© 2015 OnCourse Learning Texas Real Estate Brokerage and Law of Agency, 6 th Edition

Obligations to Third Parties © 2015 OnCourse Learning Chapter 5

Fiduciary Duties Fiduciary duties to third parties - there aren't any Fiduciary duty runs between principal and agent – if the third party is a customer, not a client, there is no fiduciary duty There is an expanding duty of care to the third party © 2015 OnCourse Learning

Duty of care to the third party – honesty and integrity Disclosure of Title Disclosure of Defects Disclosure of License Disclosure of Broker’s Relationship Disclosure of Representation Disclosure of Residential Service Company Contracts © 2015 OnCourse Learning

License Revocation or Suspension latent structural defect make clear for which party he is acting. not make a false promise not pursue a flagrant course of misrepresentation no lottery or deceptive practice. © 2015 OnCourse Learning

License Revocation or Suspension not negotiate with a party already under contract not publish misleading advertisement surrender all pertinent documents not discriminate in violation of state or federal law © 2015 OnCourse Learning

Innocent, Unknowing Misrepresentation Misrepresentations made to third parties were actionable even though they were innocent, unknowing misrepresentations In Henry S. Miller v. Bynum, the broker was even held liable for innocent misrepresentations in brochures that were prepared by his principal © 2015 OnCourse Learning

Protections and Exclusions Bevins v. Ballard: Owners may move away, leaving their broker as the only reachable defendant Broker, in turn, can protect himself from liability by investigating the owners’ statements or by disclaiming knowledge, by requiring the seller to sign a statement setting forth representations © 2015 OnCourse Learning

Seller’s Disclosure Statement Some comfort and protections may be obtained by the broker’s use of the seller’s disclosure statement – Required by law

Court-Construed Agent Obligations To Third Parties Lakeway Real Estate Corp. v. Whittlesey Ingalls v. Rice, supra Stone v. Lawyer’s Title Insurance Corp. Trenholm v. Ratcliff Cameron v. Terrell & Garrett, Inc. Pleasant v. Bradford © 2015 OnCourse Learning

Court Cases McRee v. Bolstad Kessler v. Fanning McGaha v. Dishman Smith v. National Resort Communities Reed v. King Sawyer v. Jarvis © 2015 OnCourse Learning

Court Cases Godfrey v. Steinpress Hernandez v. Schultz Danny Darby Real Estate v. Jacobs Gray v. Boyle Revitz v. Terell Alexander v. McKnight © 2015 OnCourse Learning

Court Cases Shapiro v. Sutherland Johnson v. Beverly-Hanks & Associates Hopkins v. Fox & Lazo REALTORS ® Zaffiris v. O’Loughlin Habeeb v. Ohio Department of Commerce Sanchez v. Guerrero © 2015 OnCourse Learning

Agent’s Defenses From Third Party Misrepresentations The agent didn’t say it The licensee didn’t know The agent made a mistake It’s not the agent’s job, and just not fair © 2015 OnCourse Learning

Agent’s Defenses The purchaser ignored the defect or the information The agent helped the buyer to help the seller The professional limitation period has been reached A broker has no duty to inspect the property © 2015 OnCourse Learning

Agent’s Defenses A broker may not be liable for another broker’s misconduct A sponsoring broker has no liability if the agent doesn’t The purchaser is too smart No duty to successor agents © 2015 OnCourse Learning

Not defenses from third-party misrepresentations: Puffing by the seller – Ridco v. Sexton A home inspection prior to closing – McFarland v. Associated Brokers © 2015 OnCourse Learning

Statutory Disclosure Items Rollback Taxes MUD Forms Annexation Issues – MUD Districts Texas Public Beaches Coastal Area Properties Mold Assessment And Remediation © 2015 OnCourse Learning

The Importance of a Home Inspection HUD requires that the borrower, in any transaction involving FHA Insurance, be provided with a notice acknowledging the importance of a home inspection before the execution of a contract. – If the notice is not provided, HUD will require re- execution of the contract before processing the loan. © 2015 OnCourse Learning

Seller’s Disclosure of Property Condition All sellers of residential property in Texas, with some obvious exceptions, must provide the buyers with a Seller’s Disclosure of Property Condition form. There is another more complete Seller’s Disclosure Notice form available through TAR © 2015 OnCourse Learning

Residential Condominiums Buyers of a residential condominium must receive pertinent information from the seller – This includes copies of the condominium’s Declaration, Bylaws, and any Rules of the Association – It also requires a Resale Certificate from the Condominium Owners’ Association © 2015 OnCourse Learning

Other Disclosures Seller’s Disclosure Regarding Potential Annexation Seller’s Notice of Obligations Related to Membership and Property Owner’s Association Residential Lead-Based Paint Hazard Reduction Act of 1992 © 2015 OnCourse Learning