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Real Estate Agents Are Personally Liable for Failing to Disclose Mortgage Liens

Updated on December 19, 2014

Real Estate Agents Suffer Backlash for Failures to Disclose

A failure by real estate sales agents to inform buyers about prior mortgages can lead to large damages awards against the agents, a recent court ruling said.

In the case of Getsen Acquisitions LLC, the real estate agent, the sellers and their associates were ordered to pay the home buyer $1,027,266.

As George and Peggy Haber fell behind on mortgage payments for their Encinitas, Calif., home during the last recession, they sought to sell it quickly through a short sale. They were represented initially by a ReMax agent who was not accused of any wrongdoing.

While the short sale was pending, they met two other agents named Eric Zapf and Greg Strange who said they could arrange a deal that would avoid either a short sale or foreclosure. Zapf and Strange told the Habers they could challenge the validity of the debt owed to the mortgage holder, Aurora Loan Servicing Inc. They called the plan an administrative process.

The trial court said the administrative process was actually a form of fraud. Not only did it involve sending baseless documents to the mortgage holder claiming the debt was not legitimate, it also included the recordation of false documents in the chain of title, the court said.

Strange told the Habers they could walk away with money from their property when the process was completed, the court’s ruling said.

The ReMax agent learned about the plan and advised the Habers orally and in writing that it was a scam and a fraud.

The Habers ignored the ReMax agent’s advice and hired Zapf to get their loan modified. His efforts resulted in a Foreclosure Alternative Agreement with the bank that would allow them to make a series of payments to avoid foreclosure.

After a series of questionable fund transfers, the Habers notified Aurora they disputed the validity of the debt.

It was ultimately determined that someone had signed and recorded fraudulent documents that made it appear that the seller's loan had been satisfied and that the trust deed in favor of the lender had been reconveyed to a third party, the court’s ruling said.

Meanwhile, Zapf arranged to sell the home for $1,010,000 to Getsen Acquisitions under a standard purchase agreement. He did not tell Getsen about the disputed mortgage lien on the property.

Getsen later discovered the lien and sued the real estate agents and the sellers.
The trial court ruled the defendants were jointly liable for $1,027,266. An appeals court affirmed the decision.

The ruling said a real estate agent has the same duty as the seller to disclose known facts that materially affect the value or desirability of a property. A failure to make the disclosure means the real estate agent must pay damages.

The case is Getsen Acquisitions, LLC v. Zapf (California State Court of Appeals, July 31, 2014).

Real estate agents' duties include full disclosure to clients.

What is the extent of a real estate agent's duties?

Should real estate agents have to pay court judgments out of their personal funds if they are negligent in failing to disclose liens on property to clients?

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