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Let’s say someone emails an agent about selling their vacant lot.
That person gives the property owner’s name and asks the agent to put the property into the local multiple listing service. They list below market value, quickly accepting a cash offer, and only communicate through email, refusing to sign documents in person. It’s only after that person has gotten the funds that the agent learns the truth — it was all a scam.
That was a scenario described by Charlie Lee, the National Association of Realtors’ senior counsel and director of legal affairs, on Sunday at the 1.5 million-member trade group’s midyear conference, the Realtors Legislative Meetings, in Washington D.C.
Lee kicked off the event’s MLS Association Executives Session with a legal update about three main topics: vacant lot scams, floor plan copyright litigation and unfair service agreements. (Lee will give another legal update on Monday during the event’s MLS Forum about the antitrust litigation NAR is embroiled in.)
Vacant lot scams
Vacant lot scammers tend to be outside of the country and start off by searching public records for vacant properties that are mortgage-free, typically lots because they don’t require any showings, according to Lee. Then they find information about the property owner and go to the dark web and create a fake ID based on someone they found online.
“It’s very straightforward and simple for these scammers to be able to perpetuate this fraud,” Lee said.
While initially the scammers tried to list properties online as FSBOs, they are now contacting listing agents and tricking them into thinking they are the property owner and getting themselves a professional representative, according to Lee.
“It certainly makes it look more legit,” Lee said.
“The scammer will then be very aggressive and asking the listing broker to market the property for less than the market value. They will say that they prefer cash offers and that they have a very short timeframe. Usually it’s because they’ve got some sort of family crisis or something to create that sense of urgency.
“So by the time that people realize what is happening, usually the fraud has gone further and far enough where the money has been exchanged” and wired overseas.
Here are some red flags to look for, Lee said:
- Seller or buyer claims they can’t meet in person. Must do everything by email.
- Claims to have a family emergency, needs quick cash, and will accept substantially less than full price if they close in very short time.
- Email address or phone numbers are from another country.
- Photo IDs (e.g. driver’s license, passports) barely legible.
- Seller doesn’t want due diligence fee and/or low or no earnest money combined with quick closing.
- Seems unwilling to perform terms of the contract or is not returning paperwork.
- Becomes angry and applies pressure to make sure deal goes through.
The no. 1 thing agents can do to avoid this type of situation is to ask questions, according to Lee.
“They need to be skeptical, especially when you have a property owner that is only looking to have communications through email or electronic communication,” Lee said.
“This usually means that the person is even refusing to jump on a Zoom meeting or anything that would show their face. That should make your antennas go up. They will also look to … exploit your emotions. They will look to say that this is a dire situation, and I need your help.”
He offered these recommendations:
- Ask the seller for detailed information concerning the parcel number, annual property taxes, or exact location.
- Independently research the name of the seller and check their photo ID.
- Require an in-person or virtual meeting to see their government issued ID.
- Contact the listed property owner using a verified telephone number or by sending an overnight service letter to address for property tax bills.
- Verify that notary is a real person appointed by applicable government agency. Suggest a remote online notary.
- Participants and subscribers should recommend their clients create a Google and/or property alert of their property address.
“You want to look and see if the information that is on the public records matches what they’re providing to you,” Lee said. And if it doesn’t try contacting that information to see if you can verify the property owner, he added.
Floor plan copyright litigation
In 2018, home designer Charles James and his company Designworks Homes sued several real estate companies, alleging copyright infringement, for creating and using floor plans of a home he designed to market the home. A judge in 2019 ruled in favor of the real estate companies, saying the use of the floor plans qualified for a copyright exemption. However, in 2021, the 8th U.S. Circuit Court of Appeals reversed that decision and sided with James, finding that a floor plan is a technical drawing and not a pictorial representation and therefore a copyright exemption did not apply. The ruling indicated that the design of a home should be treated sort of like a hit pop song; you can’t just go record your own copy of a hit song without giving credit, and money, to the original artist because it’s protected intellectual property.
Nearly a year ago, on June 27, the U.S. Supreme Court refused to hear the case because there was no conflicting decision from a separate circuit court requiring the Supreme Court to intervene, according to Lee. So the case went back to the lower district court, which is considering the defendants’ defense of the floor plans as fair use. Fair use allows limited, unlicensed use of copyright-protected works in certain circumstances, such as for commentary and news reporting.
“We’re optimistic that the defendants will prevail and we think that the judge will find that the use of the work was fair use,” Lee said.
Still, he said that such a ruling would not be “an ideal solution” because of the potential “chilling effect” of having to put the use of works through the “fact-intensive analysis” of fair use.
So NAR’s legal team was happy to learn about a recent, similar case in the 5th Circuit: Kipp Flores Architects LLC v AMH Creekside Development LLC. The architect’s arguments in that case against Texas homebuilders were the same as in the Designworks case, according to Lee. But the district court judge in the Kipp case dismissed the copyright infringement claims with prejudice, disagreeing that floor plans and renderings qualify for the pictorial representation exemption of copyright law, Lee said.
“[A]ccepting the Eighth Circuit’s reasoning in DesignWorks would have additional undesirable consequences,” the judge said.
“For example, real estate agents often include simplified floorplans with other pictures of homes for sale on the Multiple Listing Service to market their listings and assist buyers in assessing a home’s layout. It is unreasonable to assume that Congress intended to subject real estate agents to copyright infringement liability for a floorplan posted online.”
Lee said he anticipated the Kipp case would probably be appealed, so there may be another opportunity for the U.S. Supreme Court to take up the case.
In the meantime, he advised MLS executives to make sure their MLSs are following Digital Millennium Copyright Act (DMCA) safe harbor requirements to ensure that they will not be held liable for copyright infringement claims.
He said those MLSs in the 8th Circuit (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) should consult their legal counsel to assess their possible risks and how to best handle floor plans. For MLSs in the 5th Circuit (Mississippi, Louisiana and Texas), the Kipp ruling applies.
“In the meantime, NAR is engaging in efforts on the legislative process to make this more clear, that the use of floor plans should qualify for a copyright exemption because we believe that that was the intent,” Lee said.
Unfair service agreements
Lee spoke last about “unfair service agreements,” which are long-term listing agreements enforceable by lien in exchange for cash. They are also known as Non-Title Record Agreements for Personal Service (NTRAPS).
Florida-based MV Realty is the most well-known brokerage that offers such agreements. MV Realty has allegedly signed more than 35,000 “homeowner benefit agreements” (HBAs), paying prospective clients between $300 and $5,000 in exchange for 40-year contracts to list their homes. MV Realty, which operates in 33 states and has more than 500 licensed agents, is accused of placing liens on some clients’ properties to secure its real estate commission.
In the face of lawsuits by attorneys general in Florida, Pennsylvania, Massachusetts and Ohio, and most recently, North Carolina, MV Realty announced in February that it had “paused entering into any new agreements in all states” and had hired an outside law firm “to evaluate and redraft our HBA contract to ensure greater transparency for consumers.”
Lee noted that the American Land Title Association (ALTA) had created model legislation against such agreements. According to Lee, the legislation prohibits unfair service agreements, which consist of services that won’t be performed within one year of execution and purport to run with the land or bind future owners in the property; allow for assignment of the property without notice and consent of the owners, or purport to create a lien, encumbrance or other property security interest to enforce.
Under the legislation, unfair service agreements are considered a deceptive act and property owners get rights of recovery, including damages, costs, and attorneys’ fees, Lee said.
“There’s just been … a lot of concern about this practice happening,” he said.
Lee noted that NTRAPS bills based on the ALTA model legislation have passed in Colorado, Georgia, Idaho, Maryland, North Dakota, Tennessee, Utah, and Washington, and at least another 10 states are considering adopting the model legislation: California, Iowa, Maine, Minnesota, Nevada, New Jersey, North Carolina, South Carolina, Ohio, and Pennsylvania.
Lee counseled that MLS executives should avoid making any remarks about the business model or practices of any member or other broker or agent and that if they receive a complaint that doesn’t have to do with MLS policy or the Realtor Code of Ethics that they refer the complainant to their state’s consumer protection agency, attorney general’s office or real estate commission.
MV Realty is a member of NAR.
“NAR does not comment on the business models or business practices of brokers, especially if they are not illegal,” Lee said.
Still, he suggested that MLSs or associations interested in taking any lobbying action around the issue to consider ALTA’s model legislation.