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New Jersey Real Estate Commission v. Petridis

A-5019-09T3 (N.J. Super. App. Div. 2011) (Unpublished)

BROKERS; FIDUCIARY DUTY — A real estate broker has a duty to ensure that the interest of his or her principal is paramount, and must place the interests of the principal ahead of his or her own, and this means it must continue to advise its customer of additional offers even while a contract is pending.

A licensed real estate salesperson and his supervisor, another real estate broker, were agents for a developer as to the sale of building lots and homes. The broker prepared a purchase offer on behalf of an investor for one of the properties. Before the transaction closed, the broker met with someone who expressed his interest in buying the same property from the developer. The property was already under contract with the investor.

The broker did not tell the developer about the individual’s interest in purchasing the property. Instead, he and his supervisor believed they had no duty to disclose the individual’s interest because the property was already under contract, and the investor could have assigned the property to the individual. The brokers decided to act as dual agents in the investor/individual transaction and collect two commissions from sales of the same property. The contract identified the investor as the seller, however it did not disclose that he did not yet hold title to the property.

After the transaction was completed, a complaint was filed with the New Jersey Real Estate Commission charging the brokers with unethical practices and with violations of the Act. The Commission concluded that the brokers violated the Act and its implementing regulations by failing to strictly comply with the principles governing fiduciary relationships, performing incompetently, and by misrepresenting the status of a party to a real estate transaction. The Commission suspended the real estate salesperson’s license for two months and downgraded the supervisor’s license to a salesperson’s license for four months. They both appealed.

The Appellate Division affirmed the Commission’s finding that, because the brokers did not insert a provision in the contract stating that the investor did not yet hold legal title, the brokers engaged in acts of misrepresentation. The brokers argued that their failure to insert this language was not misleading because the individual knew that the investor did not hold legal title. However, the statute of frauds requires that everything be in writing and that oral modifications have no legal effect. The contract documents stand alone and represent the four corners of a real estate transaction. Therefore, since the documents misrepresented the investor’s status, the Commission’s ruling was supported by substantial and credible evidence.

Next, the Court affirmed the Commission’s determination that the brokers acted incompetently by not obtaining written consent to act as dual agents, by not identifying the investor in the contract of the sale, and by failing to inform the developer of the individual’s interest in the development. Real estate licensees are obligated to exercise reasonable skill, care, and diligence in the execution of real estate documents. All these errors, taken together, fell below the level of competence expected of a licensed real estate professional. The Court found that the brokers’ errors and misjudgments demonstrated incompetence in the real estate profession.

Also, a real estate professional has a duty to ensure that the interests of his or her principal are paramount, and must place the interests of the principal ahead of her or his own. Here, the Court concluded that the Commission properly found that the brokers were not loyal to the interests of the developers. The brokers argued that their contract said they did not have to present any “back-up” offers once the developer agreed to sell the property. However, according to the Court the brokers still had a fiduciary obligation to disclose all the facts within their knowledge that were material to their business relationship with the developer.

Lastly, the Court concluded that the Commission’s penalties were neither arbitrary nor capricious. The Commission must consider a multitude of factors including; if a licensee acted with good or bad faith, the licensee’s ability to pay a financial penalty, the wrongful profit earned, the extent of the injury, the duration of the wrongful activity, the existence of any criminal actions, and any prior violations. It found that the penalties imposed were consistent and reached a fair result.

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