Best of the Hotline

  • Sex offenders
  • Holding escrow deposits
  • Licensee as Buyer
  • Advertising property as "Sold"
  • Un-initialed changes to Agreement
  • Paying commission to former agent
  • Lis pendens
  • Escrow Dispute
  • Agent contacting represented consumer

Q: Is there a duty to disclose the presence of a sex offender in a neighborhood?

The Hotline receives many calls regarding the duty to disclose to a buyer the presence of a sex offender in a neighborhood. The issue was previously addressed by a New York state court which held that there was not a duty on the seller or listing agent to disclose. The New York court held that sellers and their real estate agents do not have the duty to disclose to a buyer the presence of a sex offender in the neighborhood. Without referencing New York's version of Megan's Law, the court held that the rule for real estate transactions is "caveat emptor", or "buyer beware". This requires a purchaser to prudently assess the property they are purchasing. Information about the particular sex offender had been publicized in the local media, and, thus, the buyers could have made themselves aware of his presence. The court held that there was no duty on the part of the seller or listing agent to disclose this information absent a confidential relationship between the parties. The court also ruled that there was no evidence that the seller or listing agent actively concealed the presence of the convicted sex offender in the neighborhood.

Pennsylvania's Megan's Law does not impose a duty upon a real estate licensee to disclose to a buyer any information regarding the presence of a sex offender. The Seller Disclosure Act only requires disclosure of material defects to the property. A material defect is "a problem with the property or any portion of it that would have a significant adverse impact on the value of the . . . property." It is arguable whether the presence of a sex offender in the neighborhood is a material defect to the property itself under this definition. There are no court decisions in Pennsylvania directly on this issue, however, a recent decision by the Superior Court in Pennsylvania did determine that a nearby group home for mentally challenged adults (not sex offenders) was not required to be disclosed by the seller as a defective condition of or affecting the property. It remains to be seen how a Pennsylvania court would handle the same issue if sex offenders were involved.

Pennsylvania's version of Megan's Law is discussed in notices present on the Business Relationship and Bon-Exclusive Buyer Agency forms available from PAR. Buyer agents are urged to review these notices, which contain the web address for the Pennsylvania State Megan's Law website, with their current and prospective buyer clients.

The presence of a sex offender in a neighborhood still presents a difficult question for sellers. Sellers of real estate are not exempted from Megan's Law, but have no explicit, statutory duty to act as a Megan's Law reporting agent either. Many calls to the hotline concern "knowledge" of claimed sex offenders who are not adjudicated as such. Passing on neighborhood gossip like this to potential buyers may result in a libel or slander suit against the agent and/or seller. If the seller brings to your attention the presence of a sex offender, you should advise that they speak to legal counsel regarding the necessity of disclosure.

Q. Can a third party, other than the real estate licensees in the transaction, hold the deposit money in escrow?

Yes. The Rules and Regulations prescribe the escrow requirements of licensees. Section 35.321 requires that a broker must deposit money that he receives belonging to another into an escrow account pending consummation of the transaction. Section 35.324 requires that the broker deposit money belonging to another into an escrow account by the end of the next business day following its receipt. Section 35.322 provides that a broker's escrow duty may not be waived or altered by an agreement between the parties to the transaction, between the broker and the parties, or between the broker and other brokers who may be involved in the transaction.

The escrow requirements do not prescribe who must hold deposit money in escrow. The Rules and Regulations only prescribe that a broker must deposit any money he receives belonging to another into an escrow account by the end of the next business day. This duty to deposit the money into an escrow account cannot be waived. The Rules and Regulations are silent on who must hold escrow money. Thus, the parties may agree that the builder, attorney for buyer or seller, or other third party will hold the deposit money.

If the parties agree to have someone other than the Listing Broker designated as the escrow holder, remember to modify the Agreement of Sale appropriately as the PAR Standard Residential Agreement of Sale defaults to stating that the Listing Broker will hold the escrow unless otherwise indicated. Also, section 35.331 and 35.333 seem to indicate that a broker should hold any escrow checks or money order they receive, even if it is made payable to a third party. Hence, escrow payments to be held by a non-licensee should be paid directly to the designated escrow agent and should not pass through the hands of a real estate licensee. Nonetheless, it is perfectly permissible for a third party, other than the real estate licensee, to hold the escrow money, if this is the agreement of the parties.

Q. Must a real estate licensee disclose his or her licensee status when buying property?

No. Section 35.288 of the Rules and Regulations of the Real Estate Commission provides that a broker or salesperson who sells or leases his own real estate shall disclose his licensee status to a perspective buyer or lessee before the buyer or lessee enters into an Agreement of Sale or Lease. Further, Section 35.304 provides that a broker who sells or leases his own real estate must disclose that he is a real estate broker in advertising for the property. However, there is no requirement by the Real Estate Licensing Act or the Rules and Regulations of the Real Estate Commission providing disclosure when a licensee is buying or leasing property. There are some licensees who take the position that they are acting as their own agent, and therefore demand a cooperating broker fee when buying property. A licensee who takes this position must disclose, pursuant to §606.3(3) of the Licensee Act, that he is acting as a buyers agent. Of course, the merits of such a position is questionable.

Q. Who may claim to have "sold" the property and who may post a "sold" sign?

This question is addressed in the National Association of REALTORS® Code of Ethics, Standard of Practice 12-7:

Only REALTORS® who participated in the transaction as the listing broker or cooperating broker (selling broker) may claim to have "sold" the property. Prior to closing, a cooperating broker may post a "sold" sing only with the consent of the listing broker.

No sign may be placed, however, without the consent of the owner. Prior to closing, the seller is considered to be the owner; following closing, the buyer is the owner. An advertisement by a REALTOR® claiming that they sold the property may not misrepresent their role in the sale.

Q. Is an Agreement of Sale valid if there are deletions/amendments in the agreement which have not been initialed by the parties?

An enforceable Agreement of Sale exists when there is a writing, signed by the parties which evidences a meeting of the minds between the parties. An agreement on which there are lines stricken or words added, will not be rendered invalid merely because the buyers and sellers initials do not appear at or near the changes. The purpose of requiring sellers and buyers to initial the changes, which is the custom and practice in Pennsylvania, is to lend certainty to the fact that the signed document represents a meeting of the minds (i.e., the actual agreement between the parties). If a party's initials appear at the location of the change, it would be difficult, if not impossible, for that party later to claim that he/she did not accept the change as a provision of the contract.

During the negotiation phase, as offers and counteroffers are passed back and forth, the form of agreement may come to resemble an ink blot test more than it does an agreement of sale. It is advised that such an agreement be redrafted on a clean form so that the provisions may be easily read and understood by all parties before signing.

Q. May a broker pay a commission to a former sales agent now in the employ of another broker?

The general rule is proscribed by the Real Estate Licensing and Registration Act, Section 604(12), which prohibits an agent from receiving a commission from anyone other than the broker with whom the agent is associated. A broker may, however, pay a commission to a former agent whether in the ploy of a new broker or none at all, provided that the agent's commission was earned during his or her association with the paying broker. An agent who has procured a ready willing and able buyer may be deemed to have earned that commission upon the procurement of the buyer even though settlement will take place weeks, possibly months, later. This agent may receive a commission directly from his former broker even if the agent no longer has an active real estate license or is licensed with a new broker at the time of settlement. Likewise, a listing agent who terminates his or her relationship with the broker subsequent to the receipt of an agreement on the property may be paid directly by their former broker at or after settlement. Caveat: The question and answer address only the legality of a broker paying an agent now associated with another broker. The obligation of the broker to make such a payment is another matter which may be left to the contractual arrangements, either expressed or implied, between broker and agent.

Q. Can I file a Lis Pendens to protect my commission?

Many real estate brokers know that a Lis Pendens will tie up the Seller's title but little else. This is to be expected because Lis Pendens is an ancient, little used remedy. Lis Pendens is not an action in itself. It is the indexing of an action brought by someone involving the title to real estate. It is the indexing of the action in the Lis Pendens (or in some counties, the Judgment) docket which creates the cloud on the title. An action seeking money damages may not be indexed as a Lis Pendens. Pennsylvania has a comprehensive statute dealing with lawsuits which are groundless or used as a wedge to achieve another aim. Both compensatory and punitive damages can be claimed. Thus, the typical answer to this question is an emphatic "NO". Of course, if the licensee is owed a commission in a commercial transaction, then a lien may be available per the Real Estate Commercial Brokers Lien Act. The filing of a Commercial Brokers Lien has very specific statutory requirements and is best handled by legal counsel familiar with this statute and the cases interpreting its provisions.

Q. What should a broker do when funds in escrow are disputed and one party is demanding the release of the funds?

The Rules and Regulations of the State Real Estate Commission, at §35.327, provide:

If a dispute arises between the parties to a real estate transaction over entitlement to money that is being held in escrow by a broker, the broker shall retain the money in escrow until the dispute is resolved.

Disputed escrow funds should never be distributed without a written release signed by all parties who could claim entitlement to the funds. Often licensees calling the Hotline insist that the release must be as all encompassing as the standard PAR Agreement of Sale Release form. Although the use of the PAR release is recommended whenever possible, the form of the release required by law can be as simple as clear written instructions detailing how the funds are to be distributed by the broker holding the escrow funds.

A broker is often faced with threatening letters (usually from lawyers) that a suit is imminent if the escrow money is not released. Our advice is that the broker should write to each of the parties and tell them he is only acting as an escrow agent and is making no claim against the funds. The broker should further state in the letter that the broker is willing to abide by a judgment entered by a district justice or other court and will do so thirty (30) days after judgment has been entered (thirty days is the appeal period.) In this way, the broker may avoid being named as a party to the legal action and having to take the time to attend the hearing.

Q. May an agent contact a seller directly to find out the status of an offer when the seller's agent has failed to respond to the buyer's agent?

Article 16 of the NAR Code of Ethics provides that REALTORS® should not engage in any practice or take any action inconsistent with the agency of other exclusive relationship recognized by law that other REALTORS® have with clients. Thus, the general rule is that a REALTOR® should not interfere with the agency relationship with another REALTOR® by contacting the other REALTORS® client without his consent. However, NAR Code of Ethics Standard of Practice 1-6 provides that REALTORS® shall submit offers and counter-offers objectively and as quickly as possible. In this case, it would be difficult for the listing agent to complain when he or she has "unclean hands".

Under this scenario, rather than contacting the client directly, it is recommended that a letter be written to the seller's agent indicating that your client is waiting for a response to his offer. A copy of that letter can be sent to the seller directly. By doing this, you are not communicating to the sellers directly. We only recommend this tactic as a last resort. A REALTOR® should make every possible effort to communicate with the other REALTOR®. It also should be noted that the failure to respond to the offer can be interpreted as a rejection. However, it is recommended that the offer be withdrawn in writing before your client moves on to another property.