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Reason #6457 Why Your Residential Closing Needs a Lawyer at the Table

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Lawyers have war stories.  Stories about deals gone wrong and documents drawn up on a napkin, but missing an essential element.  Most of those stories originate with someone who decides to forgo legal advice (because it’s too expensive) then it costs them a TON of money to right the wrong. Sometimes money cannot fix the wrong, like this war story:

Sellers have lived in their house, in a very desirable town, for about 7 years.  They purchased at the height of the market and when the kids finished with the fantastic school system they decided it was time to downsize. To get ready for a sale, the property was spruced up, delayed routine maintenance addressed and the house made generally ready for the next family.

Typical, right?

Not so fast.

The property hit the market and a potential Buyer expressed interest early on but, with some simple questions.  The property has a driveway providing access to a neighbor’s house and the Buyer enquired as to the exact nature of this apparent easement.  A single, elderly woman did not want to be responsible for snow blowing, maintenance and taxes for anything more than necessary. Incredibly the Seller did not know the answer.

Obviously the potential Buyer needed more information to even assess interest in the property.  So the agent pulled a title search and after much research, including hiring a lawyer, the legal interests were determined.  The Seller learned (for the first time) the easement is permanent, that the tax burden for the property is theirs and responsibility for maintenance their neighbors.

Not a bad outcome, right?

Wrong. By the time it was sorted out, the potential buyer was long gone.  So was the Seller’s appetite for continuing on in the sales process.  Sellers have instead decided to stay on in the town with the great school system (no kids left in the schools) and pay the notoriously high taxes.

What does this mean to you? Well, the Seller was unaware there was an easement that ran with their property, and had no idea who was legally responsible for the upkeep.  Their first inclination when the Buyer asked these questions was to sue their form Realtor if the outcome was not satisfactory.

But what would they sue for?

The standard Realtors’ form agreement of sale, on the very first page says THIS IS A LEGAL CONTRACT. GET A LAWYER. However, most Buyers or Sellers don’t because who wants to spend another few hundred dollars unnecessarily.

Well, if the Sellers fully understood the easement at the time of purchase, perhaps they would have paid less, or during their 7 year tenure at the property, worked out a deal with the neighbor to purchase the strip, relieving them of the tax burden.  Or maybe they would have done nothing differently at all.  In any event any decision would have been an informed decision with the assistance of a lawyer next to them at the time of closing.

Interestingly the Sellers’ initial reaction was to sue their former Realtor.  Okay, but what exactly did that Realtor do wrong?

The first page of their contract of sale says THIS IS A LEGAL CONTRACT. GET A LAWYER. The Realtor’s job is to shepherd their Seller through the process.  It is not their job to interpret the language of contracts, review and offer opinions on surveys or explain title commitments and more importantly exemptions from title policies.  The answer is, the Realtor did their job and did nothing wrong.  The Sellers assumed the responsibility for accepting and understanding the transaction without the aid of legal counsel.

So do yourself a favor in your next real estate purchase or sale – get a lawyer.  Lawyers are not involved in the sales process to slow things down or impede the process, but rather to help you make appropriate and informed decisions throughout the process.

So what happened with the Seller and the easement?  Nothing.  They had been provided with a survey disclosing the easement at the time of closing, the easement was excepted from coverage in the title policy and they have paid taxes (and will continue to do so) on property with a restricted use.  Had they hired a lawyer to guide them through the process, maybe the only difference would be that they fully understood what they owned and the restrictions attached to their new home.

When you make what is likely the biggest purchase in your life, isn’t a few hundred dollars’ a price worth paying to understand every aspect of that purchase?  If you are buying or selling real estate in Pennsylvania or New Jersey, call Bergmann & Good.  We’ll guide you through the process.

Thou Shalt Follow All Legal Covenants

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…or maybe not.

In honor of the Pope’s visit to Philadelphia this weekend let’s discuss a basic commandment of good business practices.  Recently, the Pennsylvania Superior Court wrapped up a case involving the owners of a clothing and shoe store who sued its former employee when the employee left and opened up a shoe store of his own. The former employee had signed a non-disclosure and non-compete agreement, or restrictive covenant, when he started working at the Plaintiff’s clothing and shoe store.  The employee, via restrictive covenant, promised not to steal or reveal Plaintiff’s trade secrets. Restrictive covenants are common in a number of businesses, especially when customer lists, supplier lists or business processes are vital to a business’s financial welfare. Despite signing the covenant the Defendant left his employer, opened up his own store, and used a confidential supplier list to set up his new business.

Seems fairly obvious what should happen next. The Plaintiff sues its former employee for violating the covenant and wins…right?

Not so fast.

The court ruled in favor of the Defendant who violated the covenant. Why? Because the covenant was insufficient to cover what the Plaintiff likely intended.  Specifically, it did not protect this business in this instance. First, the covenant stated the Defendant could not seek or accept employment with another retail company and then reveal Plaintiff’s trade secrets. Defendant avoided this by opening his own store. Pretty slick, right?

The covenant also put the burden on the Plaintiff to prove if its former employee revealed trade secrets such disclosure alone would cause Plaintiff irreparable harm.  Plaintiff also retained the burden to show how the supplier relationships would be adversely affected by the former employee’s exploitation of such information.

Now, don’t panic. Restrictive covenants are very powerful contracts, as long as they are drafted with your specific business needs in mind. In this case, the covenant was not sufficient to stop the former employee from setting up the new business, in direct competition with Plaintiff’s, but there are plenty of ways to protect yourself and your business. Call Bergmann & Good to discuss your business operations and what can be done to protect yourself.

 

Realtor Exposure Under FDCPA For Doing “Good Deed”

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A New Jersey Federal District Court recently refused to dismiss a plaintiff’s claim under the Fair Debt Collection Practices Act (FDCPA) brought against a realtor who took steps on behalf of the landlord-client to try and collect overdue rent from the plaintiff.  As a Realtor you should be aware of this ruling and its potential consequences to keep yourself free from exposure.

 

A landlord took harsh action against the plaintiff, his tenant, who was 10 day delinquent in her rental payment.  The plaintiff/tenant, who was an officer in the US Army, had received a mobilization order which included an annual salary of $84,000.  Presumably in an effort to assist her client, the real estate agent, on behalf of the landlord, contacted the tenant’s military superiors and advised them her rent payment was late. Based on information supplied to them by the realtor, plaintiff’s superiors revoked her mobilization along with the accompanying $84,000 salary.

 

When plaintiff sued both the landlord and the real estate broker under the FDCPA, the broker moved to dismiss, arguing that she was not a “debt collector” as defined under the FDCPA. The FDCPA defines a debt collector as:

 

“Any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due, or asserted to be owed or due to another.”

 

While the broker’s liability has yet to be decided, the court ruled that plaintiff had the right to conduct discovery to determine whether the broker was a “debt collector” under the FDCPA.

 

While it appears the broker may have been attempting to better service the landlord-client, the better practice is to have the landlord collect its own debt or – better yet – refer the landlord to an attorney. Any broker who feels compelled to try to collect rent on behalf of a landlord-client should first become fully conversant with the somewhat labored and intertwined provisions of the FDCPA, and then adhere to its requirements because those who fail to do so could find themselves in expensive litigation in their Federal District Court, which is something no realtor wants.

 

If you have questions about the FDCPA or any other landlord/tenant issues, contact the law offices of Bergmann & Good.  We’re here to help.