Chapter 3 we discuss some basic things you need to be concerned with in order to avoid common contractual pitfalls associated Fair Housing, communications and landlord/tenant issues.

CHAPTER LEARNING OBJECTIVES

Upon completion of this chapter, the student should be able to:• Describe the Fair Housing Act of 1968• Give Examples of Discrimination in Housing Discuss Common Pitfalls Encountered by

Real Estate Licensees

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CHAPTER 3

COMMON PITFALLS

Fair Housing Laws as They Pertain to the Showing of Property and Presenting of Offers

It is important for real estate professionals at all times, and especially when showing property and presenting offers, to be aware of the Fair Housing Laws. Awareness of the law can aid in preventing illegal acts of discrimination.

A real estate broker should understand and be cognizant of a term called steering. This is an illegal act of discrimination where a real estate broker will show properties in certain neighborhoods with a certain ethnic mix to buyers of the same ethnicity.

Example of discriminatory behavior in showing homes.John is a buyer’s broker for Susan. Susan is Caucasian. John planned a tour of homes for Susan based on all Caucasian neighborhoods. He did not take into consideration what Susan could afford or the locations that Susan had said she was interested in. Further, he informed Susan before the tour that he was sure that she would not want to see any homes in neighborhoods that were not predominantly white. This is a prime example of steering which is illegal.

Example of discriminatory behavior when presenting an offer.The buyer’s broker, Janet, made an appointment with the seller and the seller’s broker to present an offer she had written for her buyer earlier that day. During the presentation of the offer, Janet told the sellers that she thought both they and their neighbors would be impressed with the buyer since she was also Jewish. This is a prime example of discrimination.

Background for the Fair Housing Act of 1968In 1968, Congress passed the Fair Housing Act. This law, which is administered by the Department of Housing and Urban Development (HUD), protects consumers from discrimination related to almost all housing arrangements within the United States. In the sale or rental of any housing, the law prohibits discrimination based on the following protected groups:

• Race• Color• National origin

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CHAPTER 3 - SECTION 1

COMMON PITFALLS

• Religion• Gender• Familial status• Disability

Fair Housing also includes the discrimination in the obtaining or access to real estate finance (mortgage lending):

• The refusal to offer mortgage loans to persons in a protected group.• The refusal to provide information regarding loans to persons in a protected group. • The setting of different loan terms or conditions for persons in a protected group, such as

different interest rates, points, or fees, or additional documentation.• The use of different criteria in the appraisal of a property owned by persons in a protected

group or properties being sold to persons in a protected group.• The refusal to grant a loan where the borrower is in a protected group or the setting of

different terms or conditions for purchasing a loan where the borrower is in a protected group.

In addition, it is illegal for anyone to:• Threaten, coerce, intimidate or interfere with anyone exercising a fair housing right or

assisting others who exercise that right. • Advertise or make any statement that indicates a limitation or preference based on race,

color, national origin, religion, sex, familial status, or handicap. This prohibition against discriminatory advertising applies to single-family and owner-occupied housing that is otherwise exempt from the Fair Housing Act.

Even though many licensees are not Realtors, the Realtors Article 10 of the Code of Ethics sums it up well.

Article 10 of the Code of Ethics and Standards of Practice of the National Association of Realtors® states that:

“Realtors® shall not deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, or national origin sexual orientation or gender identity. Realtors® shall not be parties to any plan or agreement to discriminate against a person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation or gender identity. (Amended 1/14)”

“Realtors®, in their real estate employment practices, shall not discriminate against any person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation or gender identity.” (Amended 1/14)”

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Importance of Communication with All Parties in a Transaction and Common Pitfalls” That May be Encountered by Licensees

In a typical transaction, there may be many professionals involved. Let’s take a look at some of the most common:

• Seller and their broker• Buyer and their broker• The closing company (escrow)• The lender• The appraiser• The title insurance company• A structural or pest inspector • The management company of a homeowner’s association

As a real estate professional, your role is to play “ring leader” to all of the professionals involved and ensure that there is clear communication among all of you. This communication may be in the form of phone calls, facsimile, e-mail, mail or in person.

There are usually many terms and conditions in a contract and many of them have very specific timelines in which they must be accomplished. Because of the many terms, events and the number of professionals that are involved, clear communication is essential.

Very often, certain events must happen in a sequential manner, so that one event must happen before another can take place. This is where communication is of key importance. Often times a party must be notified that a prior event has taken place, so they can then perform their role in the transaction.

Because of the amount of communication and time involved in a transaction, many licensees hire transaction coordinators. A transaction coordinator’s main role is to communicate with all of the various professionals associated with a transaction, ensure that actions are being completed in a timely manner and that everything is running smoothly. The transaction coordinator may also have the role of communicating the status to the co-op agent, the closing agent, the lender or the clients.

Let’s take a look at a few examples.

Example #1The lender Jane, feels that it is wise to hold off on ordering the appraisal until after the buyer has performed a structural inspection and a pest inspection (even though there is a substantial lead time for ordering the appraisal). Her reasoning is if the property fails the structural

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inspection, and the buyers choose not to purchase, they will not have to pay for an appraisal which was ordered. In this situation, it would be crucial for the buyer’s broker to inform the lender, in a very timely manner, the structural inspection was completed and there were no issues so that the lender could order an appraisal.

Example #2A wind storm causes a tree to fall on a property that is under contract and in escrow. The tree caused major damage to the house, the detached garage, roof, fence and the cement retaining wall. The sellers are insured against the damage. The fallen tree damage requires workmanship from the following persons: a carpenter, electrician, dry wall contractor and retaining wall specialist. Because of the coordination with all of the different contractors, the process will take a lot of time and closing of the transaction will be delayed. The sellers tell their broker about the accident. Their broker, the listing broker, fails to inform the buyer’s broker of this incident. In this circumstance it was crucial for the listing broker to communicate the status of the repairs with the buyer’s broker in a timely manner.

“Common Pitfalls” That May be Encountered by LicenseesMistakes do happen. Let’s explore some of the more common mistakes made by real estate licensees.

Unfamiliarity with FormsForms are one of the most important aspects of real estate. These forms, when filled out and signed by both the buyer(s) and seller(s), represent a legally binding contract between the parties. The statute of frauds states that all real estate contracts in most states must be in writing. Should a dispute arise between the parties, a court of law will place more weight on the written contract than on parol (oral) evidence.

Use only standard forms in the exercise of your duties. Such forms must be reviewed and approved by real estate attorneys. Use extreme caution in adding anything to these standard forms.

Your broker or manager can be an important resource for assistance with filling out forms. Some brokerages offer in-house training for their licensees. Also some multiple listing associations offer courses for filling out forms and on changes to existing forms and new forms. Some real estate schools offer courses both on-line and live lecture on filling out forms.

Your clients will depend on you, as their real estate professional, to not only fill out the forms correctly but to have the ability to explain all clauses in these forms should they have questions before signing.

Not Establishing a System

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It is important to establish a system or series of steps that you should take to carry out certain real estate actions. By establishing a system, you can use these individual steps as a checklist to make sure you haven’t missed anything.

Landlord Tenant Issues and File Storage

Many states have statues and codes which deal with the relationship of a landlord and tenant. These laws or provisions, along with the terms of a lease, govern the relationship and agreement between the landlord and the tenant. In most cases the provisions of the laws cannot be waived by the tenant or the landlord.

These laws also impose certain restrictions and provide remedies if one party fails to carry out a duty. The remedies include eviction, a reduction of rent, self-help repairs, the right to sue for money damages, and an award of attorneys' fees to the prevailing party. 

Other local codes and ordinances may also be imposed. Further information on local ordinances is usually available from the city council.

A lease is both a contract and a conveyance. As a contract the lease specifies the terms and conditions such as the duration of the tenancy, the amount of rent and the responsibilities of the parties. As a conveyance, a lease conveys possession from the landlord to the tenant.

The major provisions of a lease might include the following:

Rental AgreementsWhile not always required to be in writing, it is a safe habit to always have this contract in writing to avoid misunderstandings, and it should contain all of the terms agreed to by the landlord (lessor) and the tenant (lessee).

Rental agreements for furnished dwellings should contain a detailed inventory of furniture or other personal property, along with a description and condition of each individual item.Just because something is agreed to in a lease does not necessarily mean it is enforceable by the landlord. Some clauses may be illegal, such as a waiver of rights.

Rental PrecautionBefore renting property, a tenant should inspect the dwelling to be sure it is in acceptable condition. Before moving in, a list should be compiled of all existing defects or damages, with both the landlord and tenant signing and keeping a copy of this list. Any commitments made by the landlord (such as a promise to perform repairs) should be written directly into the lease.

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Rent IncreaseIf there is a lease for a specified period of time, rent may not be changed during that period. In the case of a periodic tenancy (such as month-to-month rental agreement), the rules, including the rent, may be changed upon 30 days notice. This notice must be in writing. Rent increases cannot be in retaliation for a tenant's assertion of their legal rights. The landlord may charge a late payment fee if the rental agreement provides for the charging of a late fee.

Termination of TenancyIf a landlord seriously violates their obligations under the rental agreement, a tenant may be able to terminate the tenancy without liability.

A landlord must follow very specific procedures to terminate a tenancy as dictated by state or local law.

Requirements for DepositsA landlord may require a deposit to ensure that the tenant treats the dwelling properly and complies with the terms of the rental agreement. Deposit requirements cannot be discriminatory, nor may a deposit be increased to retaliate against a tenant who asserts their legal rights. A nonrefundable fee cannot be called a "deposit." A refundable damage or security deposit must be distinguished from nonrefundable fees for cleaning or pets.

Landlord ObligationsThe landlord must provide and maintain the rental property, and must comply with the rules of the rental agreement. The landlord (or their representative) must be accessible to the tenant and must:

• Keep the premises up to code• Maintain the structural components• Provide a reasonable program for control of pests• Provide necessary facilities to supply heat, electricity, and hot and cold water• Provide reasonably adequate locks• Maintain appliances furnished with the rental unit• Comply with any duties imposed by local laws.

Tenant ObligationsThe tenant must:

• Pay rent on time as agreed upon• Keep the premises clean • Not damage or permit damage to the unit;• Properly dispose of garbage

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• Properly use appliances• Restore the property to its initial condition, except for normal wear and tear at the end of

the rental term• Comply with the rental agreement.

If the tenant fails to perform their duties, the landlord may seek to evict the tenant. If a tenant fails to maintain the premises, the landlord may:

• Evict the tenant.• Make repairs and bill the tenant.• Sue the tenant for damages or to force compliance with the rental agreement.

InsuranceIn most states, unless the rental agreement provides otherwise, the tenant has no obligation to insure the dwelling. However, tenants should consider purchasing renter's insurance on personal property and liability insurance for claims by third parties (such as guests) for personal injuries occurring on the premises, since the landlord's insurance covers only the property itself.

Right of EntryWith tenant consent and notice from the landlord, a landlord has a right of entry to inspect the property, perform repairs, supply necessary or agreed services, or show the property to potential tenants. Entry is limited to reasonable times, and two days' notice of intent to enter is required. A landlord may enter the premises without the tenant's consent if an emergency or abandonment occurs or if the landlord obtains a court order. A landlord may not abuse his or her right of access to the property to harass a tenant.

Eviction The action by a landlord to remove a tenant from a rental unit is known as an eviction or an "unlawful detainer" in most states. Some local housing codes define "just cause" for an eviction and outline procedures that must be followed.

In an eviction based on nonpayment of rent, a tenant may assert any claim for money owed the tenant by the landlord. The tenant's claim (sometimes known as an equitable defense or setoff) must be related to the tenancy, such as the tenant's payment of a gas bill that was the landlord's responsibility under the rental agreement. In eviction actions strict rules and procedures must be observed.

Generally, a legal eviction process involves:• Proper notice. Before evicting a tenant, the landlord must serve the required eviction

notices using proper procedures.• Filing of a lawsuit. If the tenant fails to move out, a lawsuit must be filed to evict the tenant.

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• Entitlement to a court hearing. If the tenant disputes the reasons for the eviction, the tenant is entitled to a court hearing.

• Sheriff's involvement. If the tenant loses the court hearing, the sheriff would then be ordered to physically evict a tenant and remove the property in the unit. Only the sheriff, not the landlord, can physically remove a tenant who does not comply with an eviction notice and only after an unlawful detainer lawsuit has been filed.

• Liability for attorneys' fees. In an eviction dispute, the successful party is entitled to recoup costs and attorney fees.

Prohibited EvictionLandlords are generally prohibited from locking a tenant out of the premises, from taking a tenant's property for nonpayment of rent (except for abandoned property under certain conditions), or from intentionally terminating a tenant's utility service. Various penalties exist for violating these protections. Retaliatory evictions are also illegal. A landlord may not terminate a tenancy or increase rent or change other terms of the rental agreement to retaliate against a tenant who asserts his or her rights under the Landlord-Tenant Act or reports violations of housing codes or ordinances.

Settlement of DisputesThe landlord and tenant may agree to arbitration, asking a neutral party to settle the dispute. The process is usually quick and inexpensive, with the administrative fee shared equally unless otherwise allocated by the arbitrator. Landlord-tenant problems can also be resolved through informal mediation. In mediation, a third person intervenes between two disputing parties in an effort to reach an agreement, compromise or reconcile. Intended to settle a dispute quickly and inexpensively, mediation can be requested by either a landlord or tenant and may be available without charge from a city or a county.

Sales Which Have Contracts That Have Special CircumstancesSome real estate transactions will have special circumstances. Let’s explore some of these special cases and discuss how to handle them.

A Pending Divorce Action There may be a situation when a buyer will want to purchase real property prior to a pending divorce becoming final. If a buyer is involved in a divorce action, the party in the divorce who is not purchasing the property should supply a quit claim deed for the property to be purchased. This allows the purchasing party to purchase the property as his or her sole property and not have to be concerned that the former spouse to be will claim an interest in the newly purchased property. This is usually a requirement of the lender as well. If the former spouse to be is unwilling to sign a quit claim deed, then the purchasing party should consult with an attorney prior to signing any purchase and sale agreement.

There are also times when a couple may want to sell a property prior to a pending divorce becoming final. Both spouses must sign the purchase and sale agreement.

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Partnership or Corporation As a Purchaser or Seller A partnership or corporation may have one or more persons within the organization that is authorized to sign legal documents. As the broker for the buyer or the seller, you should always ask for proof of authorization to sign legal documents. This proof may be in the form of a partnership agreement, articles of incorporation, or an attorney drafted document acknowledged by all the parties or officers of the organization.

Builder or Seller’s Guarantees There are many circumstances where a builder or a seller may provide a guaranty or home warranty for the property that is being sold.

A home warranty is a type of insurance policy which covers limited items in the home (usually major appliances), for a specific period of time (usually one year). The policy may be purchased by the seller, buyer or even their agent. Since 60%-65% all real estate transactions involve disclosure issues (and a huge percentage of these involve many of the items covered under these polices), this is a very wise purchase for a seller. It also is an extra incentive for the purchaser and may make the property easier to sell.

Guarantees usually come in the form of a promise to do something for the purchaser such as replace a roof or fix a hand rail.

For any of the above issues, it is important to make sure that all agreements are in writing.

Pending Foreclosure ActionCheck with your individual state as to the implications of property in a foreclosure action

A Sale Pending Personal BankruptcySome states have an act called the Homestead Act that exempts a limited amount of equity in a home against foreclosures and judgment liens. The purpose of the homestead exemption is to protect the family members from having to evict their home. In some cases, the bankruptcy court may need to approve of the sale.

Real Estate brokers should take extra precautions to ensure that the court has given permission to the homeowner to sell.

Sales Involving Estates If a deceased person dies without leaving a legal will, this person is said to have died intestate. At this point, the courts will appoint an heir to act as the personal representative (PR) for the estate. If there are no known heirs, then the estate will be transferred to the state. This is known an escheat.

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If the deceased died having a legal will, known as testate, then contained in the will are the specifics about the appointed personal representative (PR) of the estate and disposition of the personal and real property of the decedent.

In most states, if the estate is solvent (its assets exceed its liabilities) then the personal representative (PR) usually is awarded “non-intervention powers” which gives the personal representative the power to negotiate, sign and dispose of real and personal property of the estate without direct court intervention or supervision.

In the case where the estate is not solvent (its liabilities exceed its assets) then the PR most likely will not be entitled to a non-intervention order and the PR must seek prior court approval for the disposition of the estate.

When dealing with an estate sale, make sure that proof of an authorized signature for the PR is furnished and that the estate is solvent. Documents produced by the attorney for the estate are the best method of obtaining this information.

Case StudyAunt Sue died testate and her will specified that her niece Marla would be the PR for the estate. Her other niece, Betty, thought that she was sure of Aunt Sue’s wishes and agreed to sell Sue’s home to some nice neighbors down the street. Betty signed a purchase and sale agreement with the prospective purchasers. It did not contain Marla’s signature. The contract was void because Betty did not have the authority to sell the home or sign the contract. Both the listing agent and the buyer’s agent should have required proof of authorization to sign the contract.

Two Methods of Organizing Business Files and ContractsBusiness files and records can be stored either in paper form or electronically. There are advantages and disadvantages to both:

Paper Form

Advantages• Paper files can usually be easily accessed even in the event of a power outage

Disadvantages• Paper files can take up a greater amount of space and unless they are locked up are not

as secure in regards to confidentiality.• Paper files are at risk in a natural disaster or fire

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Electronic form

Advantages• Electronic files can be accessed by multiple users at one time from their personal

computers.• There is greater security with electronic files if passwords are managed correctly• Less prime office space is taken up when files are managed electronically• Access to files can be obtained off site and at any time• Files can be backed up and data can be stored off site in the event of a fire or natural

disaster

Disadvantages• Power outages could prohibit access to the files• Paper files will have to be scanned to be able to store them electronically• Software to manage data electronically can be expensive and personnel will need to be

trained on its use

Case StudyABC Realty Investments uses a software system to electronically store all of their current and past listings and transactions. When affiliates turn in paperwork, the documents are scanned and stored electronically. ABC Realty Investments still keeps copies of the paperwork but stores them in the basement of the brokerage where the square footage is less expensive, thus freeing up prime office space. Licensees are given limited access to their files only on this software for privacy issues. Licensees can view all of the documents in their files from any computer, anywhere.

Check your understandingUse this link to open a short quiz:https://www.bookwidgets.com/play/TRQNF

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