Article Details



Legal

Notes from the MAR Legal Hotline, March 2014

3/6/2014


Notes from the MAR Legal Hotline

 

Michael McDonagh, MAR General Counsel

Ashley Stolba, MAR Associate Counsel  

Justin Davidson, MAR Staff Attorney

 

 

March 2014

 

Q.        Several years ago I listed and sold a home with a septic system.  A Title V report was completed and filed with the town heath department.  I just received a very formal letter from the new owner’s attorney alleging that the system is failing and I had an obligation to disclose that it had a pumping station attached to it.  I know I did nothing wrong. They are demanding that I answer this letter immediately and are asking me to settle the dispute.  What should I do?

 

A.           It sounds like this is a typical 93A demand letter.  Even if you are confident that you did no wrongdoing, it is essential that you respond to this letter within 30 days, as required by the law. If you have Errors and Omissions insurance I would recommend you contact them immediately.  In fact, most E&O policies require you to do so; be sure to review your policy carefully.

 

In order to bring any Chapter 93A action, a consumer must begin by sending the business a 93A “demand letter.” The purpose of the demand letter is threefold.  First, it puts a business on notice of a consumer’s claim, and provides information about the nature of the claim.  Second, it may encourage the business to negotiate, to settle the matter without the necessity of going to court.  Finally, it acts as a control on the amount of money damages that the consumer may ultimately recover if the claim is proven in court.

 

Keep in mind that you are not required to negotiate or settle simply just because you received this letter. However, you, your attorney, or a representative from your E&O insurance company must investigate the matter and respond promptly. 

 

Q.        I am a real estate licensee, and I’d like to place a “For Sale by Owner” (FSBO) sign in my front yard to attract potential buyers and other real estate licensees. I’m not actually planning to sell my house; I just want to market my real estate services to anyone who sees my FSBO sign and calls me. Is this allowed? 

A:       
No. Enticing potential buyers and other real estate licensees to call about your house, which you have no intention of selling, in an attempt to market your services, would be a violation of both the REALTOR Code of Ethics and Massachusetts License law.  Article 12 advises, in part, that “REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.” Further,  from a licensing law perspective, Massachusetts regulation 254 CMR 3.00 (9) states that, “a broker shall not advertise in any way that is false or misleading.” If your intentions are to gain exposure and clients, this would be a violation and illegal.

Q:        I would like to start a new marketing program where I offer a rebate to either my buyer or seller client, is this legal?  Is it ethical?

 

A:        It is both legal and ethical; however, the REALTOR® Code of Ethics and the Massachusetts Board of Registration for Brokers and Salespersons place clear requirements and limitations on the use of offering gifts or incentives.

 

From a legal standpoint, REALTORS® cannot share in their commissions, fees or other valuable consideration with others who are not licensed and are performing brokering activities. REALTORS® may, however, offer gifts to the buyer or seller in a specified real estate transaction.  An example of providing a gift within a real estate transaction is either the payment of closing costs or a cash rebate at closing to the buyer or seller.  The gift or incentive, however, must be paid to someone within the transaction; it cannot be paid to an outside entity such as a charity on behalf of the person within the transaction. 

 

Ethically speaking, Article 12 of the National Association of REALTORS ® Code of Ethics states that the offering of prizes or merchandise discounts is not unethical even if it requires a person to list or purchase a home through a REALTOR®. This Article does require that all advertisements clearly state what the customer must do in order to receive the gift (e.g. Must he/she buy a home that is one of the REALTORS’ ® listings? Must he/she purchase a home when you are acting as a co-broker on another firm’s listing?).

 

MAR advises all REALTORS® who provide gifts or incentives to consult an accountant or tax attorney regarding potential tax consequences resulting from this practice. Furthermore, the rebate should be disclosed on the HUD-1 statement.