Whistleblowers Can Bring a Qui Tam Action

Anyone who knowingly submits false claims for payment to the federal government may be subject to liability under the Federal False Claims Act (31 USC §§ 3729-3733). In addition, a private person who knows about the submission of false claims may be entitled to bring an action on his own behalf and on behalf of the government. This is known as a Qui Tam action from the latin phrase, “Qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which means, “He who on behalf of the lord king as much as on his own behalf pursues the action.” See U.S. v. Pfizer, 507 F.3d 720, 727 footnote 4 (1st Cir. 2007). The purpose of the Qui Tam provisions of the False Claims Act is to encourage private citizens to help the government recover damages for fraud. If the action is successful, the government can recover civil monetary penalties and treble damages. The private person who initiated the action, known as the relator, may be entitled to a portion of the damages recovered for the government. Companies that are often defendants in Qui Tam actions include pharmaceutical companies, pharmacy chains, and defense contractors, among others.

The relator in a Qui Tam action, who is also referred to as a whistleblower, is entitled to protection from retaliation by the employer. Section 3730(h)(1) of the False Claims Act provides:

“Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment, because of lawful acts done by the employee, contractor, or agent on behalf of the employee, contractor, or agent or associated others in furtherance of other efforts to stop 1 or more violations of this subchapter.”

Section 3730(h)(2) of the False Claims Act provides remedies for discrimination which include reinstatement, double back pay, interest on the back pay, compensation for special damages, litigation costs, and attorney’s fees.

The following table lists and describes some of the types of fraud engaged in by companies that violate the Federal False Claims Act. This table presents a sample only, and is not meant to be exhaustive.

Types of Fraud in Qui Tam Cases

Name Description
Up-coding The defendant artificially inflates bills to the government by using a billing code for a more expensive procedure or treatment than the one actually provided.
Bundling The defendant bills for a group of tests or procedures, when only one test or procedure was requested.
Unbundling The defendant uses multiple billing codes to bill for a group of tests or procedures, when a single (less expensive) code should have been used.
Double Billing The defendant bills two or more times for the same drug, test, or procedure.
Up-billing for Brand The defendant bills for a brand name pharmaceutical when a generic is actually given.
Lick and Stick A defendant pharmaceutical company sells a drug to an HMO at a deep discount, and places the HMO’s ID number instead of the pharmaceutical company’s ID number on the package. This scheme allows the pharmaceutical company to avoid reporting the discounted price to the government as its best wholesale price. As a result, the pharmaceutical company avoids paying rebates that are due to Medicare and Medicaid.
Failure to Report Defects The defendant fails to report known defects in a product, in order to continue selling the product to the government.
Prescribing for Kickbacks A defendant physician prescribes a drug or treatment regimen in order to receive a kickback from a hospital, lab, or pharmaceutical company.
Forging Signatures The defendant forges a physician’s signature in order to submit claims to Medicare or Medicaid.
Falsifying Records This type of fraud takes many forms. Some include billing for employees who do not exist; billing for time not incurred; falsifying records relating to production of a natural resource such as oil or timber; and billing for research never conducted or for services never rendered.
Yield Burning The defendant skims profits from the sale of municipal bonds or other government issued securities.

Craig Stephan
Attorney at Law
480-621-8281
website: www.craigstephanlaw.com
email: cstephan@craigstephanlaw.com

© 2014-2017 Craig Stephan
All Rights Reserved

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RSD/CRPS – Pain out of proportion to injury.

Regional Sympathetic Dystrophy (RSD), now more commonly known as Complex Regional Pain Syndrome (CRPS), is a chronic pain condition believed to be caused by dysfunction of a portion of the nervous system. Its symptoms can include (1) pain out of proportion to an injury, often described as aching, burning, or shooting pain; (2) hyperesthesia or increased skin sensitivity; (3) edema or swelling; (4) color changes in the skin; (5) temperature changes of the affected tissue; (6) motor weakness, decreased strength, or decreased range of motion; and (7) abnormal hair or nail growth in the affected extremity.

Patients may present with one or more of the foregoing symptoms. The course of the disease varies from patient to patient, and the symptoms tend to change over time. Therefore, diagnosis of the disease often requires an examination by a pain clinic physician who has extensive experience diagnosing and treating patients with RSD/CRPS. It is not uncommon for patients to see several physicians before finding one who recognizes the disease and makes the diagnosis. One method used to diagnose the disease is to determine whether the patient has sympathetically maintained pain. Pain clinic physicians can often make this determination by administering a sympathetic nerve block and observing the patient’s response.

Treatment for RSD/CRPS utilizes rehabilitation, pain management, and psychological therapy, and varies depending upon the progress of the disease. Types of treatment may include oral medications, physiotherapy, counseling, nerve blocks, implantation of a spinal cord stimulator, implantation of a morphine pump, and surgery. The treatment regimen over the course of a lifetime can be extremely expensive, but may be required in order to keep the disease under control. The pain and related sequelae of RSD/CRPS can be disabling and can have a significant adverse impact on the patient’s life.

RSD/CRPS can be caused by a variety of things, including accidental injury, trauma, or surgery (especially surgery on an extremity). If you or a loved one suffers from RSD/CRPS as a result of someone else’s wrongful conduct, you may have a claim for damages.

You can contact the Law Office of Craig Stephan for an evaluation of any claim you may have involving RSD/CRPS. There are statutes of limitation on personal injury claims, so you should act immediately to protect your rights.

Craig Stephan
Attorney at Law
480-621-8281
website: www.craigstephanlaw.com
email: cstephan@craigstephanlaw.com

© 2014-2017 Craig Stephan
All Rights Reserved

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Consumer Fraud in Real Estate Transactions

Real estate professionals should be aware that their clients and customers have a powerful tool for obtaining damages resulting from fraud or deception.  That tool is the Arizona Consumer Fraud Act, A.R.S. § 44-1521 et seq.  This Act was initially passed so that the Arizona Attorney General could go after fraudulent activity that otherwise escaped the reach of the law.  However, Arizona appellate courts have read into the Arizona Consumer Fraud Act an implied private right of action.  That means that private individuals, not just the Attorney General, may bring a civil action against a defendant based upon violation of the Act.  This is significant, because it is much easier for a plaintiff to prove consumer fraud, than to prove common law fraud.

In Arizona, common law fraud requires proof of nine separate elements, and the proof must be by clear and convincing evidence.  Therefore, many commercial schemes involving some form of deception are able to evade civil liability for common law fraud.  On the other hand, consumer fraud can be proven by a mere preponderance of the evidence, which is a lower standard of proof than clear and convincing evidence.  Dunlap v. Jimmy GMC of Tucson, Inc., 136 Ariz. 338, 666 P.2d 83 (App. 1983).  In addition, the elements of consumer fraud are simpler.  In order to establish a claim for consumer fraud, a plaintiff must prove:

i. Defendant used deception, a deceptive act or practice, fraud, false pretense, a false promise, a misrepresentation, or concealed, suppressed, or omitted a material fact, in connection with the sale or advertisement of merchandise;

ii. Defendant intended that others rely upon such deception, deceptive act or practice, fraud, false pretense, false promise, misrepresentation, or concealment, suppression, and/or omission of a material fact;

iii. Plaintiff suffered damages as a result of reliance on defendant’s deception, deceptive act or practice, fraud, false pretense, false promise, misrepresentation, or concealment, suppression, or omission of a material fact; and

iv. Plaintiff’s damages.

The first element of an action for consumer fraud requires proof that the defendant used deception or any of several similar devices in connection with the sale or advertisement of merchandise.  The term “merchandise” means “any objects, wares, goods, commodities, intangibles, real estate, or services.”  A.R.S. § 44-1521.  Therefore, the sale of real estate is clearly covered by this statute.  In fact, case law suggests that any potential interest in real estate is covered by the Consumer Fraud Act.  For example, the court in State ex rel. Corbin v. Marshall, 161 Ariz. 429, 430, 778 P.2d 1325 (App. 1989) found that oil and gas lease assignments are covered by the Act, since they evidence an interest in real estate.  In other words, the assignment of a leasehold interest in oil and gas that may be found on the property is sufficient to create an interest in real estate under the Act.  As a result, the sale or advertisement of virtually any interest in real estate is covered by the Consumer Fraud Act.  Consequently, real estate professionals need to be cautious about comments or representations they make during a real estate transaction, whether those comments are made verbally, in writing, or through an advertisement.

The second element of an action for consumer fraud requires proof that the defendant intended that others rely on the deception or other similar device.  This does not require proof of an intent to deceive.  In a consumer fraud action, it is not necessary to show that the defendant intended to deceive the plaintiff.  Flagstaff Medical Center, Inc. v. Sullivan, 773 F.Supp. 1325 (D. Ariz. 1991); and Alaface v. National Inv. Co., 181 Ariz. 586, 590, 892 P.2d 1375 (App. 1994).  Rather, this element is satisfied if the defendant communicated the deceptive information in a manner such that it is reasonable to assume that others would rely on it.  For example, if a real estate salesperson publishes an advertisement about a listing, it is reasonable to assume that persons reading the advertisement would rely on it.  Similarly, if a salesperson communicates information about a property to a seller or buyer, it is reasonable to assume that the seller or buyer would rely on the information.

The third element of an action for consumer fraud requires proof that the plaintiff suffered damages as a result of reliance on defendant’s deception.  The courts have held that if plaintiff was harmed as a result of reliance on any false statement or misrepresentation made by the defendant, the reasonableness of plaintiff’s reliance is not an element of the claimParks v. Macro-Dynamics, Inc., 121 Ariz. 517, 520, 591 P.2d 1005, 1008 (App. 1979).  Therefore, the plaintiff does not have to prove that he or she reasonably relied on the deception.

Moreover, in evaluating representations made under the Consumer Fraud Act, the test is whether the least sophisticated consumer would be misled; technical correctness of the representation is irrelevant if the capacity to mislead is found.  Madsen v. Western Am. Mortgage Co., 143 Ariz. 614, 694 P.2d 1228 (App. 1985).  This means that in a consumer fraud action, the issue is not whether the plaintiff was actually deceived, but rather whether the least sophisticated consumer would have been deceived.  Therefore, in communicating information in a real estate transaction, real estate professionals must keep in mind this concept of the “least sophisticated consumer.”  Information must be communicated in such a way as not to mislead someone who falls into this category.  That would probably be someone who has virtually no knowledge of real estate transactions.  Even if a communication is technically correct, it may be deceptive if it has the capacity to mislead.  For example, if a salesperson represents that a house has no termites, that may be technically correct if a termite infestation has recently been treated.  However, this statement has the capacity to mislead one into believing that the house has never had termites.  This type of language, which is intended to parse hairs, can create potential liability for consumer fraud.  Therefore, real estate professionals need to be careful about the way they communicate information.  In the above example, the existence of the prior termite infestation, as well as the recent treatment, should be disclosed.

The final element in an action for consumer fraud is proof of the plaintiff’s damages.  In this regard, it is important to note that punitive damages are recoverable in an action under the Consumer Fraud Act.  Sellinger v. Freeway Mobile Home Sales, Inc., 110 Ariz. 573, 521 P.2d 1119 (1974), and Dunlap v. Jimmy GMC of Tucson, Inc., 136 Ariz. 338, 666 P.2d 83 (App. 1983).  This means that in egregious cases involving deception, a plaintiff may be entitled to recover both compensatory and punitive damages.  See, e.g., Howell v. Midway Holdings, Inc., 362 F.Supp.2d 1158, 1165 (D. Ariz., 2005), where the court denied summary judgment on punitive damages in part because the evidence was sufficient for a jury to find “a recurring artifice to defraud customers.”

Hopefully, this article will help real estate professionals understand why it is so important to be careful about the way information is communicated to clients and customers.  This includes information communicated verbally, in writing, or in an advertisement.

Craig Stephan
Attorney at Law
480-621-8281
website: www.craigstephanlaw.com
email: cstephan@craigstephanlaw.com

Consumer Fraud in Real Estate Transactions
© 2014-2017 Craig Stephan
All Rights Reserved

 

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Termites and Arizona Homeowners

The purpose of this article is to provide basic information for homeowners and real estate professionals about termites in Arizona.

The subterranean termite specie that is native to the Sonoran desert of Arizona is known as Heterotermes aureus.  Subterranean termites live in the soil and are attracted to moisture.  The moisture under the foundation of a home provides a potential nesting location.  Therefore, it is critically important that homes built in the Arizona desert be pretreated for subterranean termites.

Pretreatment Provides a Horizontal Barrier Against Intrusion

In Arizona, a pretreatment for subterranean termites involves treatment of the soil with a liquid termiticide, such as Termidor, before the concrete foundation for the home is poured.  This provides a horizontal barrier under the foundation against intrusion into the home by termites.  Purchasers of new homes from a builder or developer should make sure that the soil under the foundation of their home was pretreated with a liquid termiticide before the concrete slab was poured.

The active ingredient in a liquid termiticide is usually very toxic, so it must be diluted with water before being applied.  Therefore, the termiticide concentrate is mixed with water according to the instructions on the product label.  For example, one gallon of termiticide might be mixed with 400 gallons of water in a large tank.  A licensed applicator working for a licensed pest management company uses a hose to spray the termiticide from the tank onto the soil.  A typical pretreatment involves the application of 300 to 800 gallons of diluted termiticide, depending upon the size of the foundation.

Experts familiar with termite problems in Arizona generally consider a pretreatment with liquid termiticide to be a homeowner’s best protection against potential problems with subterranean termites.  Although Arizona law does not require a home to be pretreated, the standard of care for pest management professionals may require it, especially for homes built at desert elevations.  Therefore, if a new home is not pretreated and has resulting termite problems, a new home buyer may have a negligence claim against pest management professionals whose recommendations to the builder or developer did not include a pretreatment.  Also, if the owner of a new home knows that the home was not pretreated, it may be necessary to disclose this fact to a potential buyer of the home, especially if there is a history of termite problems.

New Construction Treatments Above the Slab

Some builders decide to skip the pretreatment and opt instead for a treatment above the slab during construction.  For example, their pest management company may apply a treatment to some of the wood during the framing stage of construction.  In Arizona, termiticide treatments applied above the slab during construction, i.e., after the foundation is poured, are known as new construction treatments.  Regulations promulgated by the Arizona Office of Pest Management require that new construction treatments include the treatment of critical areas that are known to allow intrusion of subterranean termites into the home.  One of these critical areas is the dirt that is found in bath traps.  Bath traps are areas in the foundation that are blocked out around pipes, thereby preventing the concrete from entering these areas.  In other words, they create “holes” in the foundation that extend down to the dirt below.  The regulations require that during a new construction treatment, the dirt in bath traps must be treated with a liquid termiticide.  This is done in order to provide a barrier against termite intrusion into the home through the bath traps.  If an applicator fails to treat the dirt in bath traps with a liquid termiticide during a new construction treatment, this is generally considered to be negligent, and may provide the basis for a claim by the homeowner against the pest management professionals.

Termiticide products that are applied to wood above the slab may state on the product label that they are pretreatments.  However, this is incorrect when the product is used in the State of Arizona.  The Arizona Administrative Code defines a pretreatment in Arizona as a treatment of the soil before the concrete slab is poured.

Sub-Label Rate Applications of Termiticide

New construction treatments may involve spraying or painting a termiticide onto wood during the framing stage of construction.  In performing these treatments, it is important that the applicator properly calculate the amount of termicide needed for the application, properly mix the termiticide, and properly apply the termiticide.  If any of these steps is incorrectly performed, the termiticide may be applied to the wood at a rate below that required by the product label.  This is known as a sub-label rate application, and will not provide the necessary protection against termite attacks on the wood.  If an applicator performs a sub-label rate application of a termiticide, this is generally considered to be negligent, and may provide the basis for a claim by the homeowner against the pest management professionals.

Pest Management Regulation

In Arizona, pest management professionals are licensed by the Office of Pest Management (OPM).  Licensees are required to complete continuing education in order to maintain their licenses.  In addition, every time a licensee performs an application of termiticide, the licensee is required to file a Termite Action Report Form (TARF) with OPM.  The TARF provides the date and location of the treatment, the pest management company and the applicator that performed the treatment, the name and amount of the termiticide applied, and the type of treatment performed.  On OPM’s website (www.sb.state.az.us), homeowners can search their address to find the TARFs relating to treatment at that location.  However, do not rely on this search to be complete, because OPM may include only the most recent TARFs for a particular address, or the TARFs may not have been submitted as required.

Final Grade and Post Construction Treatments

At the conclusion of construction of a new home, the pest management company performs a final grade treatment.  This consists of a perimeter trench around the foundation of the home that is filled with liquid termiticide, and then back-filled.  The amount of termiticide used depends on the length of the perimeter trench, and the concentration of the termiticide mixture.  The final grade treatment provides a barrier around the perimeter of the home.

Post construction treatments may also be needed if the homeowner finds evidence of termites in the home.  The two most common things that indicate the presence of termites are tubes and kick-holes.  Termites form tubes through which they pass from one location to another.  Tubes can appear on both the interior and the exterior of the home.  The Heterotermes aureus termite specie is prolific at building tubes.  Kick-holes are small holes formed in the drywall, and provide evidence of termite activity.  There are a variety of post construction treatments for termites.  One involves the application of foam termiticide into the area behind the drywall, where there is evidence of a termite tube or kick-hole.  Other post construction treatments may involve the use of a perimeter trench, the installation of a termite baiting system such as Sentricon, or injection of termiticide into an area under the foundation.

Warranties

Finally, pest management companies that perform a pretreatment are required to provide a five-year warranty to the new home buyer.  In addition, companies often sell warranties as part of their post construction treatments.  The value of a warranty depends upon its written terms, and upon the reputation and financial stability of the company that provides it.  Warranties usually provide that the pest management company will not return to retreat a property for a certain period of time after a treatment, e.g., 60 or 90 days.  Therefore, homeowners should make sure they understand how frequently a pest management company will retreat an ongoing termite infestation under the warranty.  In addition, warranties that accompany post construction treatments often require the payment of an annual fee for renewal of the warranty.

Conclusion

Hopefully, this article provides useful information about termites in Arizona for both homeowners and real estate professionals.  According to experts, the best way to protect a home against termites in Arizona is to pretreat the soil with a liquid termiticide before the concrete slab is poured.  This is the only way to provide an effective horizontal barrier under the slab against intrusion into the home by subterranean termites.

Craig Stephan
Attorney at Law
480-621-8281
website: www.craigstephanlaw.com
email: cstephan@craigstephanlaw.com

Termites and Arizona Homeowners
© 2014-2017 Craig Stephan
All Rights Reserved

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Arbitration Clause Protects the Builder or Developer

Purchase contracts used by builders and developers of new homes often contain clauses that require all disputes between the parties to be submitted to binding arbitration.  This clause is included in purchase contracts because it protects the interests of the builder or developer.  A typical arbitration clause requires arbitration before the American Arbitration Association (“AAA”), and may require the use of the AAA’s Construction Industry Arbitration Rules.  This article gives a brief overview of the arbitration process under those rules, and describes some of the differences between arbitration and litigation.  This information is one of the factors that new home buyers should consider before signing a contract to purchase a new home from a builder or developer.

The American Arbitration Association

The American Arbitration Association is an independent organization that provides arbitration and mediation services for many different types of disputes.  The AAA maintains panels of arbitrators and mediators who are trained in dispute resolution, but do not necessarily have any prior judicial experience.  When parties submit a dispute to the AAA for resolution via binding arbitration, the ultimate decision as to the outcome of the dispute is made by an arbitrator.  The parties effectively waive their right to have their dispute litigated in a court of law.

Initiating the Arbitration

In order to initiate an arbitration proceeding under the standard track procedures of the Construction Industry Arbitration Rules, the claimant submits a demand for arbitration to the AAA, together with the applicable administrative filing fee and a copy of the arbitration clause in the contract.  Along with the demand, the claimant can submit a form of complaint that sets forth the pertinent facts and legal theories supporting the claims.  The other party, known as the respondent, then has the opportunity to file an answering statement, and may file an answer to the complaint.  The respondent may also file a counterclaim if applicable.  At this point in the process, the arbitration has been initiated, but no arbitrator has yet been selected.

Telephonic Administrative Conference

Prior to selection of the arbitrator, the parties or their counsel may participate in a telephonic administrative conference with a representative of the AAA.  The purposes of the administrative conference are to determine how to best expedite the arbitration, to address the process for selecting the arbitrator, and to discuss mediation or other alternative forms of dispute resolution.

Selection of the Arbitrator

The first method for selecting an arbitrator is for the parties to agree on the person who is to serve.  If no agreement can be reached, the AAA may forward an identical list of arbitrators to each party, and ask each side to strike those who are objectionable and rank the remaining names in order of preference.  These lists are then returned to the AAA, which selects the arbitrator based upon the rankings provided by the parties.

Once the arbitrator is appointed, he or she is required to disclose any conflicts of interest or bias that may affect his or her impartiality.  Based upon the disclosure, a party can file an objection to the arbitrator due to lack of impartiality, and the objection is ruled on by the AAA.  If the AAA determines that there is a problem with the arbitrator’s impartiality in the particular case, then another arbitrator is selected.

Telephonic Preliminary Management Hearing

Shortly after the arbitrator is selected, the parties or their counsel participate in a telephonic preliminary management hearing with the arbitrator.  The arbitrator may address several issues at this hearing, including the nature of the claims and defenses, the expected length of the arbitration hearing, the date and time for the arbitration hearing, the discovery to be allowed if any, the schedule for discovery, the deadlines for disclosure and exchange of evidence, the deadlines for submission of witness and exhibit lists, the deadlines for submission of certain motions, and similar matters.  This hearing allows the arbitrator and the parties to set up cost-effective management procedures for the arbitration.  The arbitration hearing is normally set within a few months of the preliminary management hearing.  Therefore, the time frame for arbitration is much shorter than the time frame for litigation.

Limited Discovery

During the interval between the preliminary management hearing and the arbitration hearing, the parties exchange evidence and engage in any discovery allowed by the arbitrator, such as the taking of depositions of witnesses.  One major difference between arbitration and litigation is that in arbitration, discovery is usually quite limited.  For example, the arbitrator may not allow the taking of depositions of witnesses.  Although these limitations on discovery are intended to reduce the cost of the arbitration, they also hamper the ability of the claimant to obtain the evidence necessary to prove the claim.  This is significant, because the claimant has the burden of proof, and without evidence the claimant cannot meet this burden.  Therefore, in cases brought by homeowners against a builder or developer, the party that usually benefits from the limitation on discovery is the builder or developer.

Fees

Prior to the arbitration hearing, the parties have to pay all of their filing fees, administrative fees, and arbitrator fees to the AAA.  The filing and administrative fees vary depending upon the nature of the case.  The arbitrator fee for each party consists of their share of the estimated fees the arbitrator will charge for the arbitration.  In an arbitration involving a homeowner and a builder or developer, each side must pay one-half of the estimated fees of the arbitrator prior to the arbitration hearing.  Independent arbitrators normally charge between $300 and $600 per hour.  The arbitration hearing is not held until the fees are paid.

Arbitration Hearing and Award

The arbitration hearing is conducted by the arbitrator, who has broad discretion over the order of proof and the methods for presenting evidence.  The proceedings can be recorded by a court reporter, provided prior arrangements are made by the parties.  The rules of evidence applicable in a court of law do not apply at an arbitration hearing, though the arbitrator may use them for guidance.  For example, the parties can submit witness testimony contained in written declarations and affidavits, even though the witness is never subject to cross-examination by the opposing party.  The arbitrator is entitled to give this evidence the weight that the arbitrator deems appropriate.  In a court of law, the testimony of a witness is not admissible unless the witness is subject to cross-examination.

After the hearing has been closed, the arbitrator reviews the evidence and issues a decision that is set forth in an arbitration award.  The prevailing party can file an action in court to have the arbitration award converted to a judgment.  Although a judgment based upon an arbitration award can be appealed, it is difficult to win such an appeal.

Conclusion

This article provides an overview of the arbitration process under the AAA’s Construction Industry Arbitration Rules.  Arbitration differs significantly from litigation.  In an arbitration, the dispute is decided by an arbitrator rather than a judge or jury.  In addition, the time frame for arbitration is short and the ability to obtain evidence is limited.  Also, in an arbitration, the parties can submit evidence to the arbitrator that would not be admissible in a court of law.  Arbitration may be beneficial for all parties if the amount of money at issue is relatively small.  However, if a homeowner has a significant claim against a builder or developer for a construction defect, it is questionable whether arbitration benefits the homeowner.  On the other hand, arbitration certainly benefits the builder or developer.

This information is one of the factors a new home buyer should consider prior to signing a purchase contract with a builder or developer that contains a binding arbitration clause.  New home buyers who do not want to submit all potential disputes to binding arbitration can ask the builder or developer to strike the arbitration clause from the contract.  However, builders and developers may be reluctant to do so, because the arbitration clause protects their interests.

Craig Stephan
Attorney at Law
480-621-8281
website: www.craigstephanlaw.com
email: cstephan@craigstephanlaw.com

Arbitration Clause Protects the Builder or Developer
© 2014-2017 Craig Stephan
All Rights Reserved

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Caution for Arizona New Home Buyers

As the economy continues to improve after the Great Recession, there will be an increase in new home construction in Arizona.  For several reasons, new home buyers in Arizona should be careful in approaching their purchase, and should obtain the help of professionals when necessary.  For the reasons explained below, buyers may want to consider purchasing a resale from a homeowner rather than purchasing a new home directly from the builder or developer.

Limitations on Contractual Remedies

When you purchase a new home from a builder or developer, you are normally required to use a purchase contract that has been drafted for their benefit.  This type of contract is called an adhesion contract, because you are required to accept or “adhere to” the terms that benefit the other party.  In other words, you have very little bargaining power with respect to the bulk of the contract terms.  These terms typically include limitations on your remedies if the homebuilder breaches the contract by providing you with a new home that has a construction defect.

For example, damages under the contract are usually limited to a variant of repair costs.  This would include the cost of repairing the construction defect.   Normally, the contract does not allow for consequential damages such as the decrease in the market value of the home due to the breach.  This limitation on remedies can have a significant impact on a new home buyer.  For example, there are areas in Maricopa County, Arizona, that have well documented problems with expansive soil and shrink-swell soil.  If a builder or developer constructs a home in such an area without properly taking into account the nature of the soil, the foundation of the home can shift or move, resulting in significant damage.  Under these circumstances, the cost of repairing and stabilizing the home may not fully compensate the homeowner for the decrease in the market value of the home due to the construction defect.

In addition, contractual warranties given by builders and developers of new homes usually contain limitations.  Therefore, trying to get the builder or developer to fix sloppy work can often be frustrating, time consuming, and expensive.  In many instances you may have to hire a lawyer to help you, and even then there is no guarantee you will get satisfaction.

The Arbitration Clause

Most importantly, new home contracts usually contain a clause that requires all disputes between the buyer and the builder or developer to be submitted to binding arbitration.  These arbitration clauses are legally enforceable.  If your contract contains a binding arbitration clause, you cannot sue the builder or developer in a court of law for damages arising from defects in your new home.  Instead, you have to file a demand for arbitration with an organization such as the American Arbitration Association.

This is significant, because there are limitations associated with arbitration that do not apply to litigation in court.  First, you do not have the right to a jury trial.  Rather, you must rely on the decision of an arbitrator.  Second, in Maricopa County Superior Court the current filing fee for a civil action is $319.00, and you do not have to pay separately for the judge who is assigned to your case.  This is a bargain.  On the other hand, the administrative and filing fees for the American Arbitration Association are significantly higher, depending on the amount of money at issue in your case.  In addition, you have to pay one-half of the estimated fees of the arbitrator before your arbitration hearing.  Fees charged by arbitrators vary between approximately $300 per hour and $600 per hour.  Therefore, you could end up paying between $3,000 and $15,000, or more, in filing fees, administrative fees, and arbitrator fees, before you ever get to an arbitration hearing.  This does not include the attorney’s fees that you may incur if a lawyer handles your case.  Third, arbitration rules usually limit the amount of discovery you can do in order to obtain evidence to support your claim.  For example, the arbitrator may not allow the parties to take any depositions of witnesses, or may severely limit the depositions that can be taken.  If you cannot obtain the evidence, you cannot prove your claim.  Finally, if you get an unfavorable result in arbitration, it is difficult to get it reversed on appeal, because arbitrators have broad discretion in deciding the merits of your case.

In summary, new home buyers should be aware that if they have a problem with their new home, their potential recourse against the builder or developer will most likely be limited to binding arbitration.

Arizona’s Economic Loss Doctrine Limits Recourse

In addition, Arizona law relating to a concept known as the economic loss doctrine limits a new home buyer’s remedies against the builder or developer for construction defects.  Under the economic loss doctrine, a new home buyer can bring a claim against the builder or developer for breach of contract, but cannot sue for a tort such as negligence.  This is significant, because the damages available in a negligence or tort action often exceed the damages that would be available for breach of contract.   This is one way in which Arizona law limits recourse for a new home buyer who purchases directly from the builder or developer.  It is worth noting that this rule does not apply if you purchase a resale, because you are purchasing from a homeowner and not from the builder or developer.

In summary, if you buy a new home directly from a builder or developer and the home has a construction defect, you are limited to suing the builder or developer for breach of contract and cannot sue for negligence.  However, if you purchase a resale in a new subdivision from a homeowner, you do not have a contract directly with the builder or developer.  Under these circumstances, if you discover a latent or hidden construction defect in the home, you retain the right to sue the builder or developer in tort for negligence.  Therefore, the purchaser of a resale in a new subdivision typically has broader remedies against the builder or developer than does the original purchaser of the home.

From a legal perspective, this does not make much sense.  Hopefully, Arizona courts will change or further clarify the law in this area.  One alternative available to the courts would be to treat new home buyers as consumers who are not subject to the economic loss doctrine.  Nevertheless, at this juncture this is a problem that new home buyers need to be aware of, because the economic loss doctrine limits their potential remedies against the builder or developer of a new home.

Conclusion

For all of these reasons, new home buyers in Arizona should be careful in approaching their purchase, and should obtain the help of professionals when necessary.  Although you may get along with a builder or developer at the outset, you should know that their economic interests are not aligned with yours.  If problems arise, you can expect them to protect their own interests at your expense.  In order to avoid many of these problems, buyers may want to consider buying a resale rather than a new home.

Craig Stephan
Attorney at Law
480-621-8281
website: www.craigstephanlaw.com
email: cstephan@craigstephanlaw.com

Caution for Arizona New Home Buyers
© 2014-2017 Craig Stephan
All Rights Reserved

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Buyer’s Broker Beware!

Most real estate professionals who handle residential transactions are familiar with the stigmatized property statute, A.R.S. § 32-2156. It provides:

“A. No criminal, civil or administrative action may be brought against a transferor or lessor of real property or a licensee for failing to disclose that the property being transferred or leased is or has been:
1. The site of a natural death, suicide or homicide or any other crime classified as a felony.
2. Owned or occupied by a person exposed to the human immunodeficiency virus or diagnosed as having the acquired immune deficiency syndrome or any other disease that is not known to be transmitted through common occupancy of real estate.
3. Located in the vicinity of a sex offender.
“B. Failing to disclose any fact or suspicion as set forth in subsection A shall not be grounds for termination or rescission of any transaction in which real property has been or will be transferred or leased.” (Emphasis added.)

Part of the legislature’s intent in passing this statute was to immunize transferors, lessors, and real estate licensees from legal repercussions if they fail to disclose certain facts about stigmatized properties. The statute does this by prohibiting any criminal, civil, or administrative action against a transferor, lessor, or licensee for failure to make certain disclosures.

Suppose that a buyer’s broker represents a client in the purchase of a residence. The broker owes the client (1) fiduciary duties that include full disclosure and (2) professional duties of reasonable care in handling the transaction. Under normal circumstances, if the broker breaches the fiduciary duty of full disclosure and fails to handle the transaction with reasonable care, he or she can be sued. More specifically, the client would have potential causes of action for breach of fiduciary duty and negligence.

Now, suppose that the buyer’s broker knows that the house the client is purchasing was the site of a recent homicide. In reliance on the stigmatized property statute, the broker decides not to disclose this information to his or her client, the buyer. A few days after the buyer moves into the house, she finds out about the recent homicide from a neighbor. The buyer never would have bought the house if she had known about the homicide. If the stigmatized property statute did not exist, the buyer would have potential claims against the broker for breach of fiduciary duty and negligence. Given this scenario, does the stigmatized property statute protect the buyer’s broker from civil liability?

The stigmatized property statute says that no civil action may be brought against a licensee for failing to disclose that the property was the site of a homicide. In other words, the plain language of the statute takes away (i.e., abrogates) the right of an injured buyer to sue a buyer’s broker for non-disclosure of this information. Since the statute purports to take away this cause of action, the statute must be examined to determine whether it runs afoul of the anti-abrogation clause contained in the Arizona Constitution.

Many readers will be asking, “What is the anti-abrogation clause?” The anti-abrogation clause is set forth in article 18, section 6 of the Arizona Constitution. It provides:

The right of action to recover damages for injuries shall never be abrogated, and the amount recovered shall not be subject to any statutory limitation.” (Emphasis added.)

This provision precludes the Arizona legislature from enacting any statute that abrogates or takes away the right to recover damages for injuries. It also precludes the legislature from enacting caps on the amount of damages that can be recovered. However, the Arizona Supreme Court has interpreted the anti-abrogation clause to apply only in certain circumstances, i.e., only to certain types of claims.

The Arizona Supreme Court applies a two-part analysis to determine whether a claim is protected by the anti-abrogation clause. Duncan v. Scottsdale Medical Imaging, 205 Ariz. 306, 313, 70 P.3d 435 (2003). First a court must determine whether a claim can trace its antecedents to the common law. Claims for breach of fiduciary duty and negligence both have a lengthy history in the common law, dating back well before the time Arizona became a state. Therefore, both types of claims satisfy this first test.

Second, a court must determine whether the statute at issue regulates an action for damages or completely abrogates it. Regulation is allowed, but abrogation is not. In this case, the stigmatized property statute abrogates the right of an injured buyer to bring a civil action against the buyer’s broker. Therefore, the wording of the stigmatized property statute clearly satisfies this second test. This is not good news for our hypothetical buyer’s broker.

What this suggests is that under the above scenario (i.e., failure of a buyer’s broker to disclose to a client information set forth in the statute), the stigmatized property statute violates the anti-abrogation clause contained in article 18, section 6 of the Arizona Constitution. In other words, the stigmatized property statute is probably unconstitutional as applied to a buyer’s broker. Therefore, a buyer’s broker should not rely on the stigmatized property statute for protection.

Let’s summarize. A buyer’s broker owes his or her client (1) fiduciary duties that include full disclosure and (2) professional duties of reasonable care in handling a transaction. In order to comply with his or her fiduciary duties, a buyer’s broker should disclose to his or her client all material information about a property, including the information referred to in the stigmatized property statute. For example, if the property was the site of a homicide, tell your client. If the property is located near a sex offender, tell your client. The same rule applies to other information referred to in the statute. Written disclosure is always the best, because it allows the broker to later document information that was transmitted to the client.

Next, in order to comply with his or her professional duties, a buyer’s broker must exercise reasonable due care and diligence to consummate a transaction to the client’s best advantage. This requires the buyer’s broker to use due diligence in obtaining material information about a property, so that (1) the broker can accurately advise the client about the transaction and (2) the client can make an informed decision regarding the purchase. Material information learned by the buyer’s broker as a result of his or her due diligence must be disclosed to the buyer, including the information referred to in the stigmatized property statute.

Finally, a buyer’s broker should not rely on the stigmatized property statute for protection. If a buyer’s broker relies on the statute for protection and the statute is found unconstitutional, the broker will be left virtually defenseless. The broker’s failure to disclose to the client would constitute a clear breach of fiduciary duty, and would probably amount to professional’s malpractice. In addition, since the broker’s wrongful conduct would be committed willfully, knowingly, and without regard for the client’s interests, the broker would be skating uncomfortably close to exposure for punitive damages. A buyer’s broker can avoid these potential problems by fully disclosing information about a stigmatized property to his or her client.

Hopefully, this article will help buyers’ brokers avoid a potential trap lurking in the stigmatized property statute.

Craig Stephan
Attorney at Law
480-621-8281
website: www.craigstephanlaw.com
email: cstephan@craigstephanlaw.com

Buyer’s Broker Beware!
© 2006-2017 Craig Stephan
All Rights Reserved

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Real Estate Brokers and Agents – What needs to be disclosed?

Introductory Note

The following article by Craig Stephan, entitled “Real Estate Brokers and Agents – What needs to be disclosed?”, was published in the April 2006 edition of the Arizona Journal of Real Estate and Business, Vol. 21, no. 4, at pages 39 et seq.

Real Estate Brokers and Agents – What needs to be disclosed?

Disclosure is one of the main themes in the modern education of real estate professionals.  Every licensee in Arizona is required to take renewal classes on this topic.  Nevertheless some licensees still lack a basic understanding of the role disclosure plays in a typical real estate transaction.  This article aims to explain the vital role of disclosure in a way that will hopefully make it clearer to those who must deal with it on a daily basis.

Disclosure Between Seller and Buyer

There is a Latin phrase that we have all heard when it comes to financial transactions.  The phrase is “Caveat Emptor” and it means “Buyer Beware”.  This used to be the rule that courts would apply when a buyer complained that he or she was not given important information prior to entering into a financial transaction.  Under this rule, the burden was on the buyer to investigate every aspect of a transaction, to make sure that he or she was not being bilked.  In a sense, this approach gave a free pass to the seller to withhold information about a deal that only the seller was privy to.  The harsh results that followed from the application of this rule led to its demise.  The world of “Buyer Beware” is over.  The new rule for sellers to follow is the law of disclosure, which is based upon “a judicial policy promoting honesty and fair dealing in business relationships.”  Hill v. Jones, 151 Ariz. 81, 84, 725 P.2d 1115 (App. 1986).

In addition, under modern law, duties that apply to the seller often also apply to the buyer.  Sellers and buyers in a real estate transaction owe one another a duty of good faith and fair dealing.  Hill v. Jones, 151 Ariz. 81, 725 P.2d 1115 (App. 1986), and Lombardo v. Albu, 199 Ariz. 97, 14 P.3d 288 (2000).  In short, sellers and buyers must deal fairly with each other.  This is the legal basis for seller/buyer disclosure requirements, which are a two-way street.  Not only must sellers disclose to buyers, but buyers must disclose to sellers.  This is a much fairer approach than the old game of “Buyer Beware”.

Therefore, our first general category of disclosure involves matters that must be disclosed between a seller and a buyer.  “Where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer.”  Hill v. Jones, 151 Ariz. 81, 85, 725 P.2d 1115 (App. 1986).  A material fact is defined as “one to which a reasonable person would attach importance in determining his choice of action in the transaction in question.”  Hill v. Jones, 151 Ariz. 81, 85, 725 P.2d 1115 (App. 1986).  In other words, if a reasonable party would attach importance to a particular fact in deciding whether or not to enter a transaction, then the fact is material.  Some examples of material facts include (1) whether the property is infested with termites, (2) whether a room addition complies with the building code, (3) whether a parcel of land can be developed, (4) whether a house is in a quiet neighborhood, (5) whether a property has city light views, (6) whether a parcel of land has access, (7) whether a water well is contaminated, and (8) whether property is on septic tank or sewer.  These are just a few of the myriad examples of possible material facts in a real estate transaction.  In general, if a seller knows a material fact about a property that a buyer does not know and cannot readily observe, then the fact must be disclosed to the buyer.  Such disclosure is often made in a Seller’s Property Disclosure Statement, however, it can be made in any other written form as well.  Disclosure should be timely, i.e., provided far enough in advance of closing to allow the buyer to act on it.  Most importantly, the seller should be told that disclosure is a legal requirement, not an exercise in altruism.

Similarly, if a buyer knows of facts materially affecting the transaction which are not readily observable and are not known to the seller, the buyer is under a duty to disclose them to the seller.  This would include the fact, known to a buyer, that the buyer probably does not have the financial ability to close the deal.  See, e.g., Lombardo v. Albu, 199 Ariz. 97, 14 P.3d 288 (2000).  Disclosure of material facts by the buyer should also be made in writing, in order to properly document that disclosure was made.

In addition, the party making the disclosure must tell the whole truth.  If some facts are disclosed and others are withheld, this may amount to a false representation.  See Hill v. Jones, 151 Ariz. 81, 84-85, 725 P.2d 1115 (App. 1986).  Moreover, “a duty to disclose may arise where the buyer makes an inquiry of the seller, regardless of whether or not the fact is material.”  Hill v. Jones, 151 Ariz. 81, 86 at footnote 3, 725 P.2d 1115 (App. 1986), citing Universal Inv. Co. v. Sahara Motor Inn, Inc., 127 Ariz. 213, 215, 619 P.2d 485, 487 (1980) (In a commercial real estate transaction, “Inquiry by the buyer about the condition of the electrical system would have imposed a duty on the seller to disclose all it knew”).  “A party of whom inquiry is made concerning the facts involved in a transaction must not, . . . conceal or fail to disclose any pertinent or material information in replying thereto, or he will be chargeable with fraud.”  Nat. Housing Indus. v. E. L. Jones Develop. Co., 118 Ariz. 374, 379, 576 P.2d 1374 (App. 1978), citing 37 Am.Jur.2d, Fraud and Deceit, § 150, pp. 207-08 (1968).  Therefore, if a party to a transaction wants to trigger the duty to disclose specific non-privileged information, especially information which is material to the transaction, one option is to request the information of the other party.  The request should be in writing and should ask for a written response.  Any response given must be complete, accurate, and not misleading.

In summary, the duty of good faith and fair dealing is the modern legal basis for requiring disclosure between parties to a real estate transaction.  This duty of good faith and fair dealing also provides the legal foundation for the Seller’s Property Disclosure Statement.  The duty to disclose material facts not observable by or known to the other party is a two-way street.  The duty rests upon both sellers and buyers.

Disclosure Between Licensees and Clients

The second general category of disclosure involves parties who are on the same side of a transaction, i.e., real estate licensees and their clients.  As you probably know, real estate licensees are agents of their clients.  Under the law, an agency relationship imposes on an agent the duty of utmost good faith, integrity, honesty, and loyalty in the agent’s dealings with the client.  Musselman v. Southwinds Realty, Inc., 146 Ariz. 173, 175, 704 P.2d 814 (App. 1985).  More importantly, real estate licensees are fiduciaries because they possess knowledge and skill in real estate transactions that is superior to that generally possessed by their clients.fn1  Therefore, the client relies on the licensee for protection and information in a real estate transaction.  The high degree of duty placed on the licensee serves to protect the client.  The law views it as particularly egregious if one in the superior position of a fiduciary uses his or her superior knowledge to take advantage of a client.  The two key elements in all of this are (1) the licensee’s superior knowledge and skill which makes the licensee a professional, and (2) the client’s reliance on the licensee to employ this superior knowledge and skill in exercising professional judgment about a transaction.

Moreover, “Courts have imposed on fiduciaries an affirmative duty of good faith and full and fair disclosure of all material facts, as well as an affirmative obligation to employ reasonable care to avoid misleading their clients.”  Burkons v. Ticor Title Ins. Co. of Calif., 165 Ariz. 299, 308, 798 P.2d 1308 (App. 1989).  In other words, a licensee (1) must disclose all material facts to the client, and (2) must use due care not to mislead the client.  This means that if a licensee develops or receives information about a transaction that is or may be material to the client, the information must be disclosed to the client.  The failure to disclose the information amounts, at a minimum, to a breach of fiduciary duty.  In addition, a licensee must use due care to make sure that information passed to a client remains true and correct.  If circumstances change during the course of a transaction, making prior information incorrect, then the licensee must use due care to update the information so that the client is not misled.  The failure to update material information passed to a client constitutes negligence, or professional’s malpractice.

As a professional, a licensee has a duty to investigate material facts relating to a transaction, so that he or she can inform and advise the client about the transaction.  This duty to investigate is often referred to as performing one’s due diligence.  The duty of a real estate broker to investigate a transaction for a client is well summarized in a California case:

“The broker as a fiduciary has a duty to learn the material facts that may affect the principal’s decision.  He is hired for his professional knowledge and skill; he is expected to perform the necessary research and investigation in order to know those important matters that will affect the principal’s decision, and he has a duty to counsel and advise the principal regarding the propriety and ramifications of the decision.  The agent’s duty to disclose material information to the principal includes the duty to disclose reasonably obtainable material information. . .  The facts that a broker must learn, and the advice and counsel required of the broker, depend on the facts of each transaction, the knowledge and experience of the principal, the questions asked by the principal, and the nature of the property and the terms of sale.  The broker must place himself in the position of the principal and ask himself the type of information required for the principal to make a well-informed decision.  This obligation requires investigation of facts not known to the agent and disclosure of all material facts that might reasonably be discovered.”  Field v. Century 21 Klowden-Forness Realty, 63 Cal.App.4th 18, 25-26, 73 Cal.Rptr.2d 784 (1998) (internal citations omitted).

In summary, real estate licensees are agents of their clients, and owe fiduciary duties to their clients.  This includes the duty of full disclosure to the client of all material facts relating to the transaction.  In addition, the licensee must use due care not to mislead the client.  Finally, the licensee must investigate the transaction in order to be able to provide material information and professional advice to the client.  The licensee’s greatest legal exposure is to the client, because the failure to comply with legal duties may result in breach of fiduciary duty or in professional’s malpractice.  Licensees should remember that they are on the same side as the client, and should act accordingly.

Disclosure Between Licensees and Non-Clients

As stated above, the seller and the buyer are required to deal with one another on the basis of good faith and fair dealing.  This duty of good faith and fair dealing owed by principals to one another also extends to their agents.  While licensees owe fiduciary duties to their clients, they “shall also deal fairly with all other parties to a transaction.” Ariz. Admin. Rule R4-28-1101(A).  In other words, licensees owe a duty of good faith and fair dealing to those who are not their clients.  Therefore, the third general category of disclosure involves licensees and non-clients, and is based upon the duty of good faith and fair dealing.

The licensee’s duty of fair dealing toward non-clients does not require investigation of the client in order to pass information to the non-client.  Remember, the licensee works for the client, and not for the non-client.  However, fair dealing does require disclosure to a non-client of circumstances that a reasonable licensee would perceive as evidence of fraud.  Aranki v. RKP Investments, Inc., 194 Ariz. 206, 208, 979 P.2d 534 (App. 1999), referencing Burkons v. Ticor Title Ins. Co., 168 Ariz. 345, 353, 813 P.2d 710, 718 (1991) (analogizing to the duties of escrow agents).  Therefore, if a licensee learns information which would lead a reasonable licensee to suspect that a fraud is being perpetrated, this must be disclosed to all parties to the transaction.  In addition, a licensee, like the principal, must disclose adverse material information that is not readily observable by or known to the other party.

More importantly, Administrative Rule R4-28-1101(B) provides:

“A licensee participating in a real estate transaction shall disclose in writing to all other parties any information the licensee possesses that materially or adversely affects the consideration to be paid by any party to the transaction, including:
1.  Any information that the seller or lessor is or may be unable to perform;
2.  Any information that the buyer or lessee is, or may be, unable to perform;
3.  Any material defect existing in the property being transferred; and
4.  The existence of a lien or encumbrance on the property being transferred.”

This rule requires disclosure in writing to all other parties to the transaction of certain information that materially or adversely affects the consideration to be paid by any party.  The broadest category of information referred to in the rule is probably item number 3, “Any material defect existing in the property being transferred.”  This could conceivably apply to anything from a construction defect in a home to the fact that land is located in a floodplain.

In addition, every licensee should be aware that under Arizona law, the foregoing Administrative Rule provides minimum standards of care for licensees toward non-clients.  Lombardo v. Albu, 199 Ariz. 97, 100-101, 14 P.3d 288 (2000).  This is significant, because it means that a violation of this rule constitutes negligence on the part of the licensee.  Therefore, a non-client harmed by the licensee’s violation of the rule can bring an action under the theory of negligence per se.  In such an action, the violation of the rule creates liability and the non-client must prove only causation and damages.  Therefore, it is important that licensees be aware of the above Administrative Rule and comply with its provisions.

In summary, licensees owe a duty of good faith and fair dealing to non-clients.  Evidence of fraud in the transaction must be disclosed to all parties.  Adverse material facts not readily observable or known to other parties must also be disclosed.  Finally, a licensee must take care to comply with Administrative Rule R4-28-1101(B), since violation of the rule constitutes negligence per se.  Pursuant to the rule, a licensee must disclose in writing to all other parties to the transaction, certain information that materially or adversely affects the consideration to be paid by any party.

Hopefully, the foregoing provides a useful guide for real estate professionals with respect to disclosure in a real estate transaction.

fn1 “A licensee owes a fiduciary duty to the client and shall protect and promote the client’s interests.”  Arizona Administrative Rule R4-28-1101.

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Craig Stephan
Attorney at Law
480-621-8281
website:  www.craigstephanlaw.com
email:  cstephan@craigstephanlaw.com

Real Estate Brokers and Agents – What needs to be disclosed?
© 2006-2017 Craig Stephan
All Rights Reserved

Posted in Real Estate | Comments Off on Real Estate Brokers and Agents – What needs to be disclosed?