Educators In Real Estate Law
You may click on the link for a copy of the course description of the program:
"Advanced Title Insurance Issues"
March 2016, Philadelphia, Harrisburg and Pittsburgh, PA
"CLE Down the Shore"
August 2015, Atlantic City, NJ
"Handling the Failure to Disclose Case"
March 2015, Philadelphia, PA
Since 1993, Mr. Granger has taught numerous other courses for lawyers, including "Effective Representation of Buyers, Brokers and Sellers", "Commercial Real Estate for the Non-Specialist", "New Developments for the Real Estate Practitioner", and "Advanced Issues in Title Insurance".
Mr. Granger is on the Planning Team for the Pennsylvania Bar Institute's "Real Estate Institute", an annual program held at the Philadelphia Convention Center that is attended by hundreds of real estate attorneys and professionals every December. Mr. Granger has been chosen to co-present the opening session "Year End Review of Cases and Laws" to the attendees since 2002.
Mr. Granger has been accepted as an expert witness on real estate matters in both state and federal courts. Mr. Granger was retained by the Commonwealth of Pennsylvania to testify on the standard of care for a real estate closing in a mortgage fraud case.
David J. Scaggs is also a course planner and presenter on real estate seminars for the Pennsylvania Bar Institute and the Pennsylvania Land Title Institute. Recently, Mr. Scaggs has presented at the following courses:
"Real Estate 101"
September/October, 2016, Philadelphia and Harrisburg, PA
"Title Insurance 101"
July 2015, Philadelphia and Harrisburg, PA
"Handling the Failure to Disclose Case"
February 2015, Harrisburg, PA
"A Day on Real Estate"
August, 2014, Philadelphia, PA
Mr. Scaggs has taught other courses, such as "Marking Up Title and Handling Title Issues at Settlement", "Understanding Easements in Pennsylvania", "Title Insurance Policies - What do they Cover (and Not Cover)" and "Mortgage Fraud".
Mr. Scaggs was invited to speak at the 2011 Real Property Probate and Trust Section Annual Meeting in May 2011, during the Pennsylvania Bar Institute's Annual Meeting, on highlights of the Real Estate 101 and Title 101 courses and is also a frequent presenter at the Pennsylvania Bar Institute's yearly Real Estate Institute.
Mr. Scaggs has also been approved as a Real Estate Instructor by the Pennsylvania State Real Estate Commission.
Hot TopicsStucco Litigation and Leaking Homes
Today's real estate market is being impacted by what is commonly referred to as the "stucco problem", where owners of houses that were built with stucco siding systems face issues with the potential (or actual) water leakage around windows, doors or other entry points. In the last fifteen years, stucco was commonly applied to houses in this area. When a stucco siding system is used, it can provide a long lasting and satisfactory siding system - but if deficiencies occur in installing the stucco system, problems can arise, usually where there are multiple deficiencies. These deficiencies can include improper stucco thickness, improper flashing of openings (such as windows), lack of a proper protective wrapping around the house prior to installation of stucco, etc.
Stucco issues generally arise in two common ways. First, home inspectors are now acclimated to the issue of whether a home built with stucco has actual or hidden leakage occurring. As a result, it is not uncommon for inspectors to advise buyers to have a professional perform a stucco inspection, which should include a visual examination of the house for some telltale signs of stucco deficiencies and/or leakage. The inspection may also include invasive moisture testing and geothermal testing. It is often the case that some of this testing is either inconclusive or leads to the need for further destructive testing by actually removing some stucco to see what system was used when the stucco was installed and whether there is any resultant damage. While this testing can often confirm a problem, it also can still miss problems, depending on the extent of the testing and the experience of the inspector.
Unfortunately there is also a great deal of misinformation about these issues, along with contractors who offer to fix the issues - only to make matters worse or overcharge the owner for the repairs. Based on our extensive experience in handling stucco cases for both consumers and builders, it is clear that issues do exist for many owners of houses with stucco - but that the severity of the issues may range from simple repairs or maintenance to major renovation. Because numerous inspectors and contractors have entered the field of repairs, it is also true that not all inspectors and contractors know the proper way to evaluate what work needs to be done, if any, to correct deficiencies with homes and/or make the required repairs. Indeed, depending on when the house was built, the applicable code requirements applied at the time of construction also vary. Common issues that need to be resolved include the following:
- Was the house built incorrectly at the time or is it a case where building standards have changed for the better since that time?
- Is the builder still legally liable for correcting deficient work?
- Was there proper flashing of the windows?
- What thickness stucco was applied?
- Do windows need to be replaced or reset?
- Can repairs be made by patching or replacing just part of the stucco?
- What hidden damage may exist beneath the stucco?
- Is a building permit required to make repairs?
- What other costs may be incurred in making the stucco repairs?
The majority of transactions involving the transfer of real estate in Pennsylvania are subject to transfer tax. It is the recording of the applicable document (most often a deed) that triggers the transfer tax. It is a tax, not on the person, but on the property transferred, with each party to the sale (seller and buyer) technically being responsible for making sure the tax is paid. The Commonwealth of Pennsylvania imposes a one (1) percent transfer tax on transactions. Counties also exact a transfer tax, typically another one (1) percent. However, some local municipalities have their own additional realty transfer tax, which can be one quarter (1/4) of one percent or more. Moreover, in Philadelphia County (the City of Philadelphia) charges three (3) percent as opposed to the one (1) percent in all of the surrounding counties. While parties to a transaction can agree amongst themselves who will pay the taxes, such agreements are not binding on the taxing authorities.
As with most rules, there are exceptions to the above. For example, the United States, the Commonwealth and its municipalities are not subject to the tax. There are also some transfers that are not subject to the tax, such as certain transfers between certain family members, certain transfers to the Commonwealth or a municipality, corrective deeds, certain estate and trust transfers, and certain transfers to shareholders or partners.
Some of the most common questions surround transfers involving partnerships. For example, our appellate courts have held that a transfer between a general partnership and a limited partnership, where a one (1) percent interest was transferred to a limited liability company ("LLC") as the general partner, and where the remaining ownership interests remained essentially unchanged, was not a taxable event as it did not transfer a beneficial interest in the property to someone other than the grantor.
However, where individuals convey property from themselves to a limited partnership, the transaction has been found to be a taxable event since the conveyance was from individuals to a separate entity. Although the entity may have been comprised of partners who were identical to the individuals who owned the real estate prior to the conveyance, the entity was a legally different owner and thus the tax would be due.
Beware of Assignments of Agreements of Sale. It has been common for buyers of real estate to sign an agreement of sale and after performing due diligence, assign the agreement of sale before closing to a single purpose entity, such as an LLC (whose sole purpose is to hold ownership of the real estate being purchased). Buyers are often reluctant to expend fees and costs to form the single purpose entity until they know they are purchasing the property. In 2008 the Pennsylvania Department of Revenue issued a Bulletin that calls into question whether transfer tax may be due when an agreement of sale is assigned from one party to either a related single purpose entity or a new buyer. At issue in the bulletin was whether an assignment of an agreement of sale could constitute a taxable event for transfer tax. While the implications and issues raised by the decision are beyond the scope of this article, readers should be aware that the issue exists and competent legal counsel is required to evaluate any potential assignment or transfer of an agreement of sale. The Bulletin at issue used as an example the assignment by a purchaser in an agreement of sale to a subsequently formed single purpose entity (typically a limited liability company or limited partnership) that would take title to the property. Under this scenario, the Department stated that there would be two taxable events: the assignment of the Agreement of Sale to the single purpose entity and then the subsequent conveyance of the land by the seller to the single purpose entity. The reasoning given was that at the time the agreement was signed, there was no such entity formed and so the purchaser must have been acting for herself and not as an agent or straw party (where there may have been an exemption) for the single purpose entity.
Parties to a real estate transaction should seek legal counsel and take due care prior to entering into the agreement of sale to determine whether an assignment of the agreement of sale prior to closing may be desired, the potential transfer tax consequences of the same and what strategies may exist to help avoid unforeseen taxation.
Partnership Disputes in Troubled Real Estate Deals: Litigating the Blame Game
One of the many types of fallout from the real estate economy is the breakdown between partners who started a real project in better times, only to find themselves arguing and then litigating who is to blame for the failed real estate deal. Typically, disputes center on any one or more of three issues.
First, when a partnership or venture fails, often times one party to the deal blames another party for the project not working. In real estate deals, partners may each bring different expertise to the table. For example, one party may have the funds, another partner may have the construction knowledge and yet another may have marketing or sales experience. As the current market makes sales of real estate more difficult and time consuming, different pressures come to bear that may not have been foreseen. This puts stress on the partners and the project as a whole, which ultimately may lead to the failing of the deal. A typical example involving the purchase of a lot and the building of a high end spec home in a good neighborhood demonstrates the complexities and issues that quickly arise in a falling real estate market.
Assume the property was purchased using a loan to buy the lot and fund the construction, with one partner initially putting up the $100,000.00 of cash the lender required as a 25% down payment to fund the purchase of the lot. At the time, based on appraisals showing the final as-built value of the project to be well in excess of $1,500,000.00 the lender offered a line of credit of $500,000.00 to build the house, all of which was used in construction. The partners were excited because they believed (based on what the marketing person was saying at the time the project was started) that the project would be completed within a certain time, perhaps 12-18 months at the outside and that profits could be $300,000.00 or more after all expenses were paid. When the project became 24 months old, the partner who put down the $100,000.00 now not only needs his or her money back, but he is not willing (or able) to fund any more holding costs going forward. At the same time, the partner who did the construction has not been paid yet, and is waiting for profits when the property is sold (with no funds to contribute). The partner with marketing experience may also be telling the other partners that not only will the project time now like take 24 months in total, but that due to the market conditions, more work is needed to get the property sold and that the final sales price will be closer to $1,000,000.00 than the original forecasts (the recommendation is that a finished basement or significant upgraded landscaping would help move the house). Who is going to pay for the continued holding costs and upgrades until and when settlement occurs can be a significant issue.
In the meantime, because the house was built using a stucco exterior, more issues have arisen, as windows have shown signs of minor interior leakage. As it turns out, the windows were not flashed using the most current techniques and the house will need the windows removed and proper flashing installed. The partner who put up the funds makes it clear he/she is not funding this work, since it should have been done properly in the first place. Realizing that the property is hopelessly underwater, the funding partner stops making payments on the mortgage to cut his losses. The contractor re-caulks the windows and repaints the water stains, believing (or hoping) that this solves the issues.
The bank then contacts the marketing partner and reminds that partner that he and his wife personally guaranteed the loan for the project. The marketing partner then claims not to have known that the construction partner nor did the funding partner sign a guarantee. In the meantime, an offer arrives on the home for $990,000.00, meaning that after payment of closing costs and the outstanding mortgage, there is nothing left to pay the construction partner for all of his work. However, the marketing partner demands that the deal be agreed to since only he and his wife are guarantors on the bank loan. Believing the sales price is too low, the other two partners refuse to sign it and the deal is not made. Ultimately, the house ends in foreclosure, no partners are paid any money and the marketing partner and his wife are sued on the guarantee. He then sues the other two partners and the whole matter ends up in litigation. When the ultimate homebuyer also files suit alleging construction defects, the matter becomes even more complicated.
Depending on what the partnership agreement says and a host of other factors, this dispute may have several endings. But it demonstrated an all too common scenario in today's real estate market - poor planning and bad timing leads to unforeseen scenarios that come into play and may never have occurred if the market had not taken a down turn. Sometimes proper counsel can help avoid outcomes like these with timely and practical advice that may prevent this meltdown from occurring and save some portion of the deal. Other times, a review of the matter demonstrates that one partner did engage in wrongdoing that caused losses to occur. In addition, what professional advice was given, when it was given and who it was given to may become very important in determining what liability exists, if any.
Frequently Asked QuestionsQ. Does someone selling a house "AS-IS" still have to fill out a seller's disclosure form in Pennsylvania?
A. In general, despite the fact that parties might agree to an AS-IS deal, the Pennsylvania Seller Disclosure Law still requires disclosure of certain matters, unless an exemption is applicable. Pennsylvania's Seller Disclosure Act requires an owner to disclose all known material defects to a buyer when a property is sold. A "material defect" is a problem with a residential real property that would have a significant adverse impact on the value of the property or that involves an unreasonable risk to people on the property. The law also requires (in order to assist in the disclosure of material defects), that the seller fill out and sign a disclosure form when a residential real estate transfer takes place of a building containing 1-4 units. Sales of single family homes, duplexes, triplexes and quads are within the scope of the law. The Act requires that the buyer be provided a disclosure form prior to signing the agreement of sale unless one of the exemptions is applicable.
There are numerous exemptions (1), including transfers by an executor while administering an estate or sales of new construction when a warranty is being provided along with a certificate of occupancy.
Importantly, the Seller Disclosure law also states that a seller is not liable for an inaccuracy in filling out the form if the seller did not know of the error or reasonably believed that the material defect had been corrected. The reasonable belief could be based on what a professional had told the seller about the issue. The Seller Disclosure Act is generally geared towards a buyer being told what a seller knows about the condition of the property.
Note that in agreements of sale for commercial properties, the Seller Disclosure Law is not applicable, although parties often make such disclosure as part of their agreement.
Q. If a buyer changes his or her mind about purchasing a house just prior to settlement, can a seller force the buyer to complete settlement when the seller has no other buyers and needs the funds to complete its own purchase of a new home?
A. Pennsylvania recognizes what is called a suit for specific performance against a seller (when a seller defaults) or a buyer (when a buyer defaults). However, suits involving specific performance claims must always be reviewed individually to see if the suit is appropriate for the situation. Suits against buyers are limited to very specific situations under current Pennsylvania case law. More common when buyers default are suits for the purchase price, suits for damages arising out of the default (such as a lower price on resale) or suits to retain the deposit paid by the buyer. As with any lawsuit, factors such as the time required to successfully litigate the case, the cost of bringing and litigating the case and the ability of the buyer to pay any judgment that might be obtained must all be analyzed. Moreover, often times the buyer will allege another reason why the house is not being purchased and will not agree that he/she simply changed its mind. Where a seller needs funds to settle on another house, professional guidance by experienced counsel is essential to deciding what, if any, litigation is appropriate.
Q. If a buyer failed to obtain a mortgage for the purchase of a house because the buyer was unable to sell its current house, does the buyer get a refund of its deposit when the Agreement of Sale did not have a specific contingency in it for the sale of the buyer's house?
A. The most commonly used form in Pennsylvania for the sale of residential real estate is the Pennsylvania Association of Realtors (PAR) form agreement of sale. Under that form, if the buyer fails to obtain a mortgage due to the failure to sell the buyer's residence, the agreement calls for the buyer to receive a refund of its deposit. Of course, whether the buyer has met all if its obligations under the agreement of sale may become an issue. Additionally, the most recent residential PAR form also states that if the buyer's mortgage commitment contains a condition regarding the sale of real estate owned by the buyer which was not otherwise provided for in the agreement of sale, the seller has the right to terminate the agreement of sale without having to wait for closing.
A. Yes. Although a lender will likely require the buyer purchase it, generally, buyers should purchase title insurance. In short, subject to the conditions and exclusions in the title policy, title insurance insures against defects in the chain of title to property. Title insurance is unlike most forms of insurance, which are prospective. For a one time fee, title insurance provides insurance for things that happened in the past. Unless otherwise exhausted, a title insurance policy will last as long as the buyer owns the property. It provides insurance against the possibility that the property being purchased is not actually owned by the seller, defects in title cause by such things as forgeries and improper recording or indexing, unpaid taxes, unmarketable title, and a lack of a right of access to the property.
A. Title insurance is relatively inexpensive compared to the cost of real estate. Title insurance companies are required by Pennsylvania law to file their rates with the Department of Insurance. Then the title insurance company can satisfy this requirement by becoming a member of the Title Insurance Rating Bureau of Pennsylvania (TIRBOP), which publishes a ratings manual disclosing the schedule of rates charged by its members, along with the form of title policies and endorsements used. The cost of a title insurance policy depends on the amount of title insurance provided (which is usually tied to the purchase price and/or loan amount). Of course, there may be additional charges for certain endorsements and under certain circumstances. For a schedule of rates, visit TIRBOP's website at http://www.patitleratingbureau.org/
Q. How long does a party have to file a lawsuit?
A. Pennsylvania enforces different statute of limitations (the time in which you must bring your claim) for different causes of action. For example, under Pennsylvania law, a suit against a home inspector must be brought within one (1) year of the date the home inspection report is given to the buyer. The Pennsylvania Seller's Disclosure Law requires the suit to be filed within two (2) years of the date closing.
As with any question regarding the applicable statute of limitations, there is not always a simple answer to the question. For instance, while the limitation period for fraud and negligence is two (2) years, whether a particular statute of limitations has passed may depend on other factors, including but not limited when the party knew or should have known about the claim. As a result, the applicable limitation periods must always be reviewed by competent counsel to see which limitations periods should apply, whether the time periods are extended or tolled based on a multitude of factors (such as when the aggrieved person found out about the matter complained of - commonly referred to as the discovery rule), whether any conduct on part of any defendant serves to extend the applicable limitations period, etc.
As always, questions regarding any of the above should be directed to competent legal counsel.
Important Recent CasesFormal Agreement of Sale Not Required to Enforce Land Sale
Trowbridge v. McCaigue, 2010 PA Super 50, 992 A.2d 199 (Pa.Super. 2010)
In this case, the Pennsylvania Superior Court held that a document was sufficient to create a binding agreement of sale despite the fact that it specifically stated that an agreement of sale would be entered into. The document at issue contained only a brief description of the land, the purchase price, a provision as to who would pay which closing costs, that the property was being purchased in "AS-IS" condition and that the property was subject to certain covenants regarding property taxes. As indicated, the document also stated that if the offer was accepted by the owner, the buyer and owner would then enter into an agreement of sale. The parties all signed the document and the initial down payment of $1,000.00 was paid. However, prior to the execution of an actual agreement of sale form, the owner entered into a sales agreement with another buyer that contained financial terms more favorable to the owner. The original buyer brought suit, arguing that it had an enforceable agreement of sale with the owner. The owner argued that the document it signed was not enforceable because the parties agreed they would sign a formal agreement of sale and that had not happened when the new buyer submitted its offer.
The Superior Court first found that the law in Pennsylvania does not require a formal agreement of sale. Instead, the Court found that a writing signed by the seller that includes an adequate description of the property and the purchase price was sufficient to satisfy the Statute of Frauds. Since the document at issue met these terms, the Statute of Frauds was complied with. The Superior Court also found that the trial court was incorrect when it held that the provision in the document that required a formal agreement of sale be signed meant that there was no binding agreement of sale until that formal agreement was signed.
The Superior Court stated it as follows:
In contrast, the Agreement here does not indicate an intention to agree upon any essential terms in the future. In fact, contrary to the trial court's assertion, the Agreement does not imply that there was anything left to agree upon in the future. Rather, the only future occurrence contemplated by the Agreement is the execution of a sales agreement.
As such, the Superior Court found the trial court erred when it dismissed the case brought by the first buyer and remanded the case back to the trial court for further proceedings. The lesson to be learned from the case is that in Pennsylvania, any document signed by the owner that sets forth a description of what land is being purchased and the purchase price can be sufficient for the court to find a binding contract.
Return of Deposit When Buyer Elects Not to Proceed with Commercial Agreement of Sale
Wawa, Inc. v. Insnetvest Corp., PICS Case No. 10-3086 (C.P. Philadelphia Aug. 11, 2010)
Wawa, Inc. agreed to purchase from Defendants three contiguous parcels of real estate for $4,000,000.00 and deposited $150,000.00 toward the purchase price to be held in escrow. In accordance with the Agreement, Wawa filed an application for Conditional Use Approval with the township of Lower Providence Board of Supervisors. According the paragraph 7(a) of the Agreement, Wawa would apply for use on the property for activities relating to a food market and fuel dispensing facility. While the Conditional Use Application asked for a higher square footage than the contract stipulated, it was approved by the Township, contingent on Wawa meeting several conditions. Wawa decided that meeting the conditions was not "cost effective" and elected to not purchase the property.
The Agreement of Sale between Wawa and the defendants allowed Wawa to rescind the transaction if it did not obtain conditional use approval. However, nowhere in the agreement did it provide for the disposition of escrowed funds if Wawa exercised its right to rescind because of unacceptable costs. Although one part of the agreement stated that the deposit must be returned if the Conditional Use application was not granted, it was silent as to the disposition of the deposit where the buyer refused to complete settlement because the cost to satisfy the conditions for the conditional use were too high.
The trial court ruled that Wawa should receive the $150,000.00 deposit. The Court found that the principle purpose of a clause allowing a party to rescind an Agreement of Sale when a condition is not met would be served by returning the deposit to that party. The Court looked to a similar case in California, where the California Court of Appeals ruled that a return of the deposit was necessary because rescission is a remedy which disaffirms the contract and terminates further liability of the parties to each other. In accordance with the California decision, the Court found that when the buyer of commercial real estate properly cancels a transaction, and there is no specific clause in the agreement covering the return of the deposit, the buyer is entitled to the return of that deposit.
Failure to Disclose Defects in House; Fraud; No Knowledge by both Sellers
Growall v. Maietta, 2007 Pa.Super 223, 931 A.2d 667 (Pa. Super 2007)
In October 2002, Patrick and Katherine Maietta agreed to sell property located at 1630 Rutherford Street, Pittsburgh, for $80,000.00, and executed an agreement to that effect. The closing occurred on December 2, 2002. After closing and moving into the property, the buyer discovered water leakage in the basement, which was not disclosed by either of the sellers prior to closing. The buyer filed suit against the sellers, claiming among other things that the sellers had violated the Real Estate Seller Disclosure Law and the Unfair Trade Practices and Consumer Protection Law. That law in Pennsylvania known as the Unfair Trade and Consumer Protection Law provides that a court may award treble damages if it finds fraudulent conduct by a seller in the sale of real property. The buyer alleged that the failure of the sellers to disclose the water condition was such fraudulent conduct.
At trial, Mr. Maietta testified that he and his wife purchased the house from his mother in 1996. The house was divided into three apartments, including one in the basement. In April 2002, the Maiettas decided to sell the house and contacted a local real estate broker who had been handling the rental of the apartments. The broker had the Maiettas fill out a seller disclosure statement, which both Pat Maietta and Kathy Maietta signed and dated April 18, 2002.
Paragraph 4(b) of the disclosure statement asked, "Are you aware of any water leakage, accumulation or dampness within the basement, garage or crawl space?" The question was marked "no." Paragraph 4(c) of the disclosure statement asked, "Do you know of any repairs or other attempts to control any water or dampness problem in the basement, garage or crawl space?" This was also marked "no." Paragraph 6(a) asked, "Are you aware of any past or present water leakage in the house or other structure?" This was also marked "no."
Sometime in June 2002 (after signing the seller disclosure statement), Mr. Maietta became aware that water came out from under the baseboard onto the floor when the first floor apartment's toilet was flushed. He called a plumber, who snaked the lines. Mr. Maietta testified that the problem appeared to be resolved, and he had no further complaints of water leakage in the basement apartment until he heard from Mr. Growall after closing.
The basement had an apartment that had been rented during the time the Maiettas owned the property. Ylber Kusari testified that he moved into the basement apartment in August 2002 and that the carpet was damp and there was a dehumidifier running. After several weeks, the carpet dried out and Mr. Maietta removed the dehumidifier. Thereafter, in October 2002, the sales agreement was signed and in December 2002, the closing occurred. Mr. Maietta testified at trial that he failed to advise the buyer about the water problem in the basement apartment until he got a call from the buyer almost a year after closing. Nonetheless, he contended that the June 2002 incident was the only time he experienced water leakage in the basement apartment.
On the other hand, Mrs. Maietta testified she was not aware of any water problem in the basement apartment prior to the sale of the property and that she did not become aware of the problem until the buyer sent a letter to the Maiettas requesting over $46,000 in damages. She further testified the house had belonged to her husband's family, and she was relatively uninvolved since her husband was the one who maintained the house and dealt with the tenants. She also stated that her husband never informed her about any water problem at the house. Mr. Maietta also testified Kathy Maietta was not involved in the routine maintenance of the property and that he never informed his wife about the June 2002 water leak. She did admit that she did not review every question on the seller disclosure form, instead relying on her husband to fill it out.
The Superior Court first noted that there were several sections of the Residential Seller Disclosure Law (RESDL) that were applicable in this case as follows:
Section 7301: "Any seller who intends to transfer any interest in real property shall disclose to the buyer any material defects with the property known to the seller by completing all applicable items in a property disclosure statement which satisfies the requirements of section 7304 (relating to disclosure form)." 68 Pa.C.S.A. 7301.
Section 7307: "If information disclosed in accordance with this chapter is subsequently rendered inaccurate prior to final settlement as a result of any act, occurrence or agreement subsequent to the delivery of the required disclosures, the seller shall notify the buyer of the inaccuracy." 68 Pa.C.S.A. 7307.
Section 7308: "The seller is not obligated by this chapter to make any specific investigation or inquiry in an effort to complete the property disclosure statement. In completing the property disclosure statement, the seller shall not make any representations that the seller or the agent for the seller knows or has reason to know are false, deceptive or misleading and shall not fail to disclose a known material defect." 68 Pa.C.S.A. 7308.
Section 7309(a)(1): "A seller shall not be liable for any error, inaccuracy or omission of any information delivered pursuant to this chapter if: (1) the seller had no knowledge of the error, inaccuracy or omission...." 68 Pa.C.S.A. 7309(a)(1).
The Superior Court first noted at the time the disclosure statement was completed in April 2002, the information therein was accurate. There was no allegation that the water problem had occurred prior to June 2002. As a result, the buyer's claim fell under Section 7307, which requires a seller to notify a buyer prior to closing if any information in the disclosure statement is subsequently rendered inaccurate. But the court had no trouble finding that there could be no recovery against Mrs. Maietta because there was no evidence she know of the water problem.
The Court put the matter this way:
"There is no evidence to refute her testimony, and that of Pat Maietta, that Kathy Maietta did not know about the water leak until well after final settlement. As Judge O'Brien states, the verdict slip submitted to the jury asked whether each defendant knew or had reason to know of a material defect in the premises at time of sale; the jury found that Pat Maietta did, but Kathy Maietta did not" ... The jury's determination that Kathy Maietta neither knew nor had reason to know of the water leak exonerated her under the RESDL."
The buyer had argued that Mrs. Maietta had a duty to know the condition of the property she was selling, and violated this duty by failing to investigate or, in the alternative, failing to disclose her lack of knowledge. The Superior Court rejected these arguments, finding that the RESDL specifically states that the seller is not obligated to make any specific investigation or inquiry in completing the property disclosure statement, and that a seller is not liable for any error, inaccuracy or omission of which he or she had no knowledge. The Superior Court also found that because the form was accurate at the time it was signed by Mrs. Maietta, it would not have mattered if she had done an investigations. As for the argument that Mrs. Maietta should have disclosed her lack of knowledge, because she had previously lived at the property, the Court found she had a basis for answering the questions of the disclosure form.
Insurance Company Appointment of Counsel Under Reservation of Rights is Proper
Eckman v. Erie Insurance Exchange (2011 Pa. Super 87)
In this case out of the Superior Court, decided in May 2011, the Eckmans were insured by defendant Erie Insurance Exchange. A defamation action was filed against the Mrs. Eckman and other defendants by a third party, Solid Waste Services, Inc. (the "Mascaro Litigation"). Mrs. Eckmans sent the claim to her insurance company, Erie, to defend the action. Erie agreed to defend the action insofar as it involved a covered personal injury claim and indicated it would appoint counsel of its choice to handle the defense (agreeing to pay for all defense costs of the appointed counsel incurred during the representation by that counsel) assuming coverage existed. However, because the insurance policy also contained exclusions for intentional acts and punitive or exemplary damages, the letter included a reservation of rights. A reservation of rights is a letter from the insurer to the insurer advising that all or some of the claims made may not be covered by the policy. Therefore, Erie advised the Eckmans of their right to retain an attorney at their own expense to represent their interests.
The Eckmans then retained their own personal counsel and notified Erie of the representation of that counsel. Thereafter, the Eckmans' personal counsel requested that Erie pay all of its costs and fees in representing the Eckmans. The basis for this was the allegation by the Eckmans that a conflict of interest existed with any counsel that might be appointed by Erie. Erie rejected the request to pay the Eckmans' personal counsel, and instead appointed another law firm unrelated to the Eckmans' personal counsel to represent Mrs. Eckman.
On November 12, 2009, The Eckmans filed a complaint for declaratory judgment and a motion for preliminary injunction against Erie, asking the trial court to order Erie to provide Mrs. Eckman with counsel of her choice at Erie's expense to defend her in the Mascaro Litigation. The trial court ruled there was no basis for the injunction and denied it. The Eckmans then appealed to the Superior Court.
On appeal, the Eckmans conceded that there is no Pennsylvania case law to support a claim that an attorney hired by an insurer to represent an insured has a conflict of interest. Nonetheless, they argued that the Pennsylvania Rule of Professional Conduct 1.7, conflict of interest, supported their request. Rule 1.7 states in pertinent part that:
[a] concurrent conflict of interest exists if:
* * *
(2) there is a significant risk that the representation of one or more clients will be materially limited
by the lawyer's responsibilities to another client, a former client or a third person or by a personal
interest of the lawyer.
The Superior Court rejected the argument, finding that the Eckmans presented no evidence of any breach of ethical obligations by Erie's appointed counsel and thus no concurrent conflict. Rather, the Court found that the Eckmans "merely postulate that 'any' attorney selected by Appellee [Erie] to represent insureds under a reservation of rights has a conflict, suggesting, without foundation, that any or all attorneys paid by an insurer would breach their ethical obligations to the insured/client, by methods not specified, to frame claims as excluded from coverage." The Court found that the argument that attorneys, because they are paid by a third party insurer, would breach their ethical duties was not supported by the law in Pennsylvania and that the trial court properly rejected the argument. The Court commented that the "numerous references in the Rules of Professional Conduct to circumstances in which a lawyer may represent a client and be paid by a third party (as, indeed, Appellants' own retained counsel requested in this case, belie Appellants' supposition that the Rules contemplate, let alone require, any such per se disqualification."
As such, the court rejected the request for a preliminary injunction.
Duration of Listing Agreement a Material Term that Cannot be Modified by Oral Agreement
Michael Salove Company v. Enrico Partners, L.P., 2011 PA Super 128 (Pa.Super 2011)
This matter dealt with the validity of an oral extension of a written brokerage agreement under the Pennsylvania Real Estate Broker Licensing and Registration Act ("RELRA"). The case involved a written exclusive listing agreement between a real estate brokerage firm, Michael Salove Company ("MSC"), and Enrico Partners, L.P. ("Enrico"), a landlord seeking a tenant for certain vacant space in the Shoppes of Villanova. The contract granted MSC a 120 day exclusive listing to secure a tenant for the vacant space. MSC did not produce an acceptable tenant to the Landlord within the 120 day time period. MSC contended that prior to the expiration of the contract, it entered into an oral agreement with Enrico to extend the agreement - which Enrico denied.
After the listing agreement expired, Enrico was contacted directly by another landlord, who wanted to relocate its tenant Summit Fitness to Enrico's vacant space. Subsequently, an employee of Summit Fitness viewed Enrico's site and saw MSC's sign, which was still there, and called MSC to arrange a tour of the property. Mr. Salove provided a tour to Summit Fitness's owner and made follow-up calls to determine Summer Fitness's level of interest in leasing the space. Mr. Salove also initiated a meeting with Enrico to discuss construction costs and the improvement allowance, which Salove attended with Enrico and Summit Fitness. However, once formal lease negotiations occurred, MSC was not a participant.
Upon execution of the lease between Summit Fitness and Enrico, MSC was not paid a brokerage commission. MSC subsequently filed a broker's lien claim pursuant to the Pennsylvania Commercial Real Estate Broker's Lien Act ("CREBLA") and sought unpaid brokerage commissions. In response to Enrico's petition to strike the broker's lien claim, MSC voluntarily moved to dismiss the claim, and the court entered an order striking the lien. The trial court then granted summary judgment in favor of Enrico on the claim for unpaid brokerage commissions, holding that RELRA 63 P.S. 455.606a(b)(1) barred MSC's commissions claim based on an oral agreement to extend the written brokerage agreement. The court also denied Enrico's request for attorney's fees.
On appeal, the Superior Court of Pennsylvania affirmed the grant of summary judgment in favor of Enrico and reversed the denial of its request for attorney's fees. The court disagreed with MSC's contention that oral agreements are permitted to modify written agreements under RELRA, which requires only material terms of the contract to be in writing. Looking to the Act and the Pennsylvania Code, the court determined that the duration of the agreement is a material term required to be in writing. Under 49 Pa. Code 35.331(a)(3), terms of the agreement's duration must be agreed to in writing, and 63 P.S. 455.604(a) makes failure to do so a prohibited act, carrying with it the possibility of suspension or revocation of a broker's license. The Court thus found that the brokerage commission claim stemming from a purported oral extension of the written exclusive listing agreement was thus barred under RELRA. The court was careful to narrow its holding to oral modification of agreement terms required to be in writing under the Act, rather than a preclusion of all oral modifications of written exclusive listing agreements.
In granting the Landlord's request for attorney's fees, the court looked to the Commercial Brokers Lien Act (CREBLA) provision that places the burden of costs on the non-prevailing party (see 68 P.S. 1058(h)). The court disagreed with MSC that the lack of an adjudication resulted in no prevailing party and determined that it makes no difference whether the lien was dismissed pursuant to the plaintiff's or defendant's motions. The fact that the lien was stricken, even based on MSC's agreement to do so, was enough to support the contention that MSC was the non-prevailing party for the purposes of CREBLA's recovery of costs provision and should bear the costs of proceedings.
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