presented by pearl insurance 93a consumer protection & business regulation for real estate...

Presented by Pearl Insurance

93AConsumer Protection & Business Regulation for Real Estate Brokers & Sales People

REO4ROI Chapter 93A, Consumer Protection and Business Regulation for Real Estate Brokers and Salespersons

Chapter 93A• This course will follow the Course Outline provided

by the Division of Professional Licensure and shall cover the history of the Statute, its applicability, purposes and procedures, disclosure requirements and define terms as they relate to real estate practice in Massachusetts.

• Sample fact scenarios will be covered to provide real life examples.

• Thanks to Mass Association of Realtors for providing content.

Chapter 93A• Although the Consumer Protection Statute applies

to Brokers, Salespersons and businesses and business persons in general, the course will discuss the obligations of “Licensees” which shall include Brokers and Salespersons and, when speaking about the applicability of the Statute, to businesses and business persons in general.

Brief History There are two types of law: common law and statutory law.

“Common Law” is judge made law, based on prior decisions, developed over time and are generally specific to the facts of the case. “Statutory law” are laws passed by the legislature designed to address broader societal interests.

HistoryThe Federal Trade Commission Act established the Federal Trade Commission (the “FTC”) to regulate interstate businesses, protect consumers, prevent unfair business practices and enforce the Anti-Trust Laws.

History

The Consumer Protection Act made it easier for the

Attorney General to enforce standards in the marketplace

by eliminating common law requirements:

1. that businesses acted intentionally or fraudulently;

2. the need to prove reliance on the misconduct; or

3. the need to prove “privity,” which is a direct relationship between the parties (plaintiff and defendant), sufficient to support a claim at common law.

History• The Consumer Protection Act also added new tools

in the arsenal of consumers and businesses harmed by “unfair and deceptive trade practices.” At common law, a party suing to enforce their own rights would be entitled to be reimbursed for actual damages proven but there was no potential to recover damages beyond that.

History• The Consumer Protection Statute, codified in the

Massachusetts General Laws in Chapter 93A, provided something more than common law recovery. Where a consumer or business prevails in a 93A suit, there is the potential for recovery of attorney fees and, in the court’s discretion, the award of two or three times the actual damages suffered.

History• The elimination of common law requirements and

potential for recovery for multiple damages and attorney fees, which will be discussed further, was an attempt to “level the playing field” between businesses and consumers.

Review Questions• What does “Caveat Emptor” mean

• A) Each party must look after his own interest.

• B) Let the Buyer be warned.

• C) Let the Buyer beware.

• D) Let the Seller beware.

Review Questions• Common Law allows judges to respond to changes

in the market place and consumer protection concerns in the absence of statutory authority:

• A) True

• B) False

Review Questions• The purpose of Massachusetts’ Consumer

Protection Statute is to:

• A) Make life miserable for real estate licensees

• B) To regulate businesses for the protection of consumers

• C) To regulate how individuals conduct themselves within the Commonwealth.

Application of the Consumer Protection Statute

The Consumer Protection Statute was codified in the Massachusetts General Law (MGL) in Chapter 93A. People interchangeably refer to the Statute as “The Consumer Protection Statute” and “Chapter 93A.”

Application of Consumer Protection

• Residential Sellers are generally not considered to be engaged in “trade or commerce” and are not subject to liability under Chapter 93A.


• Because Section 2(a) of the Statute outlawed “unfair methods of competition and unfair and deceptive trade practices in the conduct of any trade or commerce” courts have held that the Statute applies only to those actually engaged in business in the Commonwealth.


• The Court observed the Buyer did have the right to sue the Seller under the common law doctrine of fraud or misrepresentation, so the Buyer was not without redress. The Buyer simply could not sue a fellow consumer under a Statute designed to regulate businesses.


• Although a residential seller is not subject to Chapter 93A, a residential seller may still be held liable under common law doctrines such as fraud or misrepresentation if the residential seller engages in such conduct.


• Lantner v. Carson


• In the Landlord/Tenant scenario, whether or not a Landlord can be held liable under Chapter 93A depends on whether the Landlord is considered a “professional landlord” or “non-professional landlord.”


• Simply hiring a Real Estate Licensee does not make a Residential Seller or Non-Professional Landlord subject to Chapter 93A.

Review Questions• Real Estate Brokers and Salespersons are subject

to Chapter 93A:

• A) Upon issuance of their real estate license

• B) Because by virtue of their duties, they are engaged in “trade or commerce”

• C) Because they are vicariously liable for the Acts of the Seller.

Review Questions• Chapter 93A routinely applies to all of the

following, EXCEPT:

• A) A Builder/Developer

• B) Commercial Lending Institution

• C) An Owner-occupied Landlord renting a unit in a two family who hired a Real Estate Licensee.

• D) A residential Real Estate Licensee engaging in rentals.

Review QuestionsA residential seller, selling their own home with the

assistance of a Real Estate Licensee, misrepresents and fails

to disclose physical defects in the property to the Buyer

and the Licensee. The Buyer buys and discovers these facts.

Which statement is most accurate:

A) The Buyer may sue the Seller for fraud and misrepresentation.

B) The Buyer may sue the Seller for violations of Chapter 93A only.

C) The Buyer may sue the Seller for fraud, misrepresentation and violating Chapter 93A.

D) The Buyer may not sue the Seller because the Seller hired a Licensee and therefore can only sue the Licensee under Chapter 93A.

Review QuestionsChapter 93A expressly outlawed:

• A) Unfair methods of competition

• B) Unfair and Deceptive Trade Practices

• C) Net Listings

• D) A and B

• E) All of the Above

Purpose and Procedure: This section of the Course material focuses on the terms

and provisions of the Consumer Protection Statute and meaning of these terms. Specifically, the Board of Registration wants this portion of the Course to cover:

1. Unfair and Deceptive Trade Practices

2. “Fairness” and “Unfairness”

3. Deceptive

4. Affirmative Disclosure

5. Damages — Multiple Damages and Attorney Fees

6. Who May Sue / Standing

Purpose and Procedure:

The term “unfair and deceptive trade practices” is, as previously discussed, language taken directly from the Statute. Section 2 of the Chapter 93A specifically outlawed “unfair methods of competition” and “unfair and deceptive trade practices” in trade or commerce in the Commonwealth.


• “Deceptive Trade Practice” might be seen as using misrepresentation or illegal practices in business. “Deception” is synonymous with fraud and misrepresentation, and had been illegal at common law before the enactment of Chapter 93A.


• The concept of establishing legal rights because a business acted in an “unfair” manner is a relatively new concept. The common law would have never allowed a person or business to be sued or held liable merely because they acted “unfairly” and early decisions at the federal level questioned with “fairness” could be regulated.


• Damages – A contract is not required • Multiple Damages and Attorney Fees


• Where a broker incorrectly stated a house had been de-leaded when it had not, failed to timely give Lead Disclosure, when she gave Lead Disclosure it was accompanied by a note that said “don’t let this scare you” and the Buyer’s child suffered lead poisoning, triple damages were appropriate against the broker because the court found the conduct of the broker was especially egregious. Piers v. Wheeler & Taylor, Inc. Berkshire Sup. Crt. No. 960088 (Jan. 26, 1998).


• Who may sue

– A complaint under Chapter 93A may be brought by the Attorney General’s Office, a consumer allegedly harmed by the actions of the Licensee or another business or business person.

Pearl Risk Management Factoid• 75% of all claims and lawsuits are

made against the the sellers and the listing agent and have to do with the misrepresentation or failure to disclose the condition of the property.

Review Questions• Can the Consumer sue the Licensee if the Consumer

have no money damages?

A) No, only the Attorney General’s Office can sue if the Consumer suffered no damages.

B) Not unless the Consumer can show he suffered damages.

C) Yes, but will only be entitled to Nominal Damages of $25 under Chapter 93A.

D) Yes, if he had a contract with the Licensee.

Review Questions• “Affirmative Disclosure” refers to

A) A common law doctrine related to the need to disclose hidden defects.

B) A requirement that those subject to Chapter 93A must disclose defects without waiting to be asked.

C) A requirement under Chapter 93A related to written disclosures.

D) Having a positive attitude, which will help to avoid disputes with consumers even if a problem is later found.

Purpose and Procedure • Encouraging Settlement

– The Demand Letter

– Opportunity to Offer Settlement.

– Multiple Damages (up to two or three time the damages)

– Attorney’s Fees

Purpose and Procedure

The Demand Letter should not be confused for anything other than what it is; the Licensee receiving it should understand that there is a potential for litigation under Chapter 93A.


The Opportunity to Settle

Armed with the claimant’s letter, detailing the alleged misconduct, alleged damages and requested relief, the Licensee may determine if there is potential liability and make a reasonable offer of settlement.

Purpose and Procedure• If the Licensee refuses to make a “reasonable offer

of settlement” or fails to reply to the Demand Letter at all and the Plaintiff sues and the Licensee is found to have violated Chapter 93A, then the Court will award Attorneys Fees and can also award two or three times the actual damages and attorneys fees.

Purpose and Procedure• The Demand Letter therefore provides the

Licensee the opportunity to settle or, if not settle, at least potentially take the teeth out of 93A by making a generous offer of settlement. Thus, the Demand Letter and 30 day waiting period provides a carrot and stick approach to both parties in consumer/Licensee disputes.


The failure to give any response to the Demand Letter may in and of itself subject a businessperson to multiple damages. Such a “refusal to grant relief” may serve as evidence of bad faith, entitling the Plaintiff to an award of Multiple Damages and Attorneys Fees.

Review Questions• The “Demand Letter” is a jurisdictional requirement in

Chapter 93A suits by consumers. The “Demand Letter” must:

a) Be approved by the Attorney General before being sent.

b) Must be filed with the Court and the Licensee must file his response with the Court.

c) Must be sent at least 30 days in advance of suit by a consumer.

d) Must be prepared on by an Attorney.

Review Questions• The Demand Letter encourages settlement by:

A) Requiring the Consumer to detail their allegations and damages before filing suit.

B) Giving the Licensee 30 days to investigate the allegations.

C) Giving the Licensee an opportunity to make an offer of settlement before litigation is filed.

D) All of the above.

Review Questions• If a consumer fails to send a Demand Letter or the Demand

Letter sent is found not to meet the requirements of the Statute

A) The consumer’s claim may be dismissed or if not dismissed, the Court may deny recovery under the Statute.

B) The consumer must pay the Licensee’s legal fees.

C) The Consumer can receive double damages, but not treble damages.

D) The Consumer, if they prevail, will not receive multiple damages but may recover Attorney’s Fees.

Disclosure / What Must Be Disclosed• The Broker or Salesperson will likewise have a duty

regarding the Lead Paint Law, as detailed in the Lead Paint Transfer Notification form. The Licensee must explain the Sellers rights and obligations under the Lead Law, have the Seller fill out the Transfer Notification Certification and provide any reports and provide the Transfer Notification Certification to the Buyer before the Buyer is bound in contract.

Disclosure / What Must Be Disclosed

• Having established that Chapter 93A requires “Affirmative Disclosure” the question then is what must be disclosed and by whom.

• Typically, the residential seller, not involved in “trade or commerce” will have only one affirmative disclosure requirement: Lead Paint, if the property offered for sale was built prior to 1978.

Disclosure / What Must Be Disclosed• Brokers and Salespersons, or residential Sellers, who

have not hired a Licensee, must also provide a Facts for Consumers Brochure regarding Home Inspectors to any potential Buyer before they submit an offer or contract to purchase.

• Other than these two specific statutory requirements, the typical residential seller has extremely limited disclosure requirements.

Disclosure / What Must Be Disclosed• Beyond Lead Paint disclosure and the Home

Inspector Facts for Consumers disclosure form, the Real Estate Licensee’s “affirmative disclosure” requirements are governed entirely by Chapter 93A, Regulations and Case Law interpreting their obligations under the Chapter 93A.

Pearl Risk Management Tip - Disclosure• Over Disclose

– Buyers like more information not less

– Work with sellers

• Documentation

Regulatory Agencies and Regulations in Consumer Protection

• As such, failure to give Lead Paint Disclosure, a statutory requirement for the protection of consumers, could be found to be a violation of Chapter 93A.

• Likewise, failure to meet ones obligations under the Real Estate Licensing Law, as previously discussed in Saab v. Keenan, may be found a violation of Chapter 93A.

Conditions and Defects• The Attorney General’s Regulation, 940 CMR

3.16(2) makes clear that a Licensee may be held liable for failing to disclose any fact “which may have influenced the buyer or prospective buyer not to enter into the transaction”

Pearl Risk Management Tip• Stay Within Scope

• Disclose inaccurate information from Inspections

– Provide Counter Report

Conditions and Defects• Understanding that a Licensee can only be held

liable for failing to disclose facts he or she actually knows, one must ask how does the Licensee get such facts.

• In an oft cited Superior Court decision, the Court ruled a Licensee gets knowledge in one of three ways:

– 1. Through personal observation;

– 2. Through the statement of someone with first hand knowledge, such as the Seller; and

– 3. Through expert opinion, an architect, engineer, home inspector finds a defect and reports it to the Licensee.

Conditions and Defects

• A Licensee having actual knowledge of physical defects in a property, the Licensee must disclose those defects to avoid liability under Chapter 93A.

Conditions and Defects• Massachusetts does have a Sex Offender Registry,

requiring individuals convicted of a sex offense as either a minor or an adult to receive a “dangerousness” hearing and be rated on a scale of 1-3 to determine the likelihood of re-offending. Information regarding registered sex offenders may be obtained at the local police station or through the Sex Offender Registry Board.

Conditions and Defects• One form of non-physical stigma, that of

“psychologically impacted properties,” need not be disclosed. Massachusetts has adopted a Stigmatized Property Act which has deemed certain “non-physical stigmas” as “not material” and therefore, need not be disclosed under Chapter 93A.

Conditions and Defects• Specifically, the Stigmatized Property Act has

deemed the following facts as not material at law:– Whether the occupant of a dwelling has HIV,

AIDS or any other disease “highly unlikely” to be transferred by the property;

– That the property was the site of a felony, suicide or homicide; and

– That the property has been the site of alleged “parapsychological or supernatural phenomenon.” (i.e. Ghosts)

Review Questions• A Licensee lists a property next door to his

house, across the street from the house is a group home. Must the Licensee disclose the Group Home:

A) Yes, this is a “transient social condition.”

B) No, nobody has a right to know.

C) Yes, if they are asked about it.

D) No, not even if asked.

Review Questions• A Licensee lives across the Street from a property she has

listed. Immediately next door to the listed property is a open grassy field, and although it appears pristine, the Licensee knows there are Underground Storage Tanks on the property that may be leaching petroleum.

A) The Licensee should get the Seller’s permission to disclose.

B) The Licensee must disclose the information because it is rooted in the land and may effect the use and enjoyment of the listed property.

C) The Licensee must investigate the environmental damage but need not disclose unless EPA orders her to do so.

D) The Licensee should have declined the listing

Avoiding Liability• Having a better understanding of Chapter 93A, or at

least a new found fear of liability, the Licensee must ask how they can still run their business and stay out of trouble.

• The most obvious way to avoid liability is to know and comply with your legal obligations; starting with disclosing Agency Relationships and conflicts of interests such as any potential for you to act as a designated or dual agent, to disclosing lead paint and physical defects.

Avoiding Liability• Any representation made should be complete and

truthful, “technically correct” answers which may give a false impression will only serve to get the Licensee in trouble.

• Licensees should maintain complete records and cite the source of information where they received such information, be it the Seller or public record.

Avoiding Liability

• Citing the source of your information is also important.

• Similarly, a Licensee is entitled to rely on the Public Record.

Pearl Risk Management Tip

• Avoiding Liability

–Stick to the facts

–Be the source to the source but not the source

• Terry Watson; National Real Estate Speaker

Avoiding Liability• The use of seller disclosure statements,

or directing questions to the Seller also are a way of avoiding liability because ….. However, where a Broker actively assists a Seller in filling out the seller disclosure form, a Court may find that the representations are attributable to the Broker.

Avoiding Liability

• Licensees should also disclose and document conflicts of interest.

Avoiding Liability

• If a Licensee is treating a former client as a customer, that is a conflict of interest which must be disclosed.

– See Hurley v. Chobee Hoy Assoc., 1997 Mass.App.Div 142.

Avoiding Liability

• Licensees should also avoid giving legal advice, legal drafting or making absolute statements.

Avoiding Liability• Similarly, answers such as, “That question is better

directed to your: attorney, home inspector, mortgage broker, etc” are entirely appropriate where they are outside the scope of the Licensee’s responsibility.

Avoiding Liability• There is liability with every profession. Knowing

the law and your legal obligations, then acting consistently with the law and documenting your compliance is the best way to avoid liability under Chapter 93A.

Advertising Issues• Bait & Switch

• Bona Fide Effort to rent or sell

• Misleading Advertising

• Misleading Financing

• Misrepretation

Landlord/Tenant Relationships• Potential Unfair & deceptive Trade Practices

– Dwelling Unit

– Landlord failure to meet obligations to tenant

– Imposing Requirements not stated in lease

– Easy to Read Lease

•

Pearl Risk Management Tip

• Avoiding Liability

• You job is to facilitate the transaction of Real Estate

• You get in trouble ($$$) when you go outside of that scope

Review Questions• A listing broker was asked the age of the roof and

responded, to avoid liability, which answer is most helpful to the consumer and most likely to insulate the Broker from liability?

A) Go ask your home inspector.

B) Do I look like a roofer to you?

B) The roof is three yeas old.

C) The Seller told me the roof was three years old.

Questions?

Jeff Homes

Regional Director

Get More Info

800.447.4982

www.pearlinsurance.com/remax

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