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Botched Property Description in Offer to Purchase & Contract Lawsuit Results
Article by Will Martin & Bill Gifford
The recent case of Drake v. Hance, 673 S.E.2d 411 (nc Ct. App. 2009) underscores the critical importance of taking care to properly describe the property
in a real estate sales contract.
On June 16, 2005, Eric and Debra Hance entered into an Offer to Purchase and Contract to purchase a home owned by Garry and Wanda Drake. The contract was prepared by a real estate agent who was acting as a dual agent in the transaction. The property was described in the contract as “#15 Legacy Lake (ALL of the property in Deed Reference: Book 1137, Page 244 Union County).” Although the contract only specifically mentioned the purchase of lot 15, the deed referred to in the contract described both lot 15 Legacy Lake and lot 11 Legacy Lake. Lot 15 was the property on which the house was located. Lot 11 was a vacant lot across the street from lot 15.
The closing attorney prepared the deed among other closing documents. The new deed also described the property as “Lot 11 and 15, Legacy on the Lake.” The deed was recorded after closing on September 9, 2005. Eight months later, when the Drakes contracted to sell lot 11 to a third party, they discovered that lot 11 had been included in the transaction with the Hances.
After attempts to correct the mistake were unsuccessful, the Drakes filed a lawsuit in August 2006, alleging that both lots were mistakenly conveyed to the Hances. They alleged that the conveyance resulted from a mutual mistake of fact and requested the court to reform the deed to reflect the intended transaction. The Hances denied any mistake of fact regarding the deed.
Over the Hances’ objection, the trial court allowed outside evidence to determine the intentions of the parties. The court ordered reformation of the deed by deleting lot 11. The Hances appealed. On appeal, the Hances argued that the trial court erred by allowing the Drakes to present evidence which contradicted and modified the sales contract where all of the documents executed prior to the sale clearly described the property to be conveyed.
The appeal court acknowledged that the parol evidence rule prohibits the admission of evidence to contradict or add to the terms of a clear and unambiguous contract. On the other hand, if the contract leaves it doubtful or uncertain as to what the agreement was, parol (oral) evidence is admissible to determine what the real agreement between the parties was. In the case at hand, the contract included the street address and described the property as “#15 Legacy Lake” but also included a deed reference describing both lot 15 and lot 11. The appeal court concluded that this was an ambiguity, and the trial court therefore did not err in considering parol evidence to explain or construe the legal description. The trial court had found “exceptionally persuasive” the closing attorney’s testimony that the deed had been improperly prepared due to an error in his office.
The court of appeals concluded that the trial court did not err in admitting parol evidence to determine the intent of the parties, and did not err in reforming the deed when presented evidence of the attorney’s mistake, and therefore affirmed the trial court’s decision.
For unknown reasons, the real estate agent and the agent’s firm were not included in the lawsuit. However, several years of litigation and a lot of legal fees would likely have been avoided had the agent either have taken the time to review the actual deed prior to inserting a reference to it in the contract or not referred to the deed at all. (Note: A year prior to the filing of the Drake v. Hance decision, the “All” and “A portion of ” check boxes were removed from the Offer to Purchase and Contract as a result of several other reported situations with similar facts.)
Agents must be diligent and careful in completing the property description in a contract. Sufficient information must be included to adequately identify the property and, as the Drake v. Hance case demonstrates, that information must not be contradictory.
■ Will Martin and Bill Gifford are managers in the law firm of Martin & Gifford, PLLC, which practices primarily in the area of real estate brokerage law. For more information about the firm, go to www.martingiffordlaw.com. Copyright © 2009, Martin & Gifford, PLLC.
Category: Resources & Tools, WRAR CEO
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While many REALTORS® and most long-time residents of Wilmington and surrounding areas know about the dream of a new bridge over the Cape Fear River connecting New Hanover and Brunswick counties, new residents, newly-want-to-be residents and possible commercial businesses wanting to locate in southeastern NC may not be aware of it. Concerning this project, the first question a REALTOR® might ask: “Is this a material fact?”
The NC Real Estate Commission has a long history of opining about material facts. For example, just a few are:
- Polybutylene pipes—if they are leaking or have leaked; the fact that because of the fittings the pipes were subject to a class action lawsuit; making an inquiry about other properties when the subject property a unit in a condo or townhome by asking the HOA or other owners.
- Asbestos
- Bankruptcy (noticed)
- Pending Foreclosure (noticed)
- Mobile/Modular construction
- Lead-Based Paint
- Square footage where the prevailing practice is to disclose it
The NCREC also has a long history of disciplining licensees (brokers and licensed entities [firms]) for violating Section 93A-6 which states:
Making any willful or negligent misrepresentation or any willful or negligent omission of a material fact.
This duty was also expressed as early as the 1918 version of the REALTORS® Code of Ethics. The 2010 version for disclosing material facts is found under Article 2.
Some material facts must be discovered.
Key Concepts about Article 2 and its Standards of Practices
- REALTORS® have a duty to disclose depending on the facts
- REALTORS® may not have a duty to discover and disclose adverse factors unless reasonably apparent
- The principles in Article 2 include the obligation not to exaggerate, misrepresent or conceal pertinent facts about the property or the transaction.
- The discovery obligation extends only to those factors which would be within the expertise required by the real estate licensing authority and does not impose an obligation of expertise in other professional or technical disciplines.
For both the Code and the NCREC, a standard most often used is “what should a reasonably knowledgeable and prudent real estate licensee know or should know” about a certain matter (material fact, like selling coastal real estate, selling condominiums/townhouses, etc.).
OK – back to the Proposed Cape Fear Skyway Project. What might you want to do about it?
As the listing agent, you might consider…..
- Check to see if the property is sufficiently close as to warrant a disclosure. For example, is the listed property along the road leading to the proposed bridge? If yes, that is a definite disclosure issue!
- If not, is the road upon which the listing property is located going to be affected by traffic from the road leading to the bridge?
- Is it possible that road and/or bridge noise might be a factor to the property?
If the Seller will place information in the Residential Property Disclosure (RPD) that may be sufficient—if the property is subject to the RPD. You will want to insure that the buyer indicates that they have received a RPD at the time of offer!
If the seller will not place disclosure in the RPD, explain to the seller your license law and ethical standards require disclosure of a material fact. As a MLS Subscriber, you should considering using the MLS Remarks to make the disclosure to consumers and brokers. The MLS Remarks is on most MLS reports and often appears on websites.
As a buyer’s agent, you might consider…..
- Investigating the Cape Fear Skyway Project so you will have a general idea about where it is.
- Check the MLS information and the RPD to see if there is a disclosure issue
- Make an affirmative oral disclosure about it
- If an offer is written, consider making a written disclosure to the buyer and document the buyer’s acceptance (email reply would be OK)
As a BIC, you might consider…..
- A sales meeting focusing on the project annually
- Checking to see if any of the Firm’s listings might warrant disclosure
- Creating an office policy about “how” to make a disclosure, including a form for the disclosure. This should help new licensees become aware of and how to disclose the proposed project.
Finally, remember change is inevitable—and this project has morphed over the years! To stay up-to-date, you may want to retain this link:
http://www.ncturnpike.org/projects/Cape_Fear/
After clicking on the link, double click the map to open it further. By using the zoom tool, you will see more clearly the path and surrounding road.
Category: Local & State News, WRAR CEO
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New 11-minute video walks you through page-by-page of the new Good Faith Estimate and HUD-1 settlement form. The revamped forms took effect Jan. 1. The forms are intended to make comparison shopping easier for settlement services and mortgage financing. Initial industry reactions are that the forms are not that straight-forward to fill out. Although mortgage originators typically fill out the GFE and settlement agents typically fill out the HUD-1, sales associates are the ones that get all the questions from consumers. (Source: REALTOR® TV)
Category: Resources & Tools, Videos, WRAR CEO
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