Does anybody really care what time it is?

By: James L. Goldsmith, Esquire

You don’t need to be reminded how time-sensitive the business of real estate can be.

Timing is not always everything, but it is critical in the executory period that exists between signing an agreement and settlement. A good practitioner should never lose sight of the timing of events, the periods within which tasks must be completed and even the timing of settlement.

Recently I received a last-minute request to accompany a seller to her closing. The closing took place on a Friday afternoon at 4 p.m., as an accommodation to the buyer. When the title agent reviewed the amount required to pay off her mortgage, the seller was surprised that it didn’t compare to what was shown on her amortization schedule as the balance due. Some of the discrepancy could be attributed to interest that had accrued since her last payment, but approximately $75 was attributed to the fact that the payoff would not occur until the following Monday. Even though the funds to satisfy the mortgage would be wired that Friday afternoon, they would not be credited until the mortgage company’s opening on Monday. Most of the time, this would not be noticed by a seller, but it was hard to argue with my seller’s position that it was her $75 interest and her $25 wire fee. She wanted to know who scheduled the settlement and why she was not told of the additional interest she had to pay because of the hour of the day that closing took place. Her ire eventually focused on her listing agent who, she claimed, should have told her about the additional amounts to which she would be subject if settlement occurred later in the afternoon. What is your thought, do you have a duty to discuss this with your seller?

Most of the problems involving timing have to do with inspection contingencies and other temporal obligations imposed by the agreement. Everyone in the business knows of horror stories arising from a missed date or even a missed hour. Unfortunately, these horror stories recur with more frequency than any other problem.

When it comes to counting days, there are plenty of myths out there. If a deadline falls on a Saturday, Sunday or holiday, the period for performance is automatically extended until the next business day. Wrong. And there seems to be no consensus whether a day is limited to 24 hours or whether it extends to midnight of the last day of the period.

Lawyers catch a break. We have rules of civil procedure that include a rule entitled “computation of time.”  It provides that when the last day falls on a Saturday or Sunday or any legal holiday as defined by state or federal law, the day is omitted from the time computation. Real estate licensees have no such rule. So a day is… a day.

As for the day consisting of 24 hours or extending to midnight, that is covered by the Agreement of Sale, which just happens to borrow language from the Pennsylvania Rules of Civil Procedure stating that the computation of time includes “ …the last day of the time period.” So, if the last day is Tuesday, you get all of Tuesday, right up to midnight.

Given the relative importance of time to a real estate transaction, you’d think that agents would be at the top of their game so that their clients never miss a deadline. My experience representing licensees suggests that that is not the case. Fortunately, most parties focus on getting the deal done and that they overlook breaches, higher mortgage payoffs and the like. But if you are going to rely on the reasonableness of buyers and sellers, you are playing a game of Russian roulette.  One day you are going to have a seller who demands that you pay the additional $75 interest because you set a 4 p.m. Friday settlement without explaining the additional interest the seller would be charged.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved

By: James L. Goldsmith, Esquire

Real estate licensees can be transient.  When a sales associate moves on, the broker will likely take one of three paths: 1) congratulate and thank the associate and release her listings and buyer agency contracts; 2) go berserk and escort the associate to the door; or 3) take a path somewhere in between.   In general, I am inclined to believe that moves are to be expected and that sales associates will bring and take business and in the long run it all evens out.  I suppose if that were true, and brokers always held that belief, then sale associates would be more forthcoming with their plans and mutual respect would prevail and life would be beautiful.  But we all know that sometimes departures are horrible for all sorts of reasons.

The fights and litigation that follow departures do not have to be.  Brokers and sales associates form relationships knowing they are likely to end, sooner or later.  All involved know that when the relationship ends there will be questions of entitlement to files and commissions.   So why aren’t these inevitable questions resolved before they ever arise?

If you look to the agreement of sale you will see that most of its 13 pages deal with the common issues that may arise post-execution.  Maybe notice of a municipal improvement will be issued that no one anticipated when the agreement was signed.  We deal with that.  Maybe the buyer’s lender will reject the loan application.  We deal with that, and we deal with many other things as well.   So why don’t we deal with the questions that will arise when the sales affiliate departs the brokerage?

The obvious manner of addressing these issues is in a broker/sales agent independent contractor agreement and PAR has published such a form.  It provides a template for dealing with issues of departure that may or may not suit all situations.  Many brokers provide their own such agreements, but not all set forth the path for resolving commissions and other issues that arise with the departure of a sales associate.

There is no better time to negotiate an agreement than at the outset of a relationship.   Brokers and associates will never have a better opportunity to chart a mutually agreeable path.

Frequently I am consulted by employers and employees who ask that I review their employment agreement.  But rarely am I asked by a broker or salesperson.  What comes to my mind is “RELWOC.”  It is an acronym I use as frequently as “FSBO,” but I don’t hear it used by anyone else (maybe because I invented it).  It stands for real estate licensee without counsel.  You don’t suggest that sellers manage and market the sale of their own property without a licensee so why would you seek to manage your legal affairs without the benefit of counsel?

Back to the question of who gets paid and what when the relationship ends.  The argument that brokers will use is that the broker or brokerage owns the listing agreement and the buyer agency agreement.  It is not appropriate to talk about service agreements in terms of ownership.  Agreements are between parties and they set forth the corresponding responsibilities.  In the case of a listing agreement, the seller has engaged the brokerage under the terms of the contract.  This is because affiliates (salespersons and associate brokers) cannot work outside the auspices of a single broker.  The services will be provided by an agent of the broker, but nevertheless the broker is the contractor.  The name of the licensee, designated or not on the contract, does not establish anything more than that the licensee, as an agent of the broker, will be the primary source of services.   Generally then, the broker can hold the seller, or the buyer under the terms of a buyer agency contract, to the terms of the contract.  Again, let’s not talk about who “owns” the contract, but rather what the contract establishes.   Whether a broker will require a buyer or seller to stay with the brokerage when an affiliate departs is a choice the broker will have to make.   In many cases it would not make sense to require a reluctant seller to stay with the brokerage when that seller may have only known the affiliate handling his listing.  Circumstances vary and the facts in each matter are important.

When attempts to resolve questions of control of the listing or buyer agency contract or the payment of commission post-termination do not resolve, parties find their way to the courts.  There are very few appellate decisions that offer guidance.  Most post-employment commission cases are borrowed from other industries and prevailing case law suggests that no commission is due post-termination unless a written contract provides otherwise.  In rare cases, a contract can be established by “custom and usage,” but establishing an obligation by custom and usage is an extremely difficult burden.

Resolving a commission dispute post-termination can be very expensive.  Parties frequently forego entitlement to payment for this reason alone.  Further, post-relationship litigation leaves indelible bruises and tarnishes the industry.  Law suits are not confidential and names are going to appear on the trial list for all to read.

Most importantly, disputes don’t have to be.  It is all smiles when a new relationship is being forged.  Take advantage of that opportunity to discuss the inevitable departure and how it is to be handled.   It is the best opportunity to create a path to fairness and post-termination respect.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved

 

By: James L. Goldsmith, Esquire

My mentor and former PAR legal counsel, the late Tom Caldwell, used to caution brokers intent on suing clients for fees by asking that. The clear message is that when you sue for a fee, the client is going to bite by claiming that no fee was owed because of the malpractice committed by the broker or salesperson.

I represent brokers who sue for their fees and the defenses always include claims of malpractice.  It is true that my clients win most of these cases, though the only credit I lay claim to is that I am selective about the cases I take. The reasons for success, however, I attribute to my clients. In this article, I’ll present several tips for success. I could drag the list out to 15 or 20 tips beginning with don’t accept a jerk for a client, but I’d rather provide you with the core. While these tips work regardless of your representing a buyer, seller, landlord or tenant, I’ll provide a context from a case I most recently resolved.

In that case, the broker was the buyer’s agent for a married couple seeking a new home. The wife was an in-house lawyer for a retail chain and the husband an engineer. They signed a standard buyer agency agreement. During the course of his efforts, the broker wrote an offer that did not result in a signed agreement of sale. He continued to identify properties, but ultimately, the buyers went dark and ceased communicating with him. He doubled his effort to solicit a response. Eventually, he reached the wife by telephone. She reluctantly revealed that she and her husband had purchased a home, but that she would consider hiring the broker to list her former home for sale.

My client was far from delighted by her “generous” offer and told her that he expected her to pay his commission. While that call ended abruptly, the wife replied with an email several days later. She said she and her husband owed no fee because the broker was “not the procuring cause of the sale.”  At this point I was engaged, and suit was filed. The complaint was less than three full pages and consisted of about 15 enumerated paragraphs and an exhibit, the executed buyer agency contract. The amount sought was the percentage fee recited in the buyer agency contract multiplied by the purchase price of the home the buyers bought during the term of that buyer agency contract. In our case, the fee came to $19,500.

The answer to the complaint included the affirmative defense of malpractice: The buyers alleged that the broker failed to make a continuous and good faith effort to find a property for the buyers as required by the Real Estate Licensing and Registration Act. To allay what little suspense there may be, my client prevailed. We moved quickly to get this matter on a trial list (believe it or not it happened within months) and on the eve of trial, the defendants agreed to pay $15,000 and it was accepted. Why did my client prevail? Consider the following.

First, my client had a nearly perfect file. He had a fully executed buyer agency agreement. If your client bails on you and you don’t have an executed agency agreement, forget it. Further, he had every email and text from his first meeting with the buyers to the last exchange. No impartial judge or jury could reasonably conclude from the string of email that the broker abandoned his clients. Every step taken by the broker was memorialized by email to his buyers reciting their most recent telephone conversation or what his recent research had revealed. It easily demonstrated that it was they who had abandoned him.

Take any risk reduction seminar and something will be said of the importance of maintaining a file and corroborating and confirming all actions and discussions by mail or email. Usually, it’s suggested that this will assist in the defense of any malpractice claim should it be asserted. A good, comprehensive file also will enable you to recover a fee when your client breaches his or her contract with you.

Second, pursue the claim and march steadily to trial. Engage counsel who know license law and the standards of practice of real estate brokers and salespersons. Don’t assume that every real estate lawyer knows anything about how brokers work, their duty or how they get paid.

These files don’t have to be over litigated. When the amount in controversy is less than $50,000, the case will first be heard by arbitrators in the court of common pleas of the county where suit is filed. I take limited discovery to assure I have every document that might be asserted as a defense, I don’t take depositions because I’ll get the testimony at the arbitration and can have it recorded there by a stenographer for use if the case is appealed to a trial before a judge and jury.  Discuss these matters with your counsel and keep in mind that your claim is for a liquidated amount (an amount certain). A realistic projection of costs and taking measures by which they are reasonably limited will assure that your net recovery is good. Unfortunately, no matter how efficient your attorney is, the other side can delay, obfuscate and over-litigate.

Third, the broker was first to demand payment, not me, his attorney. To be clear, I am not suggesting that you don’t engage counsel before demanding payment. I have found, however, that when the broker makes his or her demand directly to the client, the client will respond. If I write a letter of demand, the response will be from an attorney whose words I can’t use as evidence in court.

In our example, the buyers’ first response was that the broker was not the procuring cause of the sale. Of course not, the buyers had abandoned their broker and did not give him the chance to put them in a property. This defense was dropped and in the answer to the complaint it was replaced by the defense that the broker committed malpractice by abandoning his buyer clients thereby justifying their non-payment.

This change in the defense would make good fodder for cross-examination. Don’t most people who have a legitimate reason for non-payment know that reason? Here it was evident that the buyers were searching for a pretext and the original procuring cause defense was put together before they engaged counsel who realized it was a losing argument. Again, if I had been the first to demand payment, the matter would have gone straight to counsel and we wouldn’t have had this switch in defenses that made buyers look particularly weak. I don’t encourage self-representation but a simple request for payment might be reasonable coming from you, the broker. This too is a matter for discussion with your counsel.

My experience suggests that brokers are generally successful in recovering fees that have been earned. That judges and juries favor clients over their real estate brokers is not true in my experience, especially for those brokers who maintain good files and can establish that they provided the services that a reasonable prudent licensee is to provide.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved

By: James L. Goldsmith, Esquire

The magisterial district courts are the small claims courts of Pennsylvania. The magisterial district justices (MDJs) are the small claims judges. It is within their jurisdiction to conduct preliminary hearings in criminal matters where the only issue is whether there is sufficient evidence to send the matter to the common pleas court for trial. Hopefully your interest in this article has nothing to do with the criminal functions of the court!

Among the other responsibilities of the magisterial district courts is the resolution of cases involving evictions and civil cases where the amount in controversy is $12,000 or less. MDJs may hear cases involving larger sums, but can only award the maximum amount of $12,000. The attractiveness of the magisterial district courts is the low cost and that the proceedings can be navigated without legal counsel. Legal counsel is not required in the court of common pleas or the appellate courts, but try navigating your way without one!

For obvious reasons, many cases rooted in real estate find their way to the MDJs. Though more and more MDJs are lawyers, it is not a requirement of the job. Before being sworn into the position, all MDJs must pass a test that includes civil law including real estate and landlord/tenant law. One would hope that the MDJ before whom you appear would be expert in the law, and most fit the bill. A Hotline caller, however, recently relayed how the MDJ refused to enforce his lease because it was a lease in writing for more than one year, and, according to the MDJ such leases were not enforceable!! Most MDJs are willing to be persuaded that the law is other than what they had thought, but a gentle and non-condescending approach is suggested. Providing a legal opinion or treatise on the matter is also suggested.

A limitation on taking a matter before an MDJ is the ease in which it is appealed. This can also be a benefit, but it certainly means that complete resolution before the MDJ is not a certainty. Appeals can be taken for any reason, or no reason. An appeal from the court of common pleas is a different matter; the appeal must be based on an error of law and not merely because the appellant is unhappy with the decision.

Despite the ease with which an appeal is taken from an MDJ decision, there are benefits. First, many cases are resolved without appeal. Second, a hearing before an MDJ gives one a relatively inexpensive rehearsal. On appeal, the shortcomings in one’s presentation can be rectified. Third, a hearing before an MDJ is inexpensive discovery. Practice in the court of common pleas enables one to take depositions and serve written discovery seeking information well in advance of trial. You can get much of the same by trying a case before the district justice. In fact, you can request that the testimony of a witness or the entire hearing for that matter, be transcribed for later use. The person seeking the transcription is the person who pays for the cost.

Landlord and tenant practice is primarily relegated to the magisterial district courts. If you manage property you should get to know the MDJ(s) that will entertain your cases. Judges are nuanced and some have requirements that others may not observe. Most would welcome an introductory visit. State that your objective is to simply become aware of the procedures to be applied by the MDJ. Don’t expect all MDJs to be open to this kind of introduction and don’t ask for favors. Do your homework and be conversant with Pennsylvania’s Landlord and Tenant Law. Don’t expect the MDJ to teach you the law; rather, you are there to determine if there are any special procedures or practices that the MDJ prefers so that you can comply. Hopefully the introduction will enure to the benefit of you and your client.

Copyright © James L. Goldsmith, Esquire, 2019
All Rights Reserved