risk management 3 rd edition robert de heer marcia l. russell, drei
TRANSCRIPT
Topics Managing Risk
Misrepresentation, Nondisclosure, and Unauthorized Practice of Law
Disclosure of Environmental Hazards
Agency
Federal Fair Housing Laws
Americans with Disabilities Act
Antitrust Laws
Components of Risk Management Education Risk shifting
Errors and omissions (E&O) insurance Inspections by third-party experts
Risk anticipation Seller disclosure statements Red flag inspection Verbal representations confirmed in writing
Risk control
Misrepresentation
Definition A false representation of a material fact or a failure to disclose a known property defect which causes the consumer to suffer damages
Misrepresentation (cont.)
Imposes liability on several bases of law Active fraud Passive fraud Negligent misrepresentation Negligent nondisclosure Negligent advice
Active Fraud
Knowingly making a false statement about a material fact with the intention to deceive the buyer
Case Law Loch Ridge Construction, Inc. v. Barra Pumphrey v. Quillen
Passive Fraud
Intentionally concealing known material defects to a buyer The buyer is unlikely to discover the defect The defect relates to health or safety The agent has led the buyer away from discovering the defect
Case Law May v. Hopkinson Lynn v. Taylor Century 21 Page One Realty v. Haghad
Negligent Misrepresentation
Imposes liability for statements which the real estate agent did not know were false but should have known were false Relying on statements made by sellers
Case Law Johnson v. Greer Real Estate Company
Negligent Non-Disclosure Imposes liability for failure to exercise adequate care to discover a material defect and disclose it to the buyer
Case Law Easton v. Strassburger Gouveia v. Citycorp Person to person financial Center, Inc.
Provost v. Miller Hoffman v. Connell Amato v. Rathbun Realty, Inc.
Negligent Advice Imposes liability for giving incorrect professional advice when the agent should have known the advice was wrong
Case Law Gerard v. Peterson
Stigmatized Property
Property psychologically impacted
Event occurred or suspected to have occurred on property
No physical impact
Stigmatized Property (cont.)
Most states have laws that declare stigmas are not material facts
Stigmas include: Murder
Natural death
Suicide
Assault
Sexual assault
Felony crimes
AIDS and HIV
Disclosing Other Stigmas Determine whether the information is fact or fiction
Check state laws Determine materiality Discuss disclosure with the sellers
Megan’s Law Background Sex offender registration
National website http://www.mapsexoffenders.com
Federal law mandates community notification of location of sex offender
Exemption for real estate licensees in some states
Limiting Liability Frequent causes of litigation and how to avoid them
Summary of risk reduction recommendations
Unauthorized Practice of Law Practice of law defined Standard forms Broker/lawyer accords and filling in the blanks
Legal advice or judgment
The Real Estate Agent’s Role Recognize potential environmental hazards
Recommend sellers retain experts to evaluate hazards
Have attorney draft disclosure of environmental hazards
Fulfill duties when representing buyers
Major Environmental Legislation The Resource Conservation and Recovery Act (RCRA) Enables EPA to regulate hazardous waste generators
Definition of hazardous waste under RCRA
Major Environmental Legislation (cont.) CERCLA (Superfund)
Provisions of the law Response actions
SARA Amended CERCLA Provisions of the law Environmental responsibilities Liability for cleanup Limiting a landowner’s responsibility
Environmental Due Diligence The process of taking all appropriate and reasonable steps to ascertain there is no contamination at the site
This includes becoming aware of red flags that might suggest the possibility of contamination
De Minimis Settlement The EPA will consider a de minimus settlement with innocent landowners Limits the amount that must be contributed for the cleanup
Underground Storage Tanks and Hazardous Waste Definition Estimates of the number of underground storage tanks range from 3 to 5 million
EPA estimates that approximately 40% are leaking
Cost of removing tank and treating contamination can exceed $1 million
Clues indicating possible presence of USTs
Evaluating Environmental Hazards
Preliminary Site Assessment
Phase 1: Environmental Assessment
Phase 2: Environmental Assessment
Phase 3: Environmental Assessment
Asbestos Asbestos has been used in construction material because it is a good fire retardant and efficient insulator
Exposure to asbestos causes cancer and other diseases
Use in buildings has been prohibited since 1978
Asbestos removal should only be done by experts
Common Places Where Asbestos Is Found
Vinyl flooring material Patching compounds and textured paint Ceiling tiles and sprayed ceilings Stove and furnace insulation Door gaskets Pipe insulation and wall/ceiling insulation
In some appliances, roof shingles, and siding
Formaldehyde Colorless, gaseous chemical compound used in home insulation until early 1980s
Health risks
Radon Radon is a naturally occurring odorless, tasteless, radioactive gas
Radon is the second leading cause of lung cancer after cigarette smoking
Radon testing is easy and affordable
Problems with radon can be corrected by sealing cracks and increasing ventilation
EPA recommends testing for radon before listing a home for sale
Mold
Latest environmental scare Response by the real estate profession
Response by the insurance industry
Lead-Based Paint Disclosure Law is designed to protect families from exposure to lead from paint, dust, and soil
Involves housing built prior to 1978
Children between the ages of 18 months and 6 years are at greatest risk
Lead-Based Paint Disclosure (cont.) Lead-based paint is the most common cause of lead poisoning in children
Health problems include: Damage to the brain and nervous system Behavior and learning problems Slowed growth Hearing problems Headaches Coma, convulsions, and death
Summary of Housing Not Covered Housing built after 1977
Zero bedroom units
Housing for the elderly or persons with disabilities
Leases for less than 100 days when there is no opportunity to renew
Foreclosure sales
Rental housing certified as lead-free
Disclosure Requirements Sellers and landlords must disclose known lead-based paint and/or hazards and provide available reports to buyers and renters
Buyers and renters must be given the pamphlet Protect Your Family From Lead in Your Home
Lead warning statements
Disclosure Requirements (cont.)
Homebuyers are given the opportunity to have a 10-day period to conduct an inspection
Sellers, lessors, and real estate agents share responsibility for compliance
Enforcement HUD penalties up to $11,000 for each violation
EPA Civil penalties up to $11,000 per violation
Criminal penalties up to $11,000 per violation
Private action with treble damages available
What Is Methamphetamine? Illegal substance also known as "meth," "speed,"
"crank," "crystal," and "ice“ Potent synthetic drug that is a stimulant of the
central nervous system Effects are similar to those of cocaine:
A "rush" or intense feeling of pleasure that lasts longer than cocaine
It is injected, snorted, taken orally, or smoked Long-term use leads to physical dependence Symptoms include high energy and rapid speech Chronic users may experience severe depression,
delusions, hallucinations, paranoia, and display violent behavior
Addiction has reached epidemic proportions and is impacting society at all levels
Meth Labs Proliferation of meth labs throughout America
Contamination of property used for cooking meth Dangers of exposure to children and adults
Contact local health departments to assess the property prior to allowing it to be reinhabited
Meth Lab Substances Alcohol Ether Benzene Toluene/paint thinner Freon Acetone Chloroform Camp stove fuel/Coleman®
fuel Starting fluid Anhydrous ammonia Heet® White gasoline Phenyl-2-propane Phenylacetone
Phenylpropanolamine Iodine crystals Red phosphorous Black Iodine Lye (Red Devil lye) Drano® Muriatic/hydrochloric
acid Ephedrine (over-the-
counter) Cold tablets Bronchodialators Energy boosters Rock salt Diet aids
Red Flags Indicating Presence of Meth Labs Unusual, strong odors (like cat urine, ether, ammonia, acetone, or other chemicals)
Blacked-out windows Renters who pay their landlords in cash (most drug dealers trade exclusively in cash)
Lots of traffic—people coming and going at unusual times (there may be little traffic during the day, but at night the activity increases dramatically)
Excessive trash including large amounts of items such as antifreeze containers, lantern fuel cans, red chemically-stained coffee filters, drain cleaner, and duct tape.
Unusual amounts of clear glass containers being brought into the home
Common Causes of Legal Action Lack of disclosure of agency relationship
Insufficient knowledge of agent’s duties to sellers and buyers
Breach of fiduciary duties when dealing with buyers
Conflicts of interest Misrepresentation Agents implying they have certain skills they actually lack
Agents who buy property for their own account
Consequences of Breach of Fiduciary Duty
Loss of commission Rescission of transaction
Loss or suspension of license
Actual damages Punitive damages in severe cases
Criminal penalties in severe cases of fraud
Risk Reduction Recommendations Education Use of disclosure forms Written company policy addressing agency relationships
Seller’s Agent Fiduciary responsibilities owed to seller
Sub-agency Responsibilities of seller’s agent to buyer
Buyer’s Agent Fiduciary responsibilities owed seller
Responsibilities of buyer’s agent to seller
Buyers who should or must be clients
Buyer Representation Agreement Form to be signed Disclosures to listing broker, seller, and closing (escrow) agent
Compensation Advantages of buyer brokerage
Dual Agency Dual agency situations Duties of dual agent to both buyer and seller
Unintended or accidental undisclosed dual agency
Risk of dual agency
Company Agency Policies Seller agency exclusively
Advantages Drawbacks
Buyer agency exclusively Advantages Drawbacks
Company Agency Policies Single agency whether listing or selling Advantages Drawbacks
Dual agency for in-house sales Advantages Drawbacks
Overview of Federal Legislation
1968 Civil Rights Act of 1968
1973 Rehabilitation Act of 1973
1974 Housing and CommunityDevelopment Act
1974 The Equal Credit Opportunity Act
1988 The 1988 Fair Housing Amendments Act
1995 The Housing For Older Persons Act
Evolution of Protected Classes
Civil Rights Act of 1968 Race Color Religion National origin
Housing and Community Development Act of 1974 Sex
1988 Fair Housing Amendments Act Familial status Handicap
Prohibited Actions—Sale or Rental
Refusing to rent or sell housing Refusing to negotiate for housing Making housing unavailable Denying a dwelling Setting different terms, conditions, or privileges for sale or rental of a dwelling
Providing different housing services or facilities
Prohibited Actions—Sale or Rental (cont.)
Falsely denying that housing is available for inspection, sale, or rental
Blockbusting
Denying access to brokerage services such as the MLS
Prohibited Actions—Mortgage Lending
Refusing to make a mortgage loan Refusing to provide information regarding loans
Imposing different terms or conditions on a loan
Discrimination regarding property appraisals
Refusing to purchase a loan Setting different terms or conditions for purchasing a loan
Additional Prohibited Actions Threatening, coercing, intimidating, or interfering with anyone exercising a fair housing right
Advertising or making any statement that indicates a limitation or preference based on membership in a particular protected group
Definition of a Disability A physical or mental impairment that substantially limits a major life activity
A record of such an impairment Being regarded as having such an impairment
Definition of a Disability (cont.) A physical impairment is an physiological disorder or condition, cosmetic disfigurement, or anatomical loss affecting one or more body systems
A mental impairment includes mental retardation, emotional illness, organic brain syndrome, and specific learning disabilities
Definition of Familial Status
Anyone under the age of 18 living with a parent or legal guardian
The written designee of such parent or legal guardian
Anyone about to obtain custody of someone under the age of 18
Pregnant women
Housing For Older Persons Act of 1995 Act repealed significant services and facilities requirement for housing to qualify for “Housing for Older Persons” exemption
Act provides for a “good faith defense” for real estate agents
Steering The practice of channeling minority home seekers to designated areas and not permitting them access to all available housing is known as steering
Steering is not a total refusal to sell or rent
Steering violates the Fair Housing Act’s “otherwise make unavailable or deny” provision
Examples of situations involving steering
Fair Housing Advertising The Fair Housing Act makes it unlawful to make, print, or publish, or cause to be made, printed, or published, any notice, statement, or advertisement, with respect to the sale or rental of a dwelling, that indicates any preference, limitation, or discrimination because of race, color, religion, sex, handicap, familial status, or national origin
1995 HUD Memorandum Race, Color, National Origin“Master Bedroom;” “Rare Find;” “Desirable Neighborhood”
Religion“Merry Christmas;” “Happy Easter”
Sex“Mother-in-Law Suite;” “Bachelor Apartment”
Handicap“Great View;” “Walk-in Closet;” “Walk to Bus Stop”
Familial Status“No Bicycles;” “Family Room;” “Quiet Streets”
Purpose of the ADA
To provide a clear and comprehensive national mandate to eliminate discrimination against persons with disabilities
Definition of Disability
A physical or mental impairment that substantially limits a major life activity
A record of such an impairment Being regarded as having such an impairment
Definition of Disability (cont.) A physical impairment is an physiological disorder or condition, cosmetic disfigurement, or anatomical loss affecting one or more body systems
A mental impairment includes mental retardation, emotional illness, organic brain syndrome, and specific learning disabilities
ADA Titles I–V
Title I—Employment Covers all aspects of employment including application procedures, employee compensation and other terms, conditions, and privileges of employment
Title II—Public Services Prohibits discrimination by state and local governments
ADA Titles I–V (cont.) Title III—Public Accommodations
Public facilities goods and services must be accessible to customers who have disabilities
Title IV—Telecommunications Hearing and speech impaired persons must have telephone services that are functionally equivalent
Title V—Miscellaneous Provisions
Tax Breaks
A tax deduction of up to $15,000 per year for removing barriers
A tax credit of up to $5,000 per year for smaller businesses for removing barriers
Title I—Employment No covered entity shall
discriminate against a qualified individual with a disability due to the disability regarding:
Job application procedures Hiring, advancement or termination Employee compensation Job training Other terms, conditions, or
privileges
Definitions
Substantially limited Qualified individual with a disability
Reasonable accommodation Undue hardship Essential job functions
Prohibited Actions
Limiting, segregating, or classifying a job applicant or employee in a way that adversely affects employment opportunities based on disability
Participating in a contractual relationship that subjects an employer’s qualified applicant or employee to discrimination based on disability
Prohibited Actions (cont.) Denying employment opportunities to a qualified individual because that person has a relationship or association with an individual with a disability
Refusing to make reasonable accommodation to the known physical or mental limitations of a qualified applicant or employee with a disability unless the accommodation imposes an undue hardship on the business
Prohibited Actions (cont.)
Using qualification standards, tests, or other selection criteria that screen out an individual with a disability unless they are job-related and consistent with business necessity
Failing to use employment tests in the most effective manner
Examples of Reasonable Accommodations Reserved parking spaces Level or ramped entrance Access to conference rooms Widening doorways Job restructuring Provision of qualified readers and interpreters
Reassignment to vacant position Modification of examinations Acquisition or modification of equipment
Avoiding Claims UnderTitle I
Prohibited questions from employers
Questions employers may ask Employer rights concerning illegal drugs and alcohol
Title III—General Rule
No individual shall be discriminated against on the basis of disability in the full and equal enjoyment of goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases, or operates a place of public accommodation
Places of Public Accommodation
Place of lodging Restaurants Place of entertainment Place of public gathering Sales or rental establishment
Places of Public Accommodation (cont.)
Service establishment Station used for public transportation
Place of public display Place of recreation Place of education Social service center
Title III Requirements
Removal of architectural and communication barriers
Auxiliary aids and services Reasonable changes in policies, practices, or standards
Priority System For Removing Barriers
An accessible entrance from parking, public sidewalks, and public transportation
Access to location where goods and services are made available
Access to restroom facilities Additional measures that promote accessibility
Alterations To Existing Buildings
The primary function area The path of travel to altered area
Restrooms, telephones, and drinking fountains
The Sherman Antitrust Act of 1890 Background
Designed to protect competition and prevent monopolies
Employed by the federal government to break up large companies that had abused their economic powers
Categories of Restraints
Price-fixing Group boycotts Tying arrangements
Bid rigging Market divisions
Establishing a Violation Under the Sherman Act
Contract, combination, or conspiracy involving two or more competitors
Restrains trade
Perfectly Competitive Market
A large number of participants A product or service that varies little from provider to provider
Low entry barriers Price information that is readily available
Agreements to Fix Price
Price fixing Case Law
United States v. National Association of Real Estate Boards
McLain v. New Orleans Real Estate Board
The Per Se Rule Against Boycotts
A boycott is a refusal by two or more entities to deal with a third party
Illegal conduct
Illegal Tying Agreements
A tying arrangement may be defined as an agreement by a party to sell one product only on the condition that the buyer also purchases a different or tied product
Case Law Northern Pacific Railway v. US
Elements of an Illegal Tying Arrangement
Two separate products or services that are tied together
Possession of market power A restraint that is not “insubstantial”
Elements of an IllegalTying Arrangement (cont.)
Are products or services generally sold as a unit?
Do the same consumers use both items?
Is the price of the combined unit the aggregate of the individual component parts?
Antitrust Issues in Today’s Real Estate Market
Fee-for-service business model Minimum level of services Some states prohibit rebates to homebuyers
Application of Antitrust Laws to Boardsor Associations of REALTORS®
Supreme Court ruling in Associated Press v. United States Competitive advantage Membership must be made available on reasonable and non-discriminatory terms
Trade association must demonstrate that the purpose is to upgrade industry standards, improve industry efficiency, or offer new products or services Board of REALTORS®—threat of antitrust complaints
Membership Qualification Criteria A valid real estate license and actively engaged in the real estate business
A place of business within the state or a contiguous state
No record of official sanctions involving unprofessional conduct
Membership file No recent or pending bankruptcy Completed the board indoctrination course Signified intention to abide by Code of Ethics, etc.
Qualification Criteria For REALTOR® and REALTOR-Associate®
A valid real estate license and actively engaged in the real estate business
Employed by or affiliated with a REALTOR® as an independent contractor
Must make application for membership in the board
Membership file Completed the board indoctrination course Signified intention to abide by Code of Ethics, etc.
Antitrust Enforcement
Treble damages Attorney fees Court supervision Prison terms Corporate fines Individual fines
Price Fixing Case Law
United States v. Foley
United States v. National Association of Real Estate Boards
Boycott Law
Case Law Penne v. Greater Minneapolis Board of REALTORS®
Market Force v. Wauwatosa Realty, Inc.
Antitrust Law and Boards of REALTORS®
Case Law Grillo v. Plainfield Board of REALTORS®
Marin County Board of REALTORS® v. Palsson
Glendale Board of REALTORS® v. Hounsell
Pomanowski v. Monmouth County Board of REALTORS®
Thompson V. Metropolitan Multi-List
Plaintiffs alleged that Board conditioning access to MLS on membership to the Board was an illegal tying arrangement
Appeals court ruled that these were two separate products
Thompson brokers