Real estate broker Hildegard Merrill was the listing agent for a condominium. A licensed real estate agent since 1967 and a broker since 1981, Merrill is very experienced with condominium sales, referring to herself as the “condo queen.” She is also a mortgage broker.
John Warren visited Merrill’s condominium open house and expressed an interest in buying the unit. With his permission, she checked his credit and found his FICO (Fair Isaac Corp.) score was very low. Warren told Merrill he had only $50,000 for a down payment, but she agreed to loan him her $27,000 sales commission to make a 20 percent down payment.
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When Warren said he didn’t have a co-borrower with a better FICO score, Merrill suggested her daughter, Charmaine, would become a co-borrower in return for $10,000. Warren agreed to the broker’s plan, and Merrill filled out her daughter’s loan application, showing Charmaine earned $7,500 monthly as a waitress in Aspen, Colo.
The mortgage was approved. Shortly before the closing, Merrill obtained Warren’s signature on an amendment to the sales contract to vest title to the condominium in Charmaine’s name alone. After the sale closed, Warren moved into the condominium. But Charmaine never signed the promised quitclaim deed to Warren, even after he repaid the $27,000 borrowed from Hildegard Merrill.
Soon thereafter, Warren checked into the Betty Ford Center in Palm Springs for substance abuse. He fell behind in the mortgage and condominium fee payments, but Hildegard Merrill paid them to prevent foreclosure.
She then obtained an eviction judgment against Warren, obtained a writ of possession, and evicted him from the condominium. When he left the Betty Ford Center, Warren learned of his lock-out from the condominium, which Merrill had since rented to tenants.
Warren then sued Hildegard Merrill for breach of fiduciary duty and fraud, seeking quiet title to the condominium in his name, plus non-economic and punitive damages.
If you were the judge would you award Warren title to the condominium plus damages?
The judge said yes!
A real estate broker has a fiduciary duty as a trustee to his/her client, the judge began. The evidence shows broker Hildegard Merrill violated that duty and defrauded her buyer, John Warren, by misleading him, he continued.
By taking title to the condominium in her daughter’s name with a promise to give Warren a quitclaim deed later and failing to deliver that quitclaim deed even after he repaid the $27,000 borrowed from Merrill, she fraudulently violated her fiduciary duty, the judge explained.
“From the beginning of the transaction, she did not intend to perform her promise of placing his name on title,” the judge emphasized. Therefore, imposition of a “constructive trust” is justified to return the condominium to its rightful owner, John Warren, he ruled.
Title to the condominium shall be quieted in Warren’s name, and non-economic damages of $15,000, plus $50,000 punitive damages, are imposed on broker Hildegard Merrill, the judge concluded.
Based on the 2006 California Court of Appeal decision in Warren v. Merrill, 49 Cal.Rptr.3d 122.
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