Let’s face it: conflict is part of life in real estate—but good business relationships depend on the ability to work through disputes and not simply dispose of them.  We all know that Realtors^® must agree to arbitrate their complaints but the Realtor® association also provides another process that can help resolve conflicts and save relationships: mediation.

Mediation is similar to negotiation, where parties talk through issues and, perhaps, work out a solution on their own terms.  The main difference is that mediation includes a neutral third party—the mediator—to facilitate the discussions.  But this is an important difference.  Whereas negotiations can get off-track with heated emotions and one-sided bullying, a good mediator sets an agenda and ground rules for discussion, levels the playing field by controlling the parties and helps to overcome deadlocked issues.

The process is less formal than arbitration, because mediation is based on principles of voluntariness and party control. At some point in the proceedings, mediation must be made available to all parties involved in arbitrations. Generally, both parties must agree to mediate a dispute voluntarily, though a recent amendment to Article 17 of the Code of Ethics gives local associations the option to require mediation when requested by either party. During a mediation, parties may address important issues that have caused a conflict but which otherwise might not be brought before the arbitrators. And the mediator has no power to impose a judgment, like a judge or arbitrator: her role is to promote communication and help parties reach a satisfactory, creative solution.  If the parties don’t reach an agreement, either side may request that the case be returned to arbitration.  But if the parties do settle, the mediator can draft an agreement on the spot.

Contract disputes among Realtors^® tend to lend themselves naturally to mediation.  Agency, partnership, and sales issues all involve continuing relationships, as well as specialized terms, and parties can benefit from getting through these disputes without burning bridges.  In Realtor® mediations, the parties can choose a neutral who knows their industry and regional practices.  The parties can also choose how involved the neutral will be in the process and which issues to focus on.

Your local association should have a roster of specialized, trained real estate mediators who are available to handle member disputes.  If your local association participates in the statewide professional standards cooperative, PAR would provide a mediator. The mediators typically are real estate professionals or legal professionals in real estate practice, familiar with industry standards.  The process offers Realtors^® an effective and creative alternative to resolve their professional disputes, without resorting to risky arbitration.  But knowing the options is the first step: if you are involved in an arbitration case and want to know more, contact your local association, PAR or the Legal Hotline for more advice on how to move forward with a process that may help resolve your dispute quickly and effectively.

The Superior Court remanded the case, Milliken v. Jacono, to the Delaware County Court for trial.  There, a jury will determine whether the murder/suicide was indeed a “material defect” that should have been disclosed. It may also award monetary damages to the buyer.

The only other case involving a stigmatizing event that has been decided in Pennsylvania is Bukoskey v. Palombo, decided by Judge Kunselman of Beaver County four years ago. That case involved a suicide only. The court ruled that the suicide was not a legal issue that would “interfere with the use and enjoyment of the property” and disclosure was not required. 

Of course, the Bukoskey and Milliken cases have their differences. Bukoskey involved a death-by-suicide and an unsuspecting buyer who purchased directly from the estate. Milliken involved a murder/suicide where the owner killed his wife and then himself in the property. The property was purchased seven months later by buyers who were aware of the deaths and who entered into an agreement to sell the property nine months later. It is the second buyer following the murder/suicide who filed suit claiming that the sellers breached the disclosure law. 

The more significant difference between the two cases involves expert reports introduced in the Milliken murder/suicide case. Milliken hired two appraisers who each opinedthat the value of the property was diminished by as much as 10 percent to 15 percent as a result of the murder/suicide. The Superior Court seized on this information, noting that the definition of “material defect” found in the Real Estate Seller Disclosure Law includes “a problem with a residential real property or any portion of it that would have a significant, adverse impact on the value of the property or that involves an unreasonable risk to people on the property” (emphasis added). The Court felt that the sellers should have included notice of the murder/suicide in the catch-all provision of the disclosure form that asks sellers to disclose any material defects “not disclosed elsewhere on this form.”

In Milliken, President Judge Emeritus Kate Ford Elliott filed a dissenting opinion. Her dissent parallels the conventional thinking of most real estate pundits who have weighed in on the issue:  a murder, suicide or combination of the two is not “a problem with the property” but rather a problem with the inhabitants who engaged in the act(s). Judge Ford carefully analyzed the mandatory disclosures, noting “. . . that each deals with either the actual physical structure of the house, its components, and the condition of the curtilage, potential legal impairments attached to the property, and hazardous substances on the property.  A requirement that sellers of real estate reveal that a murder once occurred on the property goes to the reputation of the property and not its actual physical structure.  Plainly, the Legislature did not require disclosure of psychological damage to a property.” 

So what does this all mean? For the first time, an appellate court in Pennsylvania has ruled that a murder/suicide may have to be disclosed on the seller disclosure form. The ruling is fact-specific to this case where evidence suggests that the market value of the property was substantially reduced by the events.  In the previous case from Beaver County, the event was a suicide only and no evidence of its impact on the market value was presented. 

While it is difficult to find a bright line rule from these two cases, it would seem to be that until or unless the Superior Court’s decision is overruled, disclosure of a notorious event is the safer practice. If a buyer can demonstrate that the market value has significantly impacted by the event, under the ruling in Milliken, the matter may be presented to a jury and damages may be awarded.

The Superior Court’s decision has been appealed, with a request that the case be reconsidered by the court. The PAR Legal Action Fund has approved PAR support for the appeal and will continue to monitor the case moving forward. Regardless of the ruling, the matter may be destined for Pennsylvania’s Supreme Court.

It was updated to better reflect the normal flow of a transaction. The form is now intended to be used first by the seller, not the buyer. It is designed for the seller to complete it and make it available to potential buyers to review (often in the MLS), as you would with Seller’s Property Disclosure Statement. This disclosure by the seller allows the buyer to know whether the seller intends to convey some or all of the oil, gas and mineral rights to the buyer in the transaction. This form does not need to be used if the seller is conveying these rights.

The new form can be used immediately. Using the previous version is of the form is acceptable if you have some left in your office. If you access your forms electronically, the new form will be the only one available. We have created Guidelines for Use, which can be found here (PAR login required).

The oil, gas and mineral rights language has been updated in the Agreement of Sale to avoid statements in the Agreement conflicting with the OGM Disclosure and Addendum. The new language in the Agreement relies on the OGM Disclosure and Addendum to indicate the status of these rights, avoiding any potential confusion. A more thorough explanation can be found in the OGM frequently asked questions sheet on the Oil and Gas Forms page of the PAR web site.

There are situations when a title owner is unable to participate in the listing and sale of his or her property.  Infirmity, incapacity, overseas service and death are the frequently encountered circumstances.   In lieu of an owner, you will likely deal with an executor, court appointed guardian, or one who holds a power of attorney or other special power.   Understanding the terminology and legalities is essential.

A power of attorney is a document by which an owner (principal) appoints another person (agent) to act for the owner.  It is used when the owner is living but unable to act for himself.  Do not confuse the use of the word “agent” with real estate agent.  The agent named in the power of attorney is usually a relative, loved one or someone who holds a position of trust with the principal. 

Only a competent person can sign the necessary document to create a power of attorney.  If an owner signed a properly drafted “durable” power of attorney before becoming incompetent, the power is effective and the agent may act for the owner.  ThePennsylvanialegislature has dictated what constitutes a properly drafted form.  Do not assume that any power of attorney form has been properly drafted.  Pass it by counsel or your title company to see if it comports with law.

If an owner becomes incompetent before signing a power of attorney, then only a guardian appointed by the court can act.  Obtaining a court order requires the filing of a petition, publication of legal notices, costs money and takes time.  Hopefully your seller did some estate planning.

Another limitation of a power of attorney document is that it may only be used when the principal is living.  After, the power of attorney is no longer effective and an estate must be opened with the county court where the principal resided.  A representative is then appointed by the court to handle the principal’s assets including real estate.  If a person died with a Will, the representative(s) named in the Will is appointed by the court and referred to as an executor(s).  A person who dies without a Will has an administrator(s) appointed by the court.  The administrator is usually the next of kin.  If the person appointed is female, the court will use the terms executrix and administratrix.

When asked to list a property by an executor or other non-owner, your job is to obtain a copy of the correct documentation before taking any other action.  You cannot operate on word alone.  In a power of attorney situation, you must obtain a copy of the power of attorney document and keep it in your file.  An original will have to be recorded at the county’s recorder of deeds.  Read the document carefully to ascertain who has been named as the agent.  This is the person you must communicate with about the real estate.  If there is more than one person appointed, then all the named agents need to make decisions and sign all documents.  Second, you want to know the scope of the power of attorney.  Does it give the agent(s) the ability to engage in real estate transactions?  If it does, you are in business.

The documentation that is required for the representative of an estate is referred to as the Short Certificate.  It is given by the Register of Wills and names the representative(s) of the estate who has the power to list the real estate.  Like the power of attorney, if there is more than one representative appointed, all must make the decisions and sign documents. 

An agent(s) under a power of attorney or a representative(s) in an estate has certain duties: (1) exercise the powers for the benefit of the principal (owner) (2) keep personal assets separate from those of the principal (3) exercise reasonable caution and prudence and (4) keep a full and accurate record.  An estate representative’s duties are similar to that of an agent under a power of attorney include responsibility for preserving the assets of the estate and liquidating the assets if necessary.  The representative is responsible for using the estate assets to pay the final debts and inheritance tax before distributing the proceeds to the beneficiaries.  A representative(s) has the power to sell or lease the deceased person’s real estate as long as the real estate has not been specifically devised to someone in a Will.  Accordingly, it is a good idea to take a look at the Will to make sure the real estate was not given to someone before you list it.   

After you have the defined the situation, determined the correct person(s) of authority, and have received and reviewed a copy of the appropriate documentation, you are ready to proceed.  Remember that all of the authorized agents under the power of attorney or representatives in an estate must sign the listing agreement, disclosure documents, etc.  For example, when there are two executors in an estate, then they both must sign the Listing Contract. If only one executor signs, the document is not effective.

As you are aware, the Real Estate Seller Disclosure Law, exempts an estate representative from completing the Seller’s Property Disclosure Statement except for material defects known to the representative.  How an agent under a power of attorney completes a disclosure form is a matter that requires its own article.

Knowing how to operate in the absence of an owner not only minimizes the likelihood of problems; it enhances the likelihood of your acquiring listings that you might not otherwise come your way.  Be the expert!

Elizabeth Feather and James Goldsmith are attorneys with Caldwell & Kearns, which serves as counsel to PAR.  A substantial portion of their practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth.  Ms. Feather also counsels clients on estate planning and estate administration matters.Mr. Goldsmith routinely counsels employers on employee relations issues.  Both Ms. Feather and Mr. Goldsmith are two of the voices of the PAR Legal Hotline.

Brett Woodburn, Esq.

Calendar year 2010 was a year for change for residential real estate closings.  The Department of Housing and Urban Development (“HUD”) implemented new changes in RESPA, the Federal Reserve introduced a new Truth-in-Lending disclosure form and a new HUD-1 Settlement Sheet and Good Faith Estimate made its way into our transactions. Throughout most of 2010 and 2011, the real estate industry adjusted to these new changes, forms and rules; for the most part, the adjustment went smoothly. 

However, as 2011 drew to a close and the implications of the Dodd-Frank Act started to come to the fore, a new wave of change arrived. HUD is no longer charged with implementing and overseeing RESPA; that duty was transferred to the newly-created Consumer Finance Protection Bureau (CFPB). One of the charges that the CFPB is required to accomplish is to combine the HUD-1 Settlement Sheet with the Truth-in-Lending (“TIL”) Disclosure. This is no small task. Those of you familiar with residential real estate settlements understand that the TIL is one of the least-understood forms reviewed at settlement. 

The two forms — the HUD-1 and the TIL — provide essential information to consumers. The TIL discloses the true costs of the loan, whether there are pre-payment penalties or balloon payments and whether the note contains a demand feature. (Experience suggests that the only information most consumers understand is the pre-payment and balloon payment disclosures). The HUD-1 identifies the source and destination of the loan proceeds. It acts as a balance sheet so that lenders, regulators and consumers can identify the source of the money (federally related mortgage money or consumer paid money), who got paid what amounts and whether payments were made at closing or outside of closing.

Combining these two separate disclosures into one form that an average consumer can comprehend is no small task. Currently, the CFPB is working with two prototypes, one the closely resembles the current HUD-1 and one that is a completely original form. While this (current) round of comments has closed, all real estate practitioners (or at least settlement service providers) are encouraged to monitor these forms as they evolve. The forms can be viewed at the CFPB website.

A must-read for brokers and salespersons

Mistakes happen. So you buy errors and omissions (E&O) insurance to cap your exposure. Paying your deductible is far easier to swallow than the tens of thousands that you might otherwise pay for attorney and expert fees, and, heaven forbid, a judgment.

E & O policies do not cover all claims.  Intentional misdeeds are not covered. Understandable. Another exclusion to E & O coverage, however, takes many brokers and salespersons by surprise. Most policies exclude coverage for claims arising out of the private transactions of the broker and salespersons. These claims arise with surprising frequency and can destroy the financial well-being of the broker and salesperson alike.  

Assume that a salesperson is involved in buying and selling real estate as a moneymaking venture, alone or in partnership with others. Maybe the salesperson has an ownership stake in a corporation which would seemingly limit the salesperson’s liability to his/her equity stake. The salesperson and broker consider this to be the salesperson’s private venture and so the broker pays no heed when these properties are sold, purchased or managed.

But claims do arise from these transactions (what-a consumer would dare think you did wrong!). After reporting the claim to the E & O carrier, you can expect a denial of coverage.  Translated:  You are on your own!  And brokers, you can count on being a named defendant even though your salesperson was involved in his/her private transaction. Why? Email and letterhead used in the transaction probably includes the name of your brokerage, meetings may have taken place at your office, the salesperson had your sign on his car or for any other reason. The mere fact of your professional relationship is sufficient to assume that the claim will include you, the broker.

No reason to panic, right? The claim was probably bogus and you’ll easily win. If that is your assessment, good for you – it probably means that you have not been sued. But, if the complaint states facts, that if true (a big assumption) make you liable, then you are in it for the long haul. Even if the claimed facts are lies, it does not mean early termination. Lies and bad facts will get a Plaintiff through the pleading stage into the phase of litigation called discovery when depositions and documents production are used to ferret fact from fiction. But discovery is also an expense.  Spending tens of thousands of dollars to defend a marginal claim arising from a private transaction is hard to swallow. Who pays? There may be a provision in your broker/salesperson independent contractor agreement, possibly not. 

These cases tend to pit broker against salesperson and include derivative lawsuits for indemnity and contribution. Sounds complicated and expensive? 

Yes, there is a fix!  This “fix” comes to me by way of a salesperson’s call to the Hotline. She mentioned that her broker’s policy requires her salespeople to list their private sales with the office, through another salesperson. The broker discounts the commission and most of what is paid goes to the listing salesperson. The price paid, however, may be well worth it because any claim against the broker, the listing salesperson or the licensed owner involving lapse of fiduciary responsibility, will be covered. Claims against the owner for breach of the Seller Disclosure Law or misrepresentation will likely not be covered, but there is still an advantage that goes to the licensed seller. Because some of the claims are covered, the E & O carrier will hire counsel to assert defenses. The individual expense of the salesperson to cover that additional claim of misrepresentation or breach of the Seller Disclosure Law will be far less than if there had been no coverage at all.

The broker/salesperson independent contractor agreement is a perfect place to spell out the responsibilities of a salesperson who lists and sells his/her own property. Must the property be listed with the office? Will the salesperson indemnify the broker for any claims arising out of the private transaction? If private transactions are permitted, may the salesperson make any reference to his affiliation with the broker? Is the salesperson required to inform the consumer on the other side of the transaction that the matter is being handled privately, and not in relationship to the salesperson’s affiliation with the broker and outside of the knowledge of the broker? These questions should be considered and addressed by legal counsel who can update your policies and independent contractor agreement.

The residential rental market has seen a dramatic increase in the number of families deciding to rent rather than purchase their homes. This trend has attracted scammers and con artists to commit rental fraud.

A website launched earlier this year called Checkyourlandlord.com was designed to protect renters from rental scams or foreclosures. The site allows renters to perform background checks on their prospective landlords to see if they actually own the property and have no financial issues.

“As we developed the CheckYourLandlord.com service, we realized that much of the same information could be highly valuable to real estate agencies,” said creator and general manager Michael Schaffer.

Schaffer says Realtors® in today’s market often look for new ways to build long-term relationships with clients and find themselves in the position of being a renter’s agent.

“Realtors® are aggressively seeking business in this tumultuous market and may expend time and money marketing properties whose owners have not been up front about their loan status,” he said.

Schaffer says in most cases property owners are not required to disclose to potential renters if the property is in default. Renters aren’t exempt to foreclosure. When landlords default on their mortgage, tenants could be forced out of a place to live.

“By offering your rental clients a CheckYourLandlord.com comprehensive landlord verification report, they will have peace of mind they are making a smart rental decision and proof you are deserving of their trust and future business,” he added.

A typical landlord verification report gives the following information:

• Verification the landlord actually owns the property
• Determines if there are any notices of default, pending foreclosure actions or adverse liens against the property
• Obtains information on any additional owners of the property
• Checks for prior civil and criminal actions, bankruptcies, liens and judgments against the landlord.

“Potential tenants can’t run credit checks on a landlord,” said Schaffer. “We provide the next best thing to running credit checks. We legitimately obtain public records and it doesn’t require permission of the property owner.”

Information available from these reports will vary by state but includes a criminal check, tax liens on the property and bankruptcies filed. As a public service, Checkyourlandlord.com offers renters the ability to check for pre-foreclosure notice on a property for free.

“Today’s renter is tomorrow’s buyer,” he said. “Show your clients they are important to you and they will become buying clients.”

Brett Woodburn, Esq.

Once upon a time, not so very long ago, there was a boom in the real estate market.  While the overall real estate market has cooled, there is one facet of real estate that is still booming – gas.  Or more specifically, the conveyance and leasing of gas and oil rights in the parts of Pennsylvania that overlay the Marcellus Shale Shelf.

Though the practice is regionalized, real estate brokers have been preparing deeds from time in memoriam.  In fact, the Pennsylvania Supreme Court recognized (in 1934) that, “there can be no objection to the preparation of deeds…by such [real estate] brokers…”  To many, drafting deeds is (generally) a straightforward process in which the drafter merely copies the language from the prior deed. Now comes the gas boom… If the seller wants to reserve (or except) the gas and oil rights to himself, then all the drafter has to do is add a sentence or two reserving (or excepting) the oil and gas rights.  Right?

Not so fast.

Before the 20th Century, the law recognized three “kingdoms” — animal, vegetable, mineral.  In those days, it was understood that language reserving ‘mineral rights’ included any attendant gas and oil rights.  However, in 1882, the Pennsylvania Supreme Court dramatically altered the law when it held that a reservation or exception of “minerals” in a deed reserving that did not specifically mention or include natural gas and oil rights created a rebuttable presumption that the reservation or exception of the mineral rights did not include natural gas or oil. 

This remarkable change in what had been the established law for many decades came to be known as the “Dunham Rule”. In 1960, the Pennsylvania Supreme Court refined the Dunham Rule by stating that rebutting the presumption that natural gas or oil was not included in a reservation of mineral rights required the parties to the conveyance to show clear and convincing evidence that the reservation of “minerals” was intended to include gas and oil.

If this has been the rule for over a century, why is it suddenly making headlines?

On September 17, 2011, the Pennsylvania Superior Court decided that they needed to have additional evidence to determine whether the scope of a reservation of mineral rights included Marcellus Shale and thus the Marcellus Shale gas.  How can such an argument survive?  In 1983, the legal landscape shifted again when the Pennsylvania Supreme Court was asked to decide a dispute between two parties that owned the distinct mineral rights on the same parcel of land.  In determining which party owned the coal bed gas at issue, the Pennsylvania Supreme Court learned that coal contains certain beds of gas that can only be extracted by a process known as “hydrofracturing”, a process by which water is pumped under extreme pressure into the vein to fracture the coal and release the gas. 

The Supreme Court determined that the gas that rests within the coal is owned by the individual who owns the coal rights, while the gas that has seeped into the surrounding property is owned by the individual who owns that land or the attendant gas rights.  Today, certain owners of mineral rights are arguing that Marcellus Shale gas is akin to coal bed gas since the Marcellus Shale gas can also only be extracted by hydrofracturing.

The Pennsylvania Superior Court discovered that no court in Pennsylvaniahas decided this issue.  As such, it returned the case to the trial court for expert testimony to offer opinions as to whether Marcellus Shale is a mineral, whether Marcellus Shale gas is of the type of conventional natural gas that would fall under the Dunham Rule or if Marcellus Shale gas is similar to coal bed gas so that whomever owns the shale owns the gas.  Individuals involved with real estate and oil and gas rights are watching this decision very closely.  Once the trial court renders its decision, it will almost certainly be appealed back to the Superior Court. 

It may be some time before we have any clear guidance from an appellate court as to where Marcellus Shale and Marcellus Shale gas rights may pass, particularly when excepting or reserving those rights.  For those of you real estate licensees who are also drafting deeds, reservations and exceptions of rights in deeds and reservations and exceptions of rights in agreements of sale, proceed with extreme caution. What if the agreement you prepare or the deed you draft doesn’t meet the parties’ expectations regarding the retention or conveyance of the Marcellus Shale gas rights?

The Pennsylvania Human Relations Act, Federal Fair Housing Act and other Federal fair housing laws are focused on avoiding discriminatory language and practices. These laws prohibit discrimination or preferences based on race, color, religion, sex, handicaps/disabilities, familial status, national origin and use of service animals.

The Pennsylvania Human Relations Commission publishes a list of more than 60 “bad words” or phrases that should be avoided or used very carefully. Some examples include, Asian, black, children, couple, “empty nester”, “ideal for …” , immigrants, “mixed community” or retired. HUD publishes a similar list of words that may convey overt or tacit discriminatory preferences, including words or phrases like Catholic, Puerto Rican, “physically fit”, singles, exclusive or traditional.

It is important to keep in mind that driving directions or other written descriptions may be construed as having a discriminatory impact or intent. For example, references to landmarks or locations that may be associated with a particular race or religion also should not be used. Descriptions that make reference to facilities or organizations that are used exclusively by one sex also may indicate a preference that is prohibited under fair housing law.

Selective use or distribution of advertising also could result in illegal discrimination. Selective geographic advertisements by way of a limited area of distribution or selective placement location may be discriminatory. Selective use of the equal opportunity slogan or logo may be discriminatory, such that advertising that disproportionately impacts consumers of certain races and religions does or does not include the slogan or logo as a general practice. Selective use of human models in advertising materials may be discriminatory, such as exclusively using members of one race or sex, or only including children for certain neighborhoods.

The key is to be aware of the general categories or types of words or uses that may be discriminatory and to seek help when you aren’t sure in a particular situation.