Introduction. As most Oregon Realtors® know, the OREF Sale Agreement provides that, subject to certain exclusions, all disputes that cannot be otherwise amicably resolved must be first mediated. If that isn’t successful, recourse is through mandatory arbitration. The filing of legal actions in court is not permitted except in cases seeking “provisional process” e.g., for injunctions, restraining orders, and similar matters requesting immediate and extraordinary relief.

The Portland Metropolitan Association of Realtors® (“PMAR”) has its own mandatory mediation process, where disputes involving transactions handled by one or more PMAR Realtors® must first be filed. If mediation is unsuccessful, the only other venue for resolution is through Arbitration Service of Portland, Inc (“ASP”). ASP administers all other non-PMAR mediations for disputes arising under the Sale Agreement.

In some of these seller-buyer disputes, one or both Realtors® may be named because a claimant feels their broker, or the other broker, or both brokers, engaged or participated in activity that caused them damage.

The Sale Agreement’s mediation/arbitration dispute resolution process involving Realtors® is not available to resolve claims for violation of the NAR Code of Ethics. Those are handled at the local Realtor® association level. Similarly, claims against brokers for violation of Oregon’s licensing laws and rules (ORS Chapter 696 and OAR 863) must be filed through the Oregon Real Estate Agency

The 2021 ASP Statistics. Annually, ASP provides PMAR with its arbitration statistics to assist in helping the industry better understand the type of property disputes that end up in arbitration. What follow is a summary of those disputes and Realtor® tips to avoid them.

Seller Misrepresentation Claims. Caveat: This discussion relates only to the topics, not the outcomes. Having several of these claims end up in arbitration does not mean they all resulted in awards for the buyer against the seller.

Unquestionably, over the years, this has been the largest source of claims ending up in arbitration. Moreover, they often include the seller’s broker. This joinder of parties, i.e., naming the seller and their listing agent as co-respondents, should not be a surprise. Oftentimes, it is the listing agent to whom the seller confides, and (unfortunately) the listing agent wittingly or unwittingly, acquires information that provides the basis for a buyer’s claim against that broker.

For example, in completing the Sellers Property Disclosure Statement (“Disclosure Form” or “Form”), sellers turn to their agent to better understand how to answer particular questions: Below are some examples of Disclosure Form questions[1] – coupled with a typical inquiry the seller might have of their broker before finalizing the Form:

  •  Are there problems with settling, soil, standing water or drainage on the property or in the immediate area? “I had some problems last year, but they all got resolved. Do I need to answer “Yes”?
  • Are there any pending or proposed special assessments? “There have been some recent owner complaints to the HOA about ceiling leaks in their units – but not mine. Contractors are looking at things right now. So far, there have been no assessments proposed, nor assessments made. How should I answer?”
  • Are there any encroachments, boundary agreements, boundary disputes, or boundary changes? “My neighbor told me he thought my fence was on his land, but he never asked me to move it. We have no dispute. Do I need to answer ‘Yes’”?
  • Are there any moisture problems, areas of water penetration, mildew or moisture conditions (especially in the basement)? There are some leaks in the basement during the winter months, but they all go away when the rains stop. Do I have to answer “Yes” even though they are not really a ‘problem’ and are just temporary?”

The “Situational Ethics” Problem. Each of the above property disclosure questions might be answered differently if asked of a seller versus asking the prospective buyer. The seller who does not disclose (or “under-discloses”) may believe they are answering appropriately by strictly interpreting the scope of the question subjectively. E.g., “Yes there was a problem, but it was repaired”; “No, there is no ‘dispute’“; “No, it has not been a problem.”

But how would the seller respond to the following: “If you were a buyer wouldn’t you want to know these things – i.e., letting the buyer decide whether the issue is important in their purchasing decision?”

The minute the listing agent becomes involved in salving the seller’s conscious for not disclosing an issue because the framing of the question didn’t strictly require it, the agent has, figuratively speaking, left their “fingerprints” on the Disclosure Form, which provides a basis for including them in the claim.

The Take-Away. Buyer claims of nondisclosure against sellers and their brokers are primarily – but not exclusively – the result of information the seller could have disclosed but elected not to.

To be fair, however, some fault can be placed on the spectacularly poor and inconsistent drafting of the Disclosure Form – keeping in mind that the text is a product of legislative drafting, not OREF drafting. Time does not permit examples, but there are many.[2]

Also, sometimes seller nondisclosure claims can be traced back to other, less culpable, factors: E.g., (a) Information that was beyond the scope of the Form’s questions; (b) The seller made a good faith error;[3] (c) The buyer already knew or should have known of the defective condition; or (d) Any number of other reasons unrelated to an effort to intentionally conceal information from the buyer.

For listing agents and their sellers, there is One Rule: “If in doubt, disclose.” There is no such thing as saying too much. Or to put a finer point on it, sellers should make the same level of disclosure in answering the form as they would want if they were buyers reading the form. This approach is also known as The Golden Rule. “Disclose, Disclose, Disclose.” Let the buyer decide what is important to them.

Specific Performance Claims. The second largest category in ASP claims relate to buyers asking the arbitrator to require the seller to complete the transaction. This is called “specific performance” which is really the name of the remedy sought for the seller’s breach of contract in refusing to close the transaction.

Since money damages are not really sufficient to fully compensate a prospective buyer, specific performance is the preferred remedy – especially in times of limited inventory when a suitable replacement property is not available. These claims do not normally include the listing broker.

In many specific performance cases, though not all, the reason a seller declines to close the transaction is because they believe they underpriced the property, and/or have a back-up buyer for a better price. Occasionally, sellers decline to sell because they cannot find a replacement home and refuse to close under the misguided belief they can unwind their first transaction.[4]

If the Sale Agreement is clear on its face, the buyer has complied with its terms, and is ready, willing and able to perform, there is a potential claim for specific performance against the seller.

Earnest Money Disputes. The third largest area of contested cases involve earnest money disputes. These situations arise because either the seller or buyer believe the other side breached the pre-closing terms of the Sale Agreement. Examples include the failure to timely deposit (or provide proof of ) funds; the failure to timely secure financing; and untimely rejection of the property inspection report. There are many others.

Although these claims do not normally include a party’s broker, there are things agents can do to reduce such disputes: (a) Know all deadlines; (b) Discuss them with the buyer and seller; and (c) Make sure both agents agree on the same deadline dates.

Why Are There No Seller vs. Buyer Damage Claims In Arbitration? The answer is found in the OREF Sale Agreement – and almost all other contracts for the sale of real property. The earnest money deposited by buyer into escrow is expressly intended to serve as the seller’s agreed-upon “damages” in the event buyer fails to perform. This pre-agreed sum is known as “liquidated damages” i.e., it is stipulated to be the amount the parties have agreed upon in advance, as representing seller’s damages caused by buyer’s default.

This can be a two-edged sword. If the buyer breaches early in the transaction, the earnest money deposit may far exceed seller’s actual damages (assuming seller can quickly resell the property); but if the buyer breaches late in the transaction and the seller had moved out of the property and relocated elsewhere, their actual damages may far exceed the stipulated damages represented by the deposit. In either case, since the sum has been agreed to in advance, with the proper recitals in the Sale Agreement it is the maximum amount seller may recover for buyer’s nonperformance – nothing more.

ConclusionAre the number of disputes that end up in mediation and arbitration going up, down, or staying the same? That question cannot be answered as it is framed. The reason is that, there should be an inverse relationship between the numbers in mediation and arbitration. That is, the more mediations there are, the fewer arbitrations there should be. To put it another way, mediations, if properly conducted, should have a prophylactic or lessening effect on the number of arbitrations. That has been the case ever since the mandatory mediation clause was instituted in the OREF Sale Agreement circa 1997.[5]

~ Phil

©Copyright 2022 QUERIN LAW, LLC. Phillip C. Querin

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[1] There are too many to list here. The failure to include them is not to minimize their importance.

[2] Drafting of legislation is often the product of committees composed of stakeholders. How many iterations the final product went through  – how many drafters reviewed each one – or how many last-minute changes were made with little or no oversight, is unknown. Clearly, the Disclosure Form contains inconsistent and conflated language. [See discussion at: https://q-law.com/oregon-sellers-property-disclosure-conundrum/]

[3] To be clear, the statute, ORS 105.464, provides that the seller’s answers are based upon their “actual knowledge of the property at the time of disclosure.” Technically, if that knowledge is the result of a good faith error, it cannot (or should not) form the basis of a claim against seller. The representations in the Form are not warranties.

[4] In these situations, sellers should include a well-drafted contingency making the sale transaction subject to the purchase and closing of the replacement property. However, this requires careful drafting; some buyers may not want to wait for the seller’s purchase to close before allowing the contingency to expire. Sellers should be encouraged to consult with qualified legal counsel before entertaining offers.

[5] The reason is because for over 20 years, the mediation clause in the OREF Sale Agreement has contained a provision that if a party failed or refused to mediate first, they could not recover attorney fees later in arbitration, even if they prevailed. This became a significant incentive for recalcitrant parties to first try to settle their disputes in mediation. It worked.

Introduction. For many years before Covid, when Portland Metropolitan Association of Realtors® (“PMAR”) had live New Member Orientation (“NMO”) seminars, I spoke about real estate basics; the Sale Agreement, contingencies, financing, professional inspections, etc.

One of the topics of discussion included title insurance. I would routinely ask the new licensees for a show of hands of those who looked over the preliminary title reports (“PTR”) when they came in after an escrow was opened. Only a very few hands were ever raised.

To be clear, it is my opinion that review of the PTR is not a standard of practice or standard of care for Oregon Realtors®. They are not expected to be title experts. In other words, a broker’s failure to review the PTR is not, standing alone, client negligence or a breach of fiduciary duty.

However, if they do review the PTR, agents should never render an opinion to clients about whether title is “clear” – nor should they opine about the legal effect of the Special Exceptions to title appearing the PTRs.

If all this is true, then do Realtors® need to concern themselves with title insurance at all? Can/should they just ignore the issue entirely during their transactions? The answer is an emphatic “No.” Title insurance is included in all broker pre-licensing training for a reason.

It is an integral part of every real estate transaction, although the role title insurance plays in the pre- and post-closing process is not widely understood by sellers, buyers, Realtors® and attorneys.

The real experts are the title officers who examine the title and sign the PTRs. However, they cannot serve as the parties’ experts or attorneys. Rather, the title officer’s role is to review the public record information on the subject property that is provided by their title plant,  evaluate it, and  make sure it is accurately disclosed in the PTR. When appropriate, title officers are available to answer questions about the listed Special Exceptions, as explained below.

In the standard property transaction, the Sale Agreement gives buyers a fixed number of business days to accept or reject the information in the PTR. This contingency is one of several available to buyers after their offer has been accepted. Upon timely objection to title, the buyer is entitled to terminate the transaction and receive a full refund of the earnest money deposit.[1]

The Conundrum. But here’s the rub: If most buyers do not understand the information disclosed in the PTR, and their brokers are equally unclear, what purpose is served? How is the buyer to know whether to opt-out of the transaction (i.e., exercise the title contingency), or remain in the transaction (e.g., waive the title contingency)? Calling the title company to get direction on how to proceed will likely result in the response, “We cannot issue legal advice” – which is correct and appropriate.

The good news is that pursuant to the OREF Sale Agreement, a buyer’s failure to timely object to the information in the PTR during the contingency period does not mean the seller is free to convey unmarketable title to the buyer.[2] However, this does not mean that certain exceptions to title, such as recorded CC&Rs or easements, are meaningless and don’t need to be reviewed during the allotted contingency period. I will explain below.

 Is Title Insurance Truly “Insurance”? To answer this, we first need to define the concept of “insurance.” When we think of fire insurance or auto or health insurance, we think of a policy that provides benefits, usually compensation, in the event of an unexpected occurrence. This loss, such as a fire, collision, or illness, is the “risk” that is insured against. No one, the insurer or insured, actually knows if or when it will occur.

But protection against unknown risks cannot be strictly said of title insurance. The reason is because title insurance is not really based upon the standard concept of “risk” as described in other insurance policies.

In standard insurance, the company bases its evaluation of risk, and ultimately its cost to the consumer, upon actuarial or statistical evaluation. The company, knowing the odds, charges a premium designed to compensate it for taking the risk. But as discussed below, with title insurance, the company is permitted, in the vernacular – to hedge its bets. Some may disagree with this characterization. Regardless of how the issue is framed, typical loss and loss-adjustment expense ratios are 4% to 13% for title insurers, compared with the 65% to 85% in the property/casualty industry.[3]

How Title Companies Hedge Against Risk. When escrow is opened, the title company closely examines the public record to determine if there are any encumbrances (aka “defects,” or “clouds”) against the seller’s title. These encumbrances normally take the form of:

  • Financial matters, such as mortgages (i.e., “trust deeds” in Oregon), judgments, taxes, assessments, or other charges against the property that must be paid to be removed from title; or
  • Nonfinancial matters, such as easements, deed restrictions, or other limitations on the use of the property that typically cannot be removed.

Both matters are identified as “Special Exceptions” in the PTR and are not covered by the company’s policy of title insurance. They are excluded (i.e., “excepted”) from coverage. This means that if the insured buyer closes their purchase and goes into title, these encumbrances do not go away – they impact the title going forward.

Then What Services Do Title Companies Provide? If after finding and identifying the Special Exceptions, the company excludes them from insurance coverage, what risk are they undertaking? For what are they being paid? They just eliminated all the risks!

Title companies provide several important services to buyers. The main one is examining the chain of title and disclosing all of the matters of record affecting of the subject property.

Examination of Title. As noted, they examine the record title and disclose the information to buyers in the PTR. This includes the (a) names of the owners of fee title (hopefully the sellers whose names appear in the Sale Agreement) and all the recorded matters affecting title. This information has value to buyers, since there is no other efficient or cost-effective way for them to find out if their seller’s title is marketable, i.e., it is free and clear of objectionable liens and encumbrances, and therefore capable of being legally conveyed.

Once this information is disclosed, it is up to the buyer to decide how to proceed. If the Special Exception is financial, such as a recorded trust deed or judgment, the buyer would normally demand that the encumbrance be paid off before closing, thus removing it as a charge against the property. If it is non-financial, such as an easement or deed restrictions (“CC&Rs”),[4] the buyer should review them and decide whether they are acceptable.

 So, When Does The Title Company Ever Pay a Claim? Question: If the company reviews record title and then excludes from coverage every risk arising from that record, why would any claims ever be filed?

Answer: Because errors can occur during the examination of title. If the company misses a recorded encumbrance, such as a $25,000 judgment lien, it does not show up as a Special Exception on the buyer’s title policyi.e., it remains on the buyer’s title after closing. Thus, the buyer would have a “claim” against the title company for the error, who must then do what is necessary to remove it from title. Normally, that would mean paying off the judgment creditor and seeing that a Satisfaction of Judgment is recorded. Voila’! The buyer’s title is free of the encumbrance.

If the title company misses a non-financial encumbrance, say recorded CC&Rs, the buyer’s “claim” is more problematic, since the insured would have to establish that because of the company’s oversight, their title suffered a loss in value due to being encumbered by the recorded (but missed) CC&Rs. But most CC&Rs do not negatively impact the marketability of title, so it is hard to say any monetary loss is suffered by the owner. Accordingly, it is these nonfinancial encumbrances of record that need to be reviewed by buyers during the title contingency period. They could cause problems to certain buyers since they will remain on title if not objected to within the contingency period. An example might be a deed restriction against operating a day care facility on site or conducting certain other types of businesses.

Remember, the Sale Agreement is quite clear that the failure to timely object to a Special Exception during the contingency period constitutes a waiver of the right to do so later (subject only to the marketable title exception). Silence is consent.

However, there are some non-financial encumbrances that if erroneously missed in the title examination and therefore not listed in the Special Exceptions (such as a non-probated estate a hundred years ago), could result in a claim against the title company because there are heirs of the estate who might still have an unreleased interest in the property. This type of error would require the title company, at its cost, to locate the living heirs to obtain deeds (e.g., quitclaim deeds) from them, releasing their interest in the new buyer’s property.

ConclusionThe take-away is that if it has done its job correctly, the title company will have accurately reviewed and disclosed all public record encumbrances (financial and non-financial) in the PTR and subsequent title insurance policy as Special Exceptions. Ergo, there are no known persons with any interest in the property being conveyed – it is free and clear of objectionable liens and encumbrances.

But if it has not done its job correctly, it is likely due to the examiner’s failure to “catch” some defect in the record title and disclose it as a Special Exception.

Thus, loosely speaking, title companies are really just warranting their work; figuratively speaking, they tell their insureds that “What we’ve disclosed to you in the PTR and final policy as ‘Special Exceptions’ represent everything on the public record affecting your title.” If they are correct, their insured has been fully informed and there are no claims. If they are wrong, i.e., some recorded encumbrance has not been listed as a Special Exception and it was not caught before closing. In those instances, the company must deal with their insured’s claim under the terms of the policy.

 Two things of note:

  • There are also “Standard Exceptions” in the PTR and final title policy. If a loss arises from an event that falls within one of the Standard Exceptions, there will also be no title insurance coverage.[5] However, in most instances, these exceptions from coverage can be mitigated in advance by specific due diligence precautions taken by buyers. This is a topic for another day.
  • Additionally, there are some isolated circumstances that title companies expressly cover in their policies, such as forgery, impersonation, lack of capacity, failure of a necessary party to join in a deed, and other events which cannot easily be discerned from the record title. These can be characterized as “risks.”

Confusing? Yes. The interesting question is, given the complexity of title coverage, and the fact that most buyers in Oregon do not hire qualified attorneys for assistance, why so few title problems occur?[6] To a degree, this is attributable to good escrow officers, who can proactively spot problems, and good title officers, who are accessible to the parties – and their attorneys – when questions arise.

For a more in-depth discussion of these and other title issues, see Title Insurance 101, here, and Title Insurance 201, here~ Phil

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[1] See Section 9 of the OREF 2021 Sale Agreement.

[2] See Lines 154-155 of the OREF 2021 Sale Agreement. “However, Buyer’s failure to timely object shall not      relieve Seller of the duty to convey marketable title to the Property pursuant to Section 28 (Deed), below.”

[3] Rating Title Insurance Companies, AM Best, 2016. See link, here.

[4] It is these easements and use restrictions that buyers need to review within the title review period to make sure they do not contain any unacceptable provisions. They will not go away after closing.

[5] E.g. governmental regulations; title defects known to the insured; matters that a correct survey would disclose; unrecorded liens; parties in possession.

[6] It is important to know that most western states rely upon title insurance companies to examine title, while in the Midwest and east coast, lawyers check title. For this reason, the use of lawyers in residential real estate transactions is not commonplace where title insurance companies do the title examination such as Oregon and Washington.

Discussion. The short answer is “Yes.” But the longer answer requires more explanation. First, a caveat:  By “review” I do not mean by the listing agent for the purpose of substantively changing a seller’s answers. Rather, by “review” I mean “review for completeness.” Oregon’s property disclosure statute, ORS 105.464, instructs sellers to:

“Please complete the following form. Do not leave any spaces blank.” (Emphasis added.)

Accordingly, it is my belief that brokers for both sellers and buyers should routinely review disclosure forms to confirm they are complete in two respects:

  • To make sure there are no unanswered questions. The choices are “Yes,” “No,” “Unknown,” or “Not Applicable;” and
  • To make sure that if an asterisk (*) appears next to a question, the requisite written explanation is attached.

The disclosure statutes provide that buyers have five business days[1] after their seller’s delivery of the form to “revoke” (i.e., withdraw) their offer, based upon a “disapproval” of the seller’s information provided in the form. The buyer’s notice of revocation must be written and delivered, but there is no required wording. “I disapprove” will suffice, if timely made.

Questions:

  • What if one or more questions are left unanswered or the required explanation is not attached?
  • Has the form been “completed”?
  • And if not completed, does the buyer’s five-business day period for revocation still commence on delivery?
  • If the revocation period does not commence, does that mean buyer’s to withdraw from the transaction runs all the way to closing?[2] See, ORS 105.475(3).

The statutes are silent on these questions.

This discussion is more than hypothetical. I have seen critical questions left unanswered and unexplained; sometimes unintentionally, and other times, likely on purpose. (I will defer for another day the discussion on whether fraud by omission, e.g., silence, is any less venal than fraud by an outright misrepresentation.)

Review By Listing Agents. Most sellers and listing agents would agree that expiration of the buyer’s right of revocation is an important event. Why? Because revocation requires no explanation; it is easy – like buyer’s remorse. Secondly, only after the revocation period expires can the parties get down to the serious business of focusing on due diligence issues.

Accordingly, anything that can prolong the five-business day period, such as delivery of an incomplete disclosure form that gets returned, is a disservice to the seller. For this reason, listing agents should review their client’s disclosure form for completeness before delivery to the buyer or buyer’s agent. The failure to catch an incomplete form before delivery can result in unnecessary delay.

Review By Buyer Agents. Conversely, buyer agents should review the disclosure form for completeness immediately upon receipt. If there are critical questions left blank, or written explanations that have not been attached, the disclosure form should be promptly returned. If that occurs, it should be made clear to the listing agent that the five-business day right of revocation will not commence until the “completed” form is delivered.

However, for buyer agents another critical function exists. In some cases, a seller may answer a question in the affirmative, e.g., that the roof has leaked, or there was water in the basement, but the buyer fails to follow up. Equally problematic is when a seller responds “Unknown” to questions that demand further inquiry. In both instances, buyer agents should encourage their clients to alert the inspector to these issues. This is another reason for review – to be a second set of eyes for the buyer; it is useful for developing a due diligence checklist. If necessary, the seller should be contacted for more details.

The Take-Away. Accordingly, both agents should, at the earliest possible time, review the seller property disclosure form for completeness. Not doing so creates a risk of unnecessarily prolonging the revocation period. Again, this is not to say listing agents should become involved in answering the questions, checking boxes, or authoring explanations. Those responsibilities belong exclusively to the seller. ~ Phil 

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[1] The statutory form found at ORS 105.464 is wrong. It should say “five business days.” The original legislation at Section 1, Chapter 547 of the 1993 Oregon Session Laws provided “five business days.”  Why this error has remained ignored and uncorrected for nearly 20 years is a mystery. We changed the OREF Disclosure form years ago to be consistent with ORS 105.475(1).

[2] This is not to suggest that a buyer could accept a disclosure form, realize it was incomplete, say nothing and retain the right to revoke all the way to closing. A buyer’s failure to act promptly under those circumstances would likely operate as a waiver or estoppel against them.

Introduction. Oregon’s property disclosure law was first created in the 1993 Legislative Session – nearly 30 years ago. This was back when the idea of sellers having to “disclose” any information about their homes was a foreign concept. Short of outright fraud, caveat emptor[1] was the rule of the day. Of course, if a seller intentionally misrepresented the condition of their property, it was actionable – but sellers were not then required to make any disclosures, thus leaving buyers to learn as much as they could about the property on their own, before making an offer.

In fact, the concept of “disclosure” was so foreign at the time, that the Oregon legislature gave sellers the right to select between it and “disclaimer”. Thus, residential sellers had a choice between using one of two forms: (a) They could either answer a series of statutory questions about the property (“Disclosure”), or (b) tell their buyer nothing (“Disclaimer”). To lawyers advising their seller-clients, this was a no-brainer – always disclaim.

Both forms permitted buyers a fixed period of time following delivery of the disclosure of disclaimer form to withdraw from the transaction (called the “right of revocation”). This will be examined more closely in Part Two.

It was not long before the Disclaimer option eventually disappeared. Today, the law provides that unless exempted (e.g., new construction sales; sales by court-appointees; foreclosure sales, etc.), all sellers of one-to-four family homes (including condominiums and townhomes) are required to give their buyers a Seller’s Property Disclosure Statement (“SPDS”).

Seller Property Disclosure Today. Fast-forwarding to today, we see that some things have not changed. Most of the questions in the SPDS remain the same; many are poorly worded and suggest that each section was drafted by a separate group, each relying upon their own specialty, such as plumbing, heating, cooling, electrical, land use, title, condominium, etc. There appears to have been no effort to follow uniform style and syntax. Inexplicably, after nearly three decades, most of these questions remain unchanged today.

  • Some require knowledge of the law: “Is the property being transferred an unlawfully established unit of land?”;
  • Others require land use knowledge: “Are there any governmental studies, designations, zoning overlays, surveys, or notices that would affect the property?
  • Some questions refer only to the time of the sale: “Are there any sewage system problems or needed repairs?” This question ignores past problems.
  • Others refer to conditions that could have occurred at any time over the duration of a seller’s ownership: “Has the roof leaked?”

And perhaps the most open-ended of questions comes out of the blue at the end of the form:

  • “Are there any other material defects affecting the property or its value that a prospective buyer should know about?”[2] Not only does this question ask how a defect affects the home’s value (while all other questions relate solely to its condition) it requires the seller to know what issues are important to each buyer – metaphoricaly, it asks sellers to become mind-readers.

I do not suggest these topics are unimportant – but believe that many questions are simply beyond the ability of most sellers to answer with certainty. I suspect that less than 20% of sellers can answer all the questions with any degree of confidence.

The only saving grace in the legislation is that it expressly provides that sellers’ answers are based only upon their “best knowledge”- they are not guarantees or warranties. Thus, being wrong is permissible; it does not automatically make a seller liable; liability may only attach if the buyer can establish (through clear and convincing evidence[3]) that their seller knew an answer was false.[4]

And since most real estate listing agents try to avoid having their fingerprints on the SPDS,[5] many balk at answering their clients’ questions seeking direction or interpretation. This leaves sellers on their own.

Lastly, the SPDS form and its enabling legislation contain one glaring 28-year-old error. While the language of the form dictated by ORS 105.464 states at the beginning and end of the document that buyers have “five days” from delivery of the disclosure statement to give notice of their intent to exercise their right of revocation, the text of ORS 105.475(1) says that right commences after “five business days” following delivery.

The 28-Year-Old Mystery. How is it that for over a quarter of a century the Oregon real estate industry has ignored the admitted sloppiness of a form it had a major hand in creating?

The oft-quoted meme used to explain this anomaly is that doing so would open up the form to other stakeholders and consumer advocates (e.g., environmental, zoning, fair housing, conservation, noise pollution, etc.) who would expand the list of required disclosures into an unwieldy amalgam of questions – akin to California’s approach to seller disclosure.

Based upon this rationale it’s a wonder the U.S. Constitution was ever amended. Perfect has become the enemy of good. ~ Phil

[To   be continued.]

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[1] “Buyer Beware”

[2] This is like asking a witness on the stand before stepping down: “Is there anything else you have not told the jury that they would want to know?”

[3] The burden of proof for fraud and misrepresentation.

[4] Liability can also attach if the seller “recklessly” made a statement without any basis. This is a more complicated analysis but can be a trap for the unwary seller.

[5] For fear of being brought into a buyer vs. seller claim and accused of having recommended the seller’s answer.

In a recent Housingwire.com article (here) by Kathleen Howley, we learn that the current average 30-year mortgage interest rate of 3.24% is within one basis point[1] of its all-time low of 3.23%. According to article:

Fannie Mae projected last week the average this quarter would be 3.2%, followed by 3.1% in the third quarter and 3% in the fourth quarter.

Fannie Mae is forecasting an average of 2.9% for every quarter of 2021.

Continue reading “Interest Rates Dropping – Again!”

Introduction.  The term “specific performance” is not, as commonly believed, a form of legal action that may be brought for enforcement of a contract.  Rather, it is a remedy for a breach of contract claim because the underlying agreement has not been performed.

In other words, before reaching the issue of the remedy, a court or arbitrator must first conclude that the contract was breached.  If monetary damages for the breach can be awarded, there is no need to award specific performance.  For example, if a supplier promised to deliver me 25,000 widgets on July 1, but only delivered 20,000, the most appropriate damage would likely be to obtain a judgment against the supplier for my cost obtain another 5,000 widgets elsewhere. Continue reading “Specific Performance in Oregon Residential Real Estate Transactions”

These guidelines require the consent of third parties, e.g. sellers, buyers, tenants, buyer brokers, inspectors, appraisers, property managers, contractors, plumbers, and others involved in the home purchase/sale transaction.  Accordingly, they should be provided with a copy of these requirements. Any questions or concerns expressed should be directed to the Supervisor where appropriate.

Screening: All prospective visitors to the home should be screened in advance. Brokerages should create a screening process to be used uniformly for every visitor. See PMAR COVID-19 “Suggested Visitor Screening Questionnaire” below, for example. Continue reading “COVID Protocols For Showing Homes Listed For Sale”

Introduction.  Almost as soon as the COVID pandemic flared up, I began to receive calls asking whether the virus could constitute the basis for refusing to perform under a pending Sale Agreement.  One broker reported that the buyer wanted out of the contract because of “uncertainty”.

These are not altogether unreasonable reactions to performance; after all, we’ve never experienced anything like this pandemic before. However, over the years, comparable issues have arisen, the most obvious being wars, strikes, and natural disasters.  So let’s take a look at how the courts have dealt with these events in the past. Continue reading “Is COVID-19 a Defense to Breach of the Oregon Real Estate Sale Agreement?”

Mortgage rates have just dropped to the lowest level in almost 50 years, compelling both homeowners and home buyers to get off the couch to take advantage of record-level savings on their mortgage.

“The average 30-year fixed-rate mortgage hit a record 3.29% this week, the lowest level in its nearly 50-year history,” said Sam Khater, chief economist of mortgage giant Freddie Mac. “Meanwhile, mortgage applications increased 10% last week from one year ago and show no signs of slowing down.”

To put this record rate in perspective, 3.29% even dips below levels seen during the housing crisis. The average 30-year fixed-rate mortgage dropped to 3.31% in 2012. [More: Go to link here.]

Introduction.  This question is important for at least two reasons:

  1. It determines the time after which neither party can withdraw from the transaction without facing legal consequences; and
  2. It determines the time from which events, such as contingencies, begin and end.

Section 32 (Definitions/Instructions).  Here is what the Sale Agreement says:

(8) The phrase “signed and accepted” in the printed text of this Sale Agreement, or any addendum or counteroffer, however designated (collectively, “the Agreement” or “the Sale Agreement”), shall mean the date and time that either the Seller and/or Buyer has/have: (a) Signed their acceptance of the Agreement received from the other party, or their Agents , and (b) Transmitted it to the sending party, or their  Agent, either by manual delivery (“Manual Delivery”), or by facsimile or electronic mail (collectively, “Electronic Transmission”). When the Agreement is “signed and accepted” as defined herein, the Agreement becomes legally binding on Buyer and Seller, and neither has the ability to withdraw their offer or counteroffer, as the case may be.

Breaking Down The Text of Subsection (8).  Several rules emerge:

  1. Signing alone is not acceptance.
  2. For acceptance to occur (of the offer, the counteroffer, or counteroffer to counteroffer, etc.) it must be signed by the recipient and transmitted to the other side (or their agent).[1]
  3. Until acceptance, an offer or counteroffer may be withdrawn without legal consequences.
  4. Although not expressly stated above (perhaps it should be) transmitting a signed acceptance late, i.e. after the deadline, is not per se’ binding on either party – since the late transmission is a nullity unless the parties expressly agree otherwise, or through performance, act in a manner affirming the contract. In such cases, best practice is for both parties to agree in writing to treat the contract as binding.
  5. It is not sufficient to merely sign an acceptance to make a contract binding – the signed document must be hand-delivered or electronically sent (i.e. email or facsimile) to the party (or their agent) making the offer or counteroffer. Let’s refer to these forms of delivery as “transmission”.
  6. Once timely transmission of the signed acceptance occurs, a legally binding contract is formed. Note that it is “transmission” of the signed acceptance that counts – not receipt by the other party. Thus, if a seller signs their acceptance of an offer and it is immediately emailed back to the buyer or buyer’s agent, the contract is binding, even though the buyer is unaware that the transmitted document remains unopened in their inbox.
  7. Once the contract becomes binding, legal consequences arise: (a) A buyer cannot withdraw their offer without risking the loss of the earnest money deposit;[2] and (b) A seller cannot refuse to close without triggering a specific performance and/or damage claim from the buyer.[3]
  8. Transmission by email is essentially the same as hand delivery. 

Triggering Performance Dates. Once the Sale Agreement becomes binding based under the above rules, the buyer contingency periods are triggered.[4] Item (10) of Section 32 (Definitions/Instructions) provides:

Time calculated in days after the date Buyer and Seller have signed and accepted this Agreement shall start on the first full business day after the date they have signed and accepted it.

For example, if the Sale Agreement became binding on Wednesday, January 15, 2020 – that is, the date seller’s agent transmitted their client’s signed acceptance to the buyer’s agent – calculating a 10-business day contingency period would occur as follows:

  • Thursday, January 16, 2020 – is the first business day of the inspection contingency period;
  • Friday, January 17, 2020 – is the second business day;
  • Monday, January 20, 2020 through Friday, January 24, 2020 are the 3rd through the 8th business days; and,
  • Monday, January 27, 2020 and Tuesday January 28, 2020 would represent the 9th and 10th business days.[5]

Broker Tips on Dates and Deadlines. Below are some reminders to avoid arguments down the road. Both the seller’s and buyer’s brokers should coordinate with each other to confirm important dates and deadlines:

  • Business days do not include weekends or holidays;
  • If a day is listed in ORS 187.010 as a holiday in Oregon OR in 5 US Code §6103 it is not a business day.
  • Don’t get confused with dates the Governor may declare certain days as holidays for state employees – these are days that have been so designated in collective bargaining agreements, such as the Friday after Thanksgiving – which is not listed in ORS 187.010 or 5 US Code §6103.
  • If it does not appear in either the above statutes/codes, it’s not a “holiday” for purpose of the OREF Sale Agreement; if it appears in one of the above lists, it is a “holiday”. Hint: The two lists are the same, except for Columbus Day.
  • Remember that Columbus Day is not a “business day” because even though Oregon doesn’t recognize it in ORS 187.010, it is recognized in 5 US Code §6103; therefor it is a holiday under the Sale Agreement.

If in doubt about a particular day, treat it as a business day, which will have the effect of making the contingency period end too early rather than too late.  [The same rule applies to calculating all important deadlines – better to be safe than sorry!] ~Phil

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[1] Technically, one making an offer (or counteroffer) is called the “offeror” and the one receiving the offer (or counteroffer) is the “offeree”.

[2] The Sale Agreement provides that in the event of a buyer’s default, the earnest money can be forfeited to the seller – but this is the seller’s sole remedy.  This is why listing agents need to be careful about allowing the seller to accept a small earnest money deposit; the lower the deposit, the easier it is for the buyer to walk away.

[3] The Sale Agreement provides that if the seller refuses to perform, the buyer may file a claim asking that the arbitrator make an award of “specific performance” to the buyer, forcing the seller to sell. Significantly, this is not a buyer’s sole remedy; he or she can also seek damages in addition to specific performance.

[4] I say “buyer contingencies” because all of the pre-printed contingencies in the Sale Agreement are for the buyer’s benefit, such as inspection, title, financing, private well, septic, lead based paint. Unless waived or expired, a buyer may terminate the transaction based upon the occurrence of a contingency. For example, a buyer can terminate the transaction under the inspection contingency  by rejecting the inspection report, if properly and timely exercised.

[5] Note that pursuant to item  (13) of Section 10 (Definitions/Instructions), except for calculating the federal lead- based paint contingency period, the last day of the buyer’s inspection contingency period ends at 5:00 PM on January 28, 2020.