 other comparable properties, though it is not clear whether those were provided by the agent they had worked with before Little.

The couple also allege that they repeatedly asked Little for a copy of the appraisal that was being prepared for the purpose of getting a loan but never saw it until after they closed escrow in late July. The appraisal did value the home at $1.2 million.

What angered the Ummels and ultimately led them to file their lawsuit was when they discovered a month later that two other homes on their street had sold for substantially less.

According to county assessor records, one of the Amante Court homes sold for $1,025,000 on July 29, 2005, the same day the Ummels closed escrow. The other had sold for $1,095,000 three months earlier. Each house is described as having the same square footage as the Ummels' house.

More recently, in August 2007, a home on Amante that is about 500 square feet larger sold for $1,150,000. And currently for sale on the same street is a 4,192-square-foot home for which the seller is asking $1,185,000.

A review of recent property records reveals that no other home on Amante Court has sold for as much as $1.2 million.

Amante Court is a quiet cul de sac of two-story Mediterranean-style homes and palm trees that looks much like many Southern California subdivisions. The difference is these homes, built by Brehm Communities, are much larger and include more luxury amenities.

When the homes were built nearly seven years ago, they were selling for more than half a million dollars. Within four years, prices had doubled.

While some experts argue that valuation of properties is far from an exact science, they also point out that real estate professionals have a legal and ethical obligation to provide buyers with all the pertinent information they need before making what often is the biggest purchase of their lives.

"You can't necessarily believe everything that everyone says, but if there are houses in escrow that are virtually identical to your house that are selling for less, and that information is readily accessible to your agent, you'd expect them to give you that information," said Shaun Martin, a law professor at the University of San Diego. "If everything the plaintiff is saying in the lawsuit is true, it sounds like it's a darn good lawsuit. But there are always two sides."

San Diego Realtor Lori Staehling acknowledged that anyone can file a lawsuit, but she doubts that local agents have to worry about being targeted. Staehling and other industry experts said they know of no other case like the Ummels'.

"Buyers and sellers decide what they're going to pay or sell for," said Staehling, president of the San Diego Association of Realtors. "We don't determine those prices. We do provide information, but at the peak of the market when people were paying high prices, there were comps to justify that."

Originally included as defendants in the Ummel suit were John Contento, who handled the appraisal for the loan, and Horizon Pacific Financial, the broker for the Ummels' $300,000 loan. Earlier this year, Contento and Horizon Pacific Financial settled with the Ummels for $10,000 each.

Russ Coats, owner of Horizon, declined to comment, and Contento could not be reached.

San Diego appraiser Todd Lackner said many people in the industry are closely watching the Ummel case, and while Lackner said he believes the couple have a legitimate gripe, he doubts they will win in court.

"I give the buyers an awful lot of credit. They're sticking to their point, and most people couldn't afford these legal expenses they're shelling out," Lackner said. "But appraisals are subjective. Did they pay too much? Yes, they absolutely did. But they bought it willingly. No one forced them to purchase that house."