Real Estate Litigation Case Studies
By Kenneth J. Abere, Jr.
Case Study No. 1: Sale of property with home and adjacent piece of vacant land.
Facts: Parcel 1 contained a house on one tax lot. Parcel 2 was a vacant lot with two tax lots divided by a line running north and south.
The property was advertised in MLS as a house with adjacent property that contained two buildable lots. One realtor represented both the buyer and seller. Our clients purchased the property because they felt it was reasonably priced and intended to build two homes on Lot 2 which they understood to be two separate lots.
A. Litigation Procedure. The parties Earnest Money Agreement (EMA) had dispute resolution clauses that required mediation and then arbitration. According to the EMA, if a party refused mediation, they could not submit a claim for attorney fees after arbitrating the claim.
2. Arbitration – Arbitration Service of Portland.
B. Obligations Real Estate Agent.
1. Both seller’s and buyer’s agents fiduciary duties of loyalty, obedience, disclosure, confidentiality to the client and must perform the services with reasonable care and diligence (Exhibit 1, Oregon Revised Statutes (ORS) 696.805 and 696.810) If the realtor is a dual agent, they still must perform their duties with reasonable care and diligence. (Exhibit 1, ORS 696.815)
2. A realtor is precluded from providing services outside their area of expertise. (Exhibit 2 – Article 11, Code of Ethics and Standards of Practice of the National Association of Realtors)
C. Problems Encountered by Agent.
1. Incorrect property description. When property being listed is subject to a prior partition, you need to get the description from the Plat Map.
2. Failure to recognize property subject to a Land Use Ruling (LUR). Plat Map references LUR , puts agent on notice to find out what LUR is.
3. Failure to recognize a tax lot line and a property line may be different. Property that has been partitioned may contain more than one tax lot.
4. Completing property description in listing agreement after meeting with seller, but failing to get seller approval of description. If don’t complete listing agreement before seller signs it, need to have them approve additional language you may add.
5. Agreeing to accept responsibility to confirm whether lot 2 was buildable and failing to get correct answer. Even if you have no duty to provide service, once you agree do it, you must use reasonable diligence.
6. Failing to obtain LUR file at Portland Planning Bureau.
a. Advice City Planner based on computer search.
b. Request formal zoning confirmation letter take 8-10 weeks.
c. Obtain copy LUR file. The most recent three years of decisions are on file at Portland Planning Bureau; older decisions at archives.
7. Failure to recognize “Shadow Plan” not an approved use of the land.
D. Beware of E-mail Communication.
E-mail is a convenient mode of communication, but it can be used against you at later time. If you have a transaction that is starting to become a problem, then treat e-mail like a letter and give the same thought and consideration to it before you send it.
E. Joint and Several Liability.
The liability of a seller and a real estate agent can be joint and several. This means one party can be responsible to pay all damages awarded to a plaintiff and be forced to collect the other defendant’s fair share from them.
Case Study No. 2: Seller Representations.
Facts: Seller represented that her property was hooked up to public sewer when it was not.
A. Seller Representations. All representations based on seller’s actual knowledge, seller has made no investigation.
B. Problems Encountered by Seller. Seller had actual knowledge because never got bill from City of Portland Water Bureau. Relied on representatives of prior seller that the property was hooked up to a public sewer.
Case Study No. 3: Property Line Mistakes.
Facts: Realtor conferred with seller regarding location of property lines for home in Government Camp. The lots in the area have odd sizes that are not as uniform as you often see in a platted subdivision in Portland. Based on a conversation with seller and walking the alleged property lines with the seller, realtor represents incorrect property line.
Facts: Realtor represents buyer who is purchasing property with a home on it that is next to a vacant lot. One of the alleged property lines is a row of arborvitae that has been described by the seller and the seller’s agent as the property line. Based on a conversation with the seller’s agent, realtor represents the arborvitae as the property line, when the property line is actually 10′ closer than the arborvitae.
A. When in doubt, tell your client to get a survey or make them sign an addendum to the earnest money agreement in which they agree that you advised them to get a survey and they declined to get one.
Case Study No. 4: Letting an offer lapse
Facts: Seller wants to sell a 20 acre parcel of vacant land near Eugene, Oregon that is outside the urban growth boundary. Realtor does a market survey and sets a value for the land and seller agrees with the selling price. Seller receives two offers and agrees to sell the property to buyer number 1, who is also a general contractor.
After buyer number 1 agrees to purchase seller’s property, he asks seller if seller would like to buy a home he is building in Springfield, Oregon. Seller agrees and an addendum to the earnest money agreement for the purchase of the vacant land is signed by both parties. However, a second earnest money agreement for seller’s purchase of the house being built by buyer number 1 is not completed at this time.
The listing agreement for realtor expires before closing of the sale of the vacant land. A month before the closing date for the sale of the vacant land, buyer number 2 offers to buy the vacant land for slightly more than buyernumber 1 with several contingencies. Since buyer number 1 is still under contract with seller, the offer by buyer number 2 is accepted as a back up offer.
Buyer number 1 and seller fail to close the sale for the vacant land by the date required by their earnest money agreement because they are negotiating a reduction in the price seller will pay for the home buyer number 1 is building for him. After the closing date for the deal involving buyer number 1, buyer number 2 increases his offer for the vacant land and removes all contingencies. Realtor does not present the no contingency offer from buyer number 2 to seller until after seller signs an addendum to the earnest money agreement with buyer number 1 and a separate earnest money agreement for the home being built by buyer number 1 for seller.
A. Potential problems for Realtor.
1. Having two separate transactions in one earnest money agreement.
2. Does realtor continue to have authority to represent seller when the listing agreement has lapsed?
3. Whether a second offer has to be presented to a seller when the seller is still negotiating with buyer number 1 after the closing date has passed and no extension has been executed?
4. What constitutes a fair valuation of vacant land? Is reviewing comparable sales good enough or is an actual appraisal required?
Case Study No. 5: Zero Lot Line Disclosure
What is a zero lot line? A zero lot line means that the lot line for a structure runs along the foundation of the structure, there is no set back from a separate property line.
Facts: Real estate agent represents the seller of a home. During his review of the home with seller, they both discover that neighbor’s garage encroaches onto seller’s property. Seller tells neighbor that she wants to build a fence on the true property line. Neighbor tells her they own the property by adverse possession and will not consent to fence. Seller gets survey which shows neighbor’s garage encroaches onto her property. Realtor tells seller to get a lot line adjustment and assumes it has been done.
Realtor includes a description of the zero lot line in the Multiple Listing Service listing. He also verbally tells the seller’s agent about the zero lot line, but does not disclose it in the earnest money agreement. Realtor never checked to see that the lot line adjustment had been done. Buyer purchases seller’s home and finds out about neighbor’s adverse possession claim and the encroaching garage.
A. Potential problems for Realtor.
1. Sent a letter on behalf of seller to neighbor regarding resolving their adverse possession claim? Let seller do that herself.
2. Did not confirm whether the lot line adjustment was actually completed, relied on client?
3. Did not disclose the zero lot line in the earnest money agreement? Seller did not have title to the property she represented she was selling?
4. Did not disclose pending adverse possession claim, which would never show up on a title report.
Case Study No. 6: Failure to obtain access easement
Facts: Duplex owner owns a duplex on a lot that has enough land for another home to be built to the north of the duplex. Owner sells vacant land to builder and they orally agree that builder will give owner an access easement to access the north side of the duplex for maintenance and egress to the back yard because the sale of the vacant land has created a zero lot line for the duplex.
Builder subsequently agrees to build home on his lot for Buyer, but does not tell buyer he has agreed to give duplex owner an access easement. After Buyer signs an earnest money agreement to buy house from Builder, she finds out about proposed access easement. We represented Duplex Owner to get access easement from Buyer.
Realtor in these transactions represented Duplex Owner when sold land to Builder, Builder when he sold home to Buyer and Duplex Owner for sale of Duplex.
A. Potential problems for Realtor.
1. Did not negotiate terms of the access easement before sold vacant land to Builder. What does an access easement mean?
2. Did not get access easement in writing and record it prior to sale of vacant land to builder. Has to be in writing to be enforceable.
3. Did not disclose oral agreement to grant access easement to Buyer when sold home to her.
4. Clear conflicts of interest in representing multiple parties on same pieces of properties. Realtor wanted to meet with my client Duplex owner and I told her she could not because we had a potential conflict with her other client Builder over the access easement.
Case Study No. 7: Utility easements
Facts: Buyer intends to purchase home with adjacent lot that has a swimming pool that is diagonally across from the lot with the home but does not actually touch it. Prior owners did not use swimming pool very much, but have access easement across the corner of neighbor’s yard. Seller did not disclose that there was no utility easement to get water and electric to the pool, nor disclose whether there was any existing water or electrical source to the pool.
We represented the buyer and found out there were no utilities running to the pool, (it had been filled with a hose) and no electrical lines. We drafted a utility easement which allowed buyer to run water and power to the pool from her own property.
A. Potential problems for Realtor.
1. Failing to discover whether there was water and electrical service to pool.
2. Failing to disclose that there was no water or electrical service to pool.