If an agent has knowledge that an owner has filed bankruptcy, should this be dislosed to prospective buyers or tenants?
Posted in Real Estate Bloggers By PAM HARDWICK, Sunday, May 24, 2009.The question relates as to the matter of law and ethics concerning whether an a real estate agent should dislose knowledge that the owner of a listed property has filed bankruptcy. Do privacy laws prohibit this disclosure even though bankruptcy is public record? Does Texas real estate law address this matter?
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Submitted by William Staab on May 26, 2009 - 1:37pm.
No if the real estate agent or Realtor is the listing agent as a "Duty of Loyalty" to the Seller. Just as the listing agent has a "Duty of Loyalty" not to disclose to a buyer the seller would be willing to accept a lower price for the property. In most states the listing agent is only obligated to disclose all known facts about the condition of the property itself.
Submitted by PAM HARDWICK on May 26, 2009 - 1:47pm.
Thanks for the great response. But I do feel sorry for tenants who lease properties that are possibly facing foreclosure. Because in most states, the bank is only required to give tenants 30 days notice to vacate. Some have only been give 15 days notice and they are faced with more moving and utility connection expenses.
Submitted by Christi Borden, CIPS, ABR, GRI on May 26, 2009 - 2:01pm.
Our ethics as a Realtor demand that we be "fair" to the other party. I do not think knowingly listing a property that is soon to undergo foreclosure or bankruptcy is being fair to the tenant/buyer. Our Texas listing agreement asks the seller to disclose any liens or such issues that might preclude him from selling the property. If this is not disclosed, then there is nothing the listing agent can do. If it is disclosed prior to listing, then I personally might have to pass on accepting such a listing.
Your Katy, TX Realtor,
Christi Borden, CIPS, GRI, ABR
Prudential Gary Greene, Realtors
Email: Christi@ChristiBorden.com
Web: www.ChristiBorden.com
Cell: 832-372-7470
Submitted by PAM HARDWICK on May 26, 2009 - 3:26pm.
Christi, that's a good point too. The lease listing requires owner disclosure on mortgage or deed defaults at time of listing and also to provide agent updates if the material fact changes. (On a sale if the owner didn't disclose then the title search would reveal, but on a lease not so.) I agree that it seems proper to disclose a bankruptcy (with could lead also lead to a foreclosure)to the tenant. But if the owner has not given permission to reveal, then can a disclosure of bankruptcy be "ethical" and "legal" as it relates to both real estate law and federal privacy acts?
Submitted by Missy Caulk on May 26, 2009 - 3:58pm.
Our listing contracts ask:
Is their any legal pendings against the property which could prevent its sale?
Is the client in bankruptcy?
Is the seller current on all their mortgage obligations?
Missy Caulk
Ann Arbor, MI
Missy@MissyCaulk.com
www.AnnArborRealEstateTalk.com
www.SearchAnnArborHouses.com
Submitted by William Staab on May 26, 2009 - 4:00pm.
True Christi we need to be "fair" to both parties a lien would need to be disclosed as it is a material fact of the property, but the financial status of the seller is not unless they are in a short sale situation and need a mortgage lenders approval or cannot fufill the terms of the contract.
But you have a "Duty of Loyalty" to protect your sellers interests in the transaction if you are the listing agent.
Submitted by Christi Borden, CIPS, ABR, GRI on May 26, 2009 - 4:10pm.
How do you proceed if you get an offer for a lease knowing full well that your client will abscond with the deposit and the tenant faces eviction once the home goes into the impending foreclosure or is turned over to the bankrupcy attorneys? Is that playing fair to all parties?
Yes, I know that I am bound to not disclose confidential information but I am not bound to work for a seller that would put me in such a situation. I sleep at night because of my beliefs and if a client is asking me to do something that I feel is questionable, I bring it to my broker and if I am not still not satisfied, then I would release the seller from the listing agreement. No transaction is worth it!
Your Katy, TX Realtor,
Christi Borden, CIPS, GRI, ABR
Prudential Gary Greene, Realtors
Email: Christi@ChristiBorden.com
Web: www.ChristiBorden.com
Cell: 832-372-7470
Submitted by PAM HARDWICK on May 26, 2009 - 4:34pm.
Since our company specializes in management, all tenants funds are handled through escrow. If an individual agent is providing tenant location services only then the monies go directly to the owner and the situation becomes even more precarious in relationship to the bankruptcy and accountability to tenant.
Submitted by Christi Borden, CIPS, ABR, GRI on May 26, 2009 - 4:43pm.
Dear Pam,
You are correctin that situation does protect the tenant's money but eviction is still a possibility. I appreciate a healthy discussion and hope to hear more from you soon. If ever you find yourself in Katy, look me up.
Your Katy, TX Realtor,
Christi Borden, CIPS, GRI, ABR
Prudential Gary Greene, Realtors
Email: Christi@ChristiBorden.com
Web: www.ChristiBorden.com
Cell: 832-372-7470
Submitted by PAM HARDWICK on May 26, 2009 - 4:44pm.
William: Because disclosure on liens is required in both a lease listing and a sales listing, then couldn't/shouldn't a bankruptcy petition also be disclosed since the bankruptcy is tied with property in county records?
Submitted by PAM HARDWICK on May 26, 2009 - 4:50pm.
christi...sorry for the typo...too long a day. One more thing in regards to a lease listing and owner has filed bankruptcy. There may be a disputed amount owed to the mortgage holder but that is called a "claim" under the bankruptcy schedule and therefore is still a lien. The foreclosure protection in bankruptcy is called "relief of stay" is in effect as long as the owner makes the mortgage payments. If the owner misses a payment then the bankruptcy protection is lifted and the property will go into foreclosure. In most cases the tenant only has 30 days after the foreclosure sale to move out.
Submitted by PAM HARDWICK on May 27, 2009 - 6:05am.
This is a good link to explain the foreclosure process as it relates to states such as Texas and Colorado.
http://www.frascona.com/practice/foreclosure/general.htm
Submitted by Nathanial Ann on August 20, 2009 - 11:59pm.
The lease listing requires owner disclosure on mortgage or deed defaults at time of listing and also to provide agent updates if the material fact changes. (On a sale if the owner didn't disclose then the title search would reveal, but on a lease not so.) I agree that it seems proper to disclose a bankruptcy (with could lead also lead to a foreclosure)to the tenant.
Camwood Properties Ltd