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Suing your real estate agent
Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.”
Here is the story, which should have pushed the point that the real estate agent usually works for the seller. In another context, if an agent of the mortgage lender says: "Just put down an income of $150,000," even most of the so-called "stupid people" know they are engaging in some kind of fraud. In reality it is complicity with fraud and a violation of federal law, and yes this is a federal law that should be a federal law.
A society that so blurs the ethic of individual responsibility is a society in trouble. My notion of individual responsibility does not mean: "Sorry, it is just that you die for your mistake," so there is no need to knock down that straw man. But a good notion of individual responsibility might start with: "We're not going to label every "little guy" a victim, even when it supports our political narrative to do so."
Posted by Tyler Cowen on January 23, 2008 at 06:01 AM in Law | Permalink
Comments
Tyler,
The article actually *does* say that the agent legally represents the seller. In the first half of the piece no less!
Should the journalist say things twice for all the "stupid" people that don't read past the first paragraph?
Posted by: Student at Jan 23, 2008 7:16:07 AM
I am well aware that it is mentioned, but I would have written the same piece to give it a very different emphasis. Furthermore how many of these suits are against buyer agents, and how many are not, is completely obfuscated though of course you can read the distinction in the piece between the lines. In many states agents also disclose in advance their responsibilities and liabilities, I would have reported on that angle as well. Sorry, but I cannot consider this piece informative reporting of the sort I would expect.
Posted by: Tyler Cowen at Jan 23, 2008 7:23:03 AM
The law is simple in this regard: to be a victim of fraud, one must rely on the misrepresentation by the defendant, AND the reliance must be objectively reasonable. Believing assurances that "it's a very good buy" doesn't qualify as "reasonable" in real estate any more than it would on a used car lot or in an informercial.
See also "puffing" (which perhaps surprisingly is a legal term of art) and (in the case of predatory borrowers) the clean hands doctrine.
Posted by: KipEsquire at Jan 23, 2008 7:27:47 AM
Not sure why the anti-fraud law should be federal. Historically this is the stuff of state laws.
Posted by: federalist at Jan 23, 2008 7:43:07 AM
On the one hand, the weak should be protected even if it seems patronising to ordinary people. There are some people in the world who really do have trouble navigating it in any sort of competent way.
On the other hand, if you don't know the estate agent is unreliable you shouldn't be able to take a loan.
Posted by: Finnsense at Jan 23, 2008 7:45:01 AM
"A society that so blurs the ethic of individual responsibility is a society in trouble."
I assume you are referring to a society that would publish a story from this viewpoint, not a society that would produce a woman who'd file a frivolous law suit. That said, I suspect 80% of the people who read this story will side with the realtor, though the percentage would probably be considerably lower if the house she bought cost under a million. I thought it telling that the writer also mentioned her semi-modest annual salary to make her seem like an average jo, when it's pretty obvious hubby likely earns substantially more for them to be running around buying million dollar houses from people who refused to show them the appraisal.
My favorite sign of the societal personal irresponsibility apocalypse: people who call to renew books at the library. One of the most common replies from someone who's told that a book cannot be renewed because it has been renewed the maximum number of times or is requested by another patron is: "but I can't bring it back today,...'til Friday, etc. As though this were pertinent information and there is not a system set up to deal with such situations. When checking out, it's always fun to guess which patrons will object to their fines and which will pay them happily.
Posted by: burger flipper at Jan 23, 2008 7:57:26 AM
I cant see our world becoming a better place by giving buyers the ability to sue real estate agents. It is one of those issues that would end up blowing up in our faces if it came to pass.
Posted by: John Pertz at Jan 23, 2008 8:06:53 AM
"the weak should be protected"
That's all well and good -- until Michael Bloomberg, Kevin Martin, Hillary Clinton or Antonin Scalia decides that you yourself are "weak" and in need of "protection" (i.e., from yourself).
Posted by: KipEsquire at Jan 23, 2008 8:15:39 AM
My understanding is that a buyer's agent like Mr. Little legally represents the buyer. Where do you see that he represents the seller?
The only mention I see of seller is "For decades, residential transactions almost always involved brokers who, whatever assistance they gave the buyer, legally represented only the seller." which is talking about the past.
Posted by: Daniel at Jan 23, 2008 8:26:12 AM
Kip, your real estate agent is not like a used car salesman or an infomercial. There should be no puffing going on because your agent has a fiduciary responsibility to act in your best interests. Of course getting paid by commission clouds the waters somewhat, but that is a shortcoming in the contract and not something that relieves the agent's duty to you.
Posted by: Cliff at Jan 23, 2008 8:29:38 AM
Who believes everything a real estate agent says?
Posted by: Vincent Clement at Jan 23, 2008 8:59:00 AM
"the weak should be protected"
That's all well and good -- until Michael Bloomberg, Kevin Martin, Hillary Clinton or Antonin Scalia decides that you yourself are "weak" and in need of "protection" (i.e., from yourself).
This is why I advocate a "big boy" class of citizenship whereby those of legal age can attest that they're "big boys" and remove themselves from jurisdiction of all laws intended to protect them from themselves. Then they can ride motorcycles without a helmet, prescribe drugs for themselves without FDA approval, take whatever currently ilicit drugs they desire, smoke, and wallow in all the transfats they desire. As part of being a "big boy" citizen, however, you forgo all claims on government help (e.g., Soc Sec, Medicaid, court appointed attorneys, government education loans, public education) presumably with some tax offset.
Those who think the tradeoff is worthwhile will take it (of course it'll have to be an irrevocable decision, but that's the kind of decision a "big boy" can make and live with), and those who prefer to be nannied can be nannied to their hearts' content without infringing on the those who would prefer otherwise.
Posted by: Jody at Jan 23, 2008 9:05:37 AM
"But a good notion of individual responsibility might start with: "We're not going to label every "little guy" a victim, even when it supports our political narrative to do so."
The thing that annoys is not that you iteratively point out that the original home buyer has part of the responsibility for the current large scale financial disaster, it is that you *never* *ever* *ever* assign any blame to the corporate entities that have botched up the other end of the transactional trail.
So you come off looking like a banal corporate shill. Certainly that is how your NYT pieces read. FWIW, I'd be happy if every one of the buyers who misrepresented their income were prosecuted. As you point out, that would be a lot. Might not be popular, me thinks. But even if you were to successfully prosecute all of those little guys, you still have the problem that systematically elevating fundamentally CCC crap to AAA is unsound. If the ratings and insurance entities had actually been doing the jobs they claimed to have been doing, then there would be no financial disaster.
People who want to understand the problem at a fundamental level need to be reading Calculated Risk.
Posted by: Russell L. Carter at Jan 23, 2008 9:09:14 AM
"Agents representing buyers rarely had the opportunity to make mistakes during the last real estate boom, in the late 1980s, because the job hardly existed then. For decades, residential transactions almost always involved brokers who, whatever assistance they gave the buyer, legally represented only the seller."
Clearly the agent in this case is a BUYER'S agent. Isn't this akin to suing an attorney, a doctor, or an accountant for malpractice?
I'm all for personal responsibility. Where is Mr. Little's? The comment from his own lawyer is telling:
'Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.” “And you believed that?” asked David Bright, the lawyer who represents both Mr. Little and ReMax Associates, which was also named in the suit.'
Posted by: meter at Jan 23, 2008 9:23:25 AM
Russell, there are plenty of other people covering the corporate side and it simply isn't newsworthy for a column that comes out every month. You are wrong that I do not admit massive corporate fraud, see for instance my comment over at Barry Ritholz's blog in response to his posting. My original NYT column also says that the lenders are to blame as well. You are overreacting to seeing the traditional narrative being disrupted.
Posted by: Tyler Cowen at Jan 23, 2008 9:24:17 AM
I agree with Daniel, I think that the agent in this case represented the buyers. It says that they lived in the bay area and hired a broker to help them find a home in San Diego. It says that "They dismissed one agent and canceled deals on two houses before Mr. Little found them a prospect on a cul-de-sac in a five-year-old luxury development."
Posted by: Andy at Jan 23, 2008 9:51:22 AM
The ugly fact is that most "buyer's broker" agreements are really designed only to protect the broker and ensure that the broker gets paid no matter what the buyer ultimately purchases or where. There is certainly a case to be made that, if the buyer is assuming that type of obligation to the agent, that the agent should have a fiduciary responsibility to the buyer.
The only question that I see here is "does being bound as a buyer's agent require a written, as opposed to an implied-in-fact, contract?" Since there is no commitment on the part of the buyer in this situation, I don't see how the agent can be held liable. The buyer screwed up.
OTOH ... if there was a buyer's broker agreement, I would say sue him until his ears bleed.
Posted by: mike at Jan 23, 2008 10:05:54 AM
Note that the article refers to the present situation as a "housing collapse."
Posted by: Peter at Jan 23, 2008 10:49:22 AM
That comment thread was even more aggressive in calling out your shill for what it was, TC. Your choice to use the modifier "predatory" in front of "borrowing" was particularly ill-suited, as was the hand-wave that "of course, lenders were bad too".
Not Sold.
Posted by: M1EK at Jan 23, 2008 10:55:26 AM
The story is clear that Little was representing the buyer, not the seller.
So I think it is Little who is being inaccurately described as a vicim, not Ummel.
Posted by: Bernard Yomtov at Jan 23, 2008 11:21:21 AM
When I worked in California real estate (1985-1995) California law defined both "seller" and "buyer" agents as working for the seller. Their agency and responsibility was to the seller. There were many agents who worked exclusively with buyers and called themselves buyers agents, but as far as the state and the law were concerned, they worked for the seller.
A real estate agent could be reprimanded or even lose his/her license for actions that weren't in the financial interest of the seller, regardless of who they worked with.
Seeing as the agent was paid by the seller, not the buyer, this agency requirement made sense.
I don't know whether or not the law has changed in the last 12 years, but I don't see any particular reason why it would have.
Posted by: JustJeff at Jan 23, 2008 11:54:41 AM
I don't know whether or not the law has changed in the last 12 years, but I don't see any particular reason why it would have.
"Agents representing buyers rarely had the opportunity to make mistakes during the last real estate boom, in the late 1980s, because the job hardly existed then. For decades, residential transactions almost always involved brokers who, whatever assistance they gave the buyer, legally represented only the seller.
The long boom that began in the late 1990s put an end to that one-sided world."
Posted by: meter at Jan 23, 2008 12:13:25 PM
"This is why I advocate a "big boy" class of citizenship whereby those of legal age can attest that they're "big boys" and remove themselves from jurisdiction of all laws intended to protect them from themselves."
While I think it right that too much regulation is stifling, it is quite hard to be overly concerned by the possibility of a world in which real estate agents have to take a shot at the truth rather than simply making stuff up.
Posted by: Finnsense at Jan 23, 2008 1:15:10 PM
"You are wrong that I do not admit massive corporate fraud, see for instance my comment over at Barry Ritholz's blog in response to his posting."
This is a curious response. People write about what they think are the important topics. If you repeatedly state:
Actions "A" by actors in set "B" caused "X"
but do not state other perhaps equally, perhaps more important factors (except in a comment at somebody else's blog) then you're implicitly discounting those other factors.
"You are overreacting to seeing the traditional narrative being disrupted."
Not sure what the "traditional narrative" is but I take mine from people like James Hamilton and the folks at Calculated Risk. In it there are two components:
A: During the RE bubble "innovative" loan devices such as "stated income" loans were provided to the public. Once it became common knowledge that the income stated (for example) was not actually being checked a lot of people ended up holding loans they actually could never afford. I don't care how they ended up with the loans, assign it all to fraud if that is your inclination.
B: At the same time, large financial institutions were developing "innovative" investment instruments built on top of the loan industry in part A, above, that appear to have had the some of the same qualitative characteristics as a "stated income" loan. All was fine until the bubble popped, now we have disaster.
To the extent that this narrative differs from e.g., James Hamilton's, I'm of course in error.
Now how does the narrative play out? My own personal narrative plays out this way: Prosecuting or suing everybody in Part A probably is not helpful to resolving the current ongoing financial ah problem. (If it is, that might make an interesting post). Fixing A for the future probably means more Credit Snob regulation. Making fundamental changes in Part B. *might* be helpful to fixing the problem. Changes generally mean more or less regulation, though I couldn't begin to say what would be appropriate. However, "do nothing" has certainly lead us to interesting times, "less" seems counterintuitive, and "more" is what remains.
Nothing in this is controversial. So it's a bit difficult to see where it is being "disrupted".
Posted by: Russell L. Carter at Jan 23, 2008 2:04:28 PM
Talk about a potential Conflict of Interest! The article says the Realtor was also the Mortgage Broker. "Mr. Little also worked as a mortgage broker. The Ummels say he encouraged them to get their loan through him. Mr. Little ordered an appraisal of the house but did not respond to the couple’s requests to see it, the suit charges." I wonder what that appraisal came in at??? Being in Real Estate for 22 years, I'm pretty sure that might be the overriding factor as to responsibility and in fact may show that Mortgage Fraud was committed as well as Ethics violations. I would normally side with the Realtor, but this in fact smacks of misdeeds and I'll be very intersted in the outcome. Also in how the outcome is presented by the Malinformed Media.
Posted by: scott at Jan 23, 2008 2:20:36 PM
