New Case Holds Different Salespersons Under the Same Broker Are Dual Agents
It is well established that a dual agent owes a fiduciary duty to both the buyer and the seller. This case ruled that when a buyer and seller are working with different salespersons in the same brokerage – even different offices – that both the broker and the salespersons are dual agents. Therefore, the case held that whether the broker is a natural person or a corporation, the salespersons on either side of the transaction owe a fiduciary duty to both the buyer and the seller.
California Appellate case: Horiike v. Coldwell Banker Residential Brokerage, filed April 9, 2014, Second District, Div. Five, 225 Cal.App.4th 427; 169 Cal.Rptr.3d 891
As in many real estate disputes, the facts in this case relate to square footage. The house, while listed with the broker, had fallen out of escrow from a prior purchase contract with a buyer also represented by this broker. In that prior escrow the person acting as the listing agent had passed along to the buyer information that the actual square footage was in some dispute, and in a hand written note advised the buyer that they should confirm the actual square footage for themselves.
While still listed with this same broker a new buyer, also represented by the listing office, entered into a new contract to purchase the property. However, while the person acting as the listing agent gave them the information on the different accounts of square footage, that person did not include the handwritten note to the second buyer to confirm the square footage for themselves.
The buyer sued the listing salesperson and broker but did not name their own buyer’s agent from the same firm in the suit. The trial court judge ruled that the broker and the listing salesperson did not owe a fiduciary duty to the buyer. The jury exonerated the listing agent and broker on all misrepresentation claims.
The appellate court reversed and found that the broker, and therefore the listing agent, owed duties to the buyer. Coldwell Banker has filed for a hearing before the California Supreme Court and C.A.R. is filing a letter in support of the Court accepting the case for review.
NEW IRS LETTER
IRS Issues Short Sale Tax Clarification
After receiving comments from California tax practitioners and its own review of California law, the IRS has issued a clarification to its September 19, 2013 letter to Senator Barbara Boxer concerning short sales and taxes on the forgiven debt. The new IRS letter indicates that forgiven short sale debt is not subject to cancellation of debt (COD) income only if it is non-recourse at its inception and that their prior letter was overly broad.
In their new April 29, 2014 letter, the IRS states that in order for a debt to be non-recourse at the time of the short sale, the original debt must be used to purchase or build a 1-4 principal residence or a refinance of such debt. As in the prior letter the IRS affirms that a lender’s forgiveness of such debt in a short sale will not result in COD income, but instead will be treated as capital gains. And as before, single or joint tax filers selling a principal residence can use the appropriate $250,000 or $500,000 capital gains exclusion.
What changed is that a loan used to substantially improve the taxpayer’s principal residence may now be treated as COD income instead of capital gains. Additionally, the IRS clarified that an investor’s short sale debt will also be characterized by the nature of the debt at inception. If it was recourse debt (non principal residence purchase) originally, it will remain recourse debt at the time of the short sale. This may be somewhat good news for investors who may prefer to have short sale debt treated as COD income rather than capital gains. COD income may be avoided under a claim of insolvency where capital gains cannot.
C.A.R. will continue to seek additional clarification about some issues not addressed, such as a taxpayer’s reliance on the IRS’s prior letter, and whether forgiven home improvement debt should not also be excluded from COD income. As always REALTORS® must advise their clients that they cannot give tax advice and that the client should seek tax advice from a qualified tax professional. A copy of the letter from the IRS is available for reference.
New E&O Information Resources Available
Is your business protected with real estate errors and omissions insurance? Do you have gaps in coverage? What happens if there is no “tail coverage”? What are common insurance terms and exclusions? The Legal Q & A, “E & O Insurance for REALTORS®” and the booklet titled “Real Estate Broker’s and Agent’s Guide to E & O Insurance” may be accessed for assistance. RealCare Insurance Marketing, Inc. is the only C.A.R.-endorsed insurance broker, and works closely with the Association and the C.A.R. Strategic Defense Panel attorneys to provide comprehensive and competitive coverage for C.A.R. members. Call (800) 939-8088 or go to: http://www.realcarecar.com/.
The Finance Helpline May Help Break Through Transaction Roadblocks
Do your members have financing questions? Do their transactions stall due to financing roadblocks? C.A.R. now has a direct line to lenders and servicers! Your members can get help with financing assistance including: short sales, funding, REO’s, Deeds in Lieu, and more.
C.A.R. wants to help make difficult transactions easier for all REALTORS®. The C.A.R. Finance Helpline is an invaluable opportunity and FREE MEMBER BENEFIT for all C.A.R members to prevent and settle financing difficulties quickly. Help prevent roadblocks from occurring! Have your members contact the C.A.R Finance Helpline: http://finance.car.org, Financehelpline@car.org or call us at 213-739-8383.