Here is a rundown of the latest legal issues in real estate from a handful of states throughout the country:

Lest you forget, Hawaii reminds us it doesn’t pay to fool the tax man

In another reminder that it’s always a good idea to report all income – and duly pay taxes on every cent of that income – consider that the Hawaii Attorney General’s office has filed suit against 12 real estate agents and the husband of an agent it contends failed to report and pay taxes on $9 million in commission income.

According to the Hawaii Attorney General, its seven-year audit of the top 10 real estate companies in terms of sales volume, done in cooperation with the Hawaii Department of Taxation, showed the agents failed to pay more than $575,000 in taxes, including penalties and interest. The Attorney General alleges that 11 of the agents failed to make timely tax payments and one underreported commissions. Failure to pay taxes in Hawaii is a misdemeanor punishable by up to a year in prison and a $25,000 fine.

According to Susan Won, deputy attorney general in the Hawaii attorney general’s office, “Most of the agents have appeared in court and pleaded not guilty, and their cases are set for trial. In the interim,” she said, “We can try to work out a plea agreement.”

Another agent has a pending grand jury indictment for a felony tax offense (with involves failing to file any return at all), but Won declined to comment on that case because grand jury information isn’t public. The Department of Taxation investigator has also referred 45 more agents to its civil audit section, where they will no doubt spend glorious days chatting with tax agents about their tax returns for the past seven years.

Disbarred in California? Can’t do real estate, either

After California lawyer Bernard Berg was caught defrauding clients, he turned to real estate. A California appellate court, however, threw cold water on that plan in Berg v. Davi by upholding the Department of Real Estate’s rejection of Berg’s application for a salesperson’s license.

Berg was disbarred for excessive and fraudulent billing after he was found to have billed insurers by having his employee count the number of pages of legal documents he received and multiplying that number by three minutes per page. Berg sometimes charged for more than 24 hours a day and averaged 318 billable hours per month on that client’s work alone. The client sued Berg for fraud, and Berg was required to pay $282,024 in fees.

The California State Bar found Berg had “a reprehensible lack of insight into the wrongfulness of his actions” and recommended he be disbarred, which the California Supreme Court did.

In 2002, Berg applied for a real estate salesperson’s license. An administrative law judge said Berg still insisted his disbarment was wrong, was “defensive to the point of defiance,” showed no remorse, and offered no evidence of rehabilitation. The ALJ concluded it would be contrary to the public interest to issue a real estate license to Berg, so the DRE denied the license.

Berg sued, but a California appellate court rejected the arguments in his “rambling, disjointed, and repetitive brief” and upheld the DRE’s decision denying him a real estate license.

Massachusetts home seller gets $150,000 damages in full-priced sale

Beware of real estate contracts that let sellers recover liquidated damages when the buyer doesn’t close by a certain date — they can be enforceable. In Perroncello v. Donahue, a Massachusetts appellate court allowed the seller to keep a $150,000 deposit as damages for the buyer’s failure to close by the date set in the contract – even though the home eventually closed for the full asking price of $2.25 million.

Under the contract, the buyer was required to put down $150,000 as a non-refundable deposit that would be forfeited as liquidated damages if he breached. The contract contained a “time is of the essence” clause and had a deadline for closing. When the buyer met with delays in securing financing and sought extensions, the seller refused, and they sued each other. In the meantime, the sale closed nearly five months after the original deadline.

The court held that despite the eventual closing, the buyer breached the contract and the court had no choice but to enforce the “time is of the essence” and liquidated damages clauses. “When parties agree in writing that time is to be of the essence, courts will hold parties to the deadlines they have imposed upon themselves.” The court added, “Where liquidated damages clauses are concerned, we explicitly reject a so-called ‘second-look’ approach … (where a clause is re-evaluated in light of later circumstances)…”

Because the buyer failed to prove the seller waived either contractual provision, he was out of luck – and his $150,000.

Utah State Rep. backs legislation to fight mortgage fraud

We’re trying to turn the mortgage fraud industry on its ear,” said Utah State Rep. Paul Ray, a Republican, about efforts to combat the growing problem in his state of mortgage fraud.

Utah is one of 10 “hot spots,” or states with the greatest instances of mortgage fraud, according to the Federal Bureau of Investigation’s May 2005 Financial Crimes Report. Ray says the FBI has identified 268 cases of alleged mortgage fraud in his state waiting to be prosecuted. “Since it’s not a violent crime, it takes a back burner,” he said.

That’s why he’s considering introducing a bill in the 2006 session of the Utah state legislature to create a special prosecutor to handle nothing but mortgage fraud prosecutions in the state. This bill would complement legislation passed last year that strengthened the state’s licensing requirements for mortgage brokers.

Ray, who also happens to work as commercial loan officer for a Utah bank, and others came up with the idea when a group of interested parties in 2000 began to meet regularly to discuss ways to combat mortgage fraud. The group consists of representatives of the FBI, the U.S. Inspector General’s office, the Utah Attorney General’s office, the Utah departments of real estate and insurance (which oversees title companies), the Mortgage Lenders’ Association, and local boards of Realtors.

“We’ve brought in all the players,” Ray said, “and we’re going step by step to determine what it’s going to take to reduce mortgage fraud in Utah.”

Homestore settles overtime wage suit

Homestore – which operates,, and – has reached an agreement to settle a class-action lawsuit filed by Elizabeth Hathaway on behalf of herself and all of the company’s current and former account executives over the company’s misclassification of their positions as exempt from overtime wages in violation of California law.

In the lawsuit filed in September 2004 in Los Angeles Superior Court, Hathaway sought back wages, interest and attorneys’ fees. The class contains 434 members, who will receive $1.4 million if the court approves the settlement, according to the Westlake Village, Calif., company’s Aug. 5, 2005, 10-Q financial disclosure forms. On Oct. 6, 2005, the court granted final approval of the settlement, and distribution of the settlement proceeds was scheduled to begin in December 2005.

The settlement follows another by the company in 2004 with the U.S. Department of Labor involving the same employees, but that case dealt with federal wage and overtime laws. In the federal case, Homestore agreed to pay an additional $1.4 million in back wages, according to the company’s 10-Q disclosure, and it agreed to convert the employees to a non-exempt classification.

Supreme Court bakes Alaska

Talk about going back to the time of the floods. In a dispute over who has title to submerged lands – and the water above them – near Alaska, the U.S. Supreme Court held in Alaska v. United States that title to the property rested in the federal government because part of the land didn’t qualify as inland water, and the feds proved that title to the rest of the land didn’t pass to Alaska when it became a state.

The decision resolved the dispute over which government had the authority to control fishing and cruise ship activity in the waters off Alaska’s coast. In 1998, Congress passed a law to protect marine wildlife by phasing out commercial fishing in Glacier Bay National Park. To implement the law, the National Park Service limited both activities in the area. Alaska disputed the federal government’s authority to impose such rules by claiming it had title to the land.

The areas in dispute consisted of pockets and enclaves of submerged lands in the Alexander Archipelago, which is more than three nautical miles from the coast of the Alaskan mainland or any Alaskan island. Alaska could claim these lands only if the archipelago waters qualified as historic or inland waters. The court, after evaluating ownership from Russian and early U.S. sovereignty to today, found they were neither.

The second area consisted of submerged lands beneath the waters of Glacier Bay off the southeastern Alaskan coast, which was presumed by law to be titled to Alaska. But the U.S. government proved that title never passed to Alaska at statehood.


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