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E&O War Stories: Loyalty and Honesty Go Hand-in-Hand

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Commentary by Victor O. Schinnerer & Co

Victor O. Schinnerer’s “War Stories” are actual claims from company files with the names and some details changed for confidentiality. Here, read about a foreign buyer who sued his agent after his legal residency status resulted in his mortgage company canceling his contract.

The Facts
In the process of buying a home, a client of El Salvadoran descent contacted a broker and entered into a buyer-agent agreement. The client was extremely excited to have a broker working on his behalf and agreed to pay a $200 fee and as well as a 3 percent commission. The agreement stated:

• The seller’s deposit would be credited toward the commission
• Commission would be payable upon transfer of title
• Commission would be payable if the title didn’t transfer based on any action or default of the buyer

Shortly after signing the buyer-agent agreement, the client found a home under construction and entered into a contract.

The client was pre-qualified by a mortgage company for which an associate broker, working in the same firm as his agent, was the president.

A few days before closing, the client received a call from the mortgage company informing him that due to his legal residency status, he was unable to obtain a conventional loan and that the contract would be terminated as a result.

Risk Factor No. 1
Your fiduciary duty as a real estate professional is to be absolute and undivided in your loyalty; there should be no hint of any conflict of interest. This requires diligence, faithful service, integrity, utmost care, honesty, good faith and full disclosure.

When the client called his REALTOR® asking for the return of his commission, the REALTOR refused. He told the client that the commission was for services rendered and that all fees paid were non-refundable. However, when the client reviewed his agreement he found no language to that effect.

Risk Factor No. 2
No real estate professional ever expects to be sued. But the unexpected does happen so it’s important to be prepared. And the key to being prepared is to document everything! Documentation is crucial when facing an angry homeowner.

The client contacted the State’s Fair Housing Office to file a complaint and they decided to review other buyer-broker agreements of the mortgage company and real estate firm. They found that no other buyers of Hispanic or El Salvadoran origin were requested to pay commission prior to closing.

However, the real estate board determined that the investigation of the complaint established prima facie evidence of discrimination under State code and therefore reasonable cause existed to believe there was unlawful discriminatory housing practices.

The Result
This case was eventually settled for $17,500 and the client subsequently obtained an FHA loan and purchased a home.

Real estate professionals have an obligation to treat every buyer with the same standards and each buyer has the right to equal housing opportunity. It is unethical and illegal to discriminate because of a person’s race, color, religion, nationality, age, familiar status and physical and mental capacity.

Submitted by Victor O. Schinnerer & Co., Inc. For more information visit www.schinnerer.com/realestate. To contact the company for more information, call 301-961-9800.

Any examples in this article are for illustrative purposes only and any similarity to actual individuals, entities, places or situations is unintentional and purely coincidental. This material is not intended to establish any standards of care or to serve as legal advice appropriate for any particular factual situations. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured.

Copyright © 2008 Victor O. Schinnerer & Co. Inc. All rights reserved.

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