On August 19, 2011, the Federal Trade Commission (“FTC”) issued the Mortgage Acts and Practices – Advertising Rule, also known as the “MAP” rule (the “MAP Rule” or the “Rule”). The MAP Rule “…, among other things: prohibits any misrepresentation in any commercial communication regarding any term of any mortgage credit product; and imposes certain recordkeeping requirements.” The MAP Rule affects all individuals or entities that engage in dissemination of information about mortgages (in virtually any form or format), specifically residential mortgages and related mortgage products, in a commercial setting. It is important to note that real estate agents and brokers are included under the scope of this Rule if they engage in disseminating information relating to mortgages affecting dwellings as defined under the Rule.
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Buyer Agency, Dual Agency, Property Condition Disclosure and Short Sales are Focus of Legal Scan
Every two years, the National Association of Realtors conducts a survey of its member boards to determine what issues Realtors face. The 2011 Legal Scan was recently published and indicates that Realtors nationally continue to be concerned about (1) the lack of education of Realtors regarding agency issues; (2) the nuances of buyer brokerage; (3) the nuances of dual agency; (4) fiduciary duties; and (5) disclosure of short sale issues.
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Referral Arrangements: Real Estate Agents May Be Unknowingly Violating NYS Insurance Laws
In an opinion issued on May 31, 2011 (the “Opinion”), a senior attorney for the State of New York Insurance Department, Sapha S. Maloor, Esq., pointed out the very real risks real estate agents face when referring business to attorneys and title agencies in the normal course of their day-to-day work. (A copy of the Opinion can be found on the Insurance Department’s website at http://www.ins.state.ny.us). The Opinion points out that certain referral arrangements violate the Insurance Law and harsh penalties can be imposed as a result. This article will highlight the inherent conflicts and problems that arise when setting up formal or informal business referral arrangements between real estate agents, title agents and attorneys.
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Broker Protection Clauses (Owners Obligations after the Expiration of the Listing)
A real estate brokerage commission case in United Real Estate & Property Management, Inc. v. Ihar Unkown a/k/a Igor Charnyshov and Volha Yablonskaya (28 Misc.3d 804, 905 N.Y.S.2d 487, 2010 N.Y. Slip Op. 20228) is a perfect reminder as to why our MLS and most MLS standard listing agreements include a broker protection clause. The United Real Estate case was decided in Kings County Civil Court on June 11, 2010. In summary, the Court held that when a salesperson left her broker’s office to affiliate elsewhere and the listing expired, even though negotiations were in process at the time that the salesperson changed offices, the original broker could not secure payment of its commission because no broker protection clause existed in the listing agreement.
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Can a Real Estate Licensee Prepare Leases?
A recent Legal Update for the Members of our Association reported a case decided by the Department of State in 2010 in which a real estate licensee, Marie A. Manfredi, had her license revoked for having engaged in the unauthorized practice of law in violation of Judiciary Law §478 (Department of State Division of Licensing Services v. Manfredi et al, 126 DOS 10). This case reiterated the longstanding position taken by the Department of State that only under specified conditions, can a non-lawyer, even a real estate licensee, prepare any legal document, without violating the law.
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Lawyers and Real Estate Commissions
This column has previously addressed the inability of a lawyer to receive brokerage compensation in any transaction in which the lawyer is also functioning as counsel to any of the parties. On April 1, 2009 New York’s Code of Professional Responsibility for attorneys was replaced by the New York Rules of Professional Conduct which are patterned after the American Bar Association’s Model Code of Ethics. The new Rules provide methods by which an attorney can obtain the informed consent of the parties and thereby resolve conflicts of interest. Many attorneys thought that the new Rules would permit an attorney to act as both broker and lawyer in a real estate transaction. The New York State Bar Association’s Committee on Professional Ethics recently issued Opinion 845 which reaffirmed the prior Rule, that an attorney may not, even with the consent of all parties, receive compensation as both the lawyer and the broker in the same transaction.
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The Mortgage Crisis: It’s Complicated!
Mortgage rates, which rose precipitously during December, have fallen during January and while still above the record low during the week of November 11, 2010, thirty year rates and fifteen year rates continue to be remarkably favorable. Despite low interest rates and home prices which have fallen dramatically in the past four years, home buying activity has fallen substantially when compared to early 2010 when the FirstTime Homebuyer Tax Credit remained in effect. Since the expiration of this stimulant, real estate activity has fallen markedly.
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Anticipating Better Times: Multiple Offers Will Return
The real estate market is slowly becoming more stable and will undoubtedly become stronger in the coming months. Stronger market activity, the risk of rising interest rates, the eventual loosening of lender requirements and the increasing popularity of FHA loans will likely cause more buyers to enter into the market to take advantage of the lower prices of real estate. As a result, an increasing number of buyers will bring back into focus the obligations of brokers when multiple offers become more prevalent once again and are presented on the same property. NYSAR points out that the rights and obligations of sellers, buyers and brokers are governed by four areas: 1) the REALTOR® Code of Ethics, 2) the Law of Agency, 3) License Law and Regulations and 4) Tort Law (See Broker’s Duty Regarding Multiple Offers, published by NYSAR). The purpose of this article is to outline the obligations of brokers in light of multiple offers.
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Written Agency Disclosure Required for Condominiums and Cooperative Apartments as of January 1, 2011
When Governor David Paterson signed into law (August 30, 2010) amendments to Real Property Law §443 which take effect on January 1, 2011 (“§443” or the “Law”), he ensured that condominiums and cooperative apartment units previously exempt from Agency Relationship Disclosure would now be included under this important section of the Law.
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Compensation to Realtors® for Home Warranty Contracts are Kickbacks
On June 25, 2010 an opinion from General Counsel, Helen R. Kanovsky, of the Department of Housing and Urban Development (“HUD”), appeared in the Federal Register (24 CFR Part 3500 [Docket No. FR-5425-1A-01]). This interpretive rule from HUD essentially states that compensation paid to a real estate broker in connection with the broker’s recommendation of a home warranty company (an “HWC”) for a buyer or a seller, constitutes an illegal kickback in violation of Section 8 of the Real Estate Settlement Procedures Act (“RESPA”) and HUD’s regulations.
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