MCPA: A broken record
REALTORS® must be aware of proper defenses

I am writing this article at the risk of sounding like a broken record. It seems almost impossible that there could be a REALTOR® in the state of Michigan who is not aware of the controversy surrounding the application of the Michigan Consumer Protection Act (MCPA) to REALTORS®.

This controversy has boiled for many years. MAR, through its Legal Action Committee, has spent tens of thousands of dollars to obtain a bulletproof defense for REALTORS® against MCPA claims through a long series of court cases.

Unfortunately, MCPA claims are potentially so lucrative that plaintiffs’ lawyers keep asserting claims against REALTORS®. Some REALTORS® are apparently unaware of the defense available to REALTORS®, and simply fail to present the defense at the trial court. These failures or omissions are adversely affecting REALTORS® and all of us who spend our time defending them.

Plaintiffs’ attorneys asserting MCPA claims against REALTORS® often point to the 1993 decision in Price v Long Realty, the last reported MCPA decision discussing the MCPA exemption as it relates to real estate licensees. These same attorneys conveniently ignore the fact that the reasoning in the decision in Price v Long Realty has been subsequently rejected by the Michigan Supreme Court on more than one occasion.

Two recent cases by the Michigan Court of Appeals demonstrate both the availability of the bulletproof defense and the adverse consequences to all of us when it is not raised in a case.

On January 13, 2004, the Michigan Court of Appeals released its decision in Beshada v Millard Realty. The facts in this case are typical of the type of cases in which MCPA claims are pursued against REALTORS®.

Denise Beshada purchased a home using an FHA insured mortgage loan. The FHA appraisal failed to disclose certain problems with the home which could have prevented it from meeting minimum FHA standards. Beshada, after closing, discovered deficiencies which resulted in her lender paying contractors $9,600 to correct the problems. Beshada then sued the sellers, their real estate agent, Millard Realty, and the appraisal service. Beshada asserted claims against Millard Realty under the MCPA. Fortunately, the trial court granted summary disposition to Millard Realty on the MCPA claim. It did so based on the facts of the case, and not based on the defense that REALTORS® are exempt from MCPA claims.

When Beshada appealed this case to the Michigan Court of Appeals, the Michigan Court of Appeals discussed the possible exemption of REALTORS® from claims under the MCPA. The Court of Appeals stated:

“ Michigan courts have held the MCPA applicable to business activity related to residential home sales. Thus, the MCPA applies in general to a real estate agent’s business endeavors to sell residential property to the ultimate consumer.”

The argument that REALTORS® are exempt under the MCPA was apparently not made in this case. Instead, it was apparently agreed by the attorneys involved that the MCPA did apply to the real estate licensee in this case. While the MCPA claim against the real estate licensee in this case was dismissed based upon the specific facts, the language in this decision is very problematic for the rest of us. Every attorney appearing in court to obtain a dismissal of MCPA claims against a REALTOR® is going to have to explain away the language in the Court of Appeals’ decision quoted above.

Attorneys trying to defeat MCPA claims against REALTORS® will not have to look far to convince a circuit court judge that the language quoted above from Beshada v Millard Realty does not reflect the law in Michigan. Approximately five weeks after the Michigan Court of Appeals released its decision in Beshada v Millard Realty, it released its decision in Timmons v Stetler. As in Beshada, the buyer contended that the REALTORS® involved in the case made misrepresentations during the course of the transaction that required a finding that the REALTORS® had violated the MCPA. The attorneys for the REALTORS® in this case properly presented in the Circuit Court the defense that the REALTORS® were exempt from claims under the MCPA with respect to the transaction at issue. The Circuit Court agreed, and dismissed the MCPA claim against the REALTORS®.

The Michigan Court of Appeals made short work of the buyers’ claim on appeal that the trial court made a mistake in dismissing the MCPA claims based on the exemption. The court of appeals first quoted the Michigan Occupational Code to demonstrate that the REALTORS®’ activities in this case were governed by the Occupational Code. The Court then held:

“ The MCPA provides an exemption for ‘a transaction or conduct specifically authorized under the laws administered by a regulatory board or officer acting under statutory authority of this State or the United States.’

“ In the present case, Curtis’ [the salesperson’s] role as DeVoll and Franklin’s real estate agent [i.e., as the agent for the sellers] was simply to list the home for DeVoll and Franklin, the same home that he had listed for them on previous occasions, and, thus, the ‘transaction’ and his ‘conduct’ are exempt from the act [the MCPA] under the above-noted exemption.”

The defense referred to by the Michigan Court of Appeals in the Timmons decision has become routine for lawyers who regularly represent REALTORS®. Further, Circuit Court judges are routinely dismissing MCPA claims against REALTORS® based on this defense. However, the defense must be properly raised in the Circuit Court, or we will continue to have to deal with the effect of isolated decisions, such as the decision by the Michigan Court of Appeals in Beshada v Millard Realty.

A complete kit for defending MCPA claims is available on MAR’s Web site at no cost for use by REALTORS®’ attorneys. We need to get the word out — there is no reason to lose any more MCPA claims based on conduct during a real estate transaction. Once the word is out, others who use the MCPA as a tool for liability will have to find another target.

Inspections: What are the rules?

Recently, many REALTORS®, through the MAR legal hotline and e-mail, have inquired as to MAR’s policies or positions on home inspections. Based on the questions, it would appear that there is some confusion as to where MAR stands on home inspections.

MAR has not adopted any formal policies with respect to home inspections. It has, through its Legal Action Committee, been involved in numerous cases over the years which has resulted in general recommendations to the membership regarding home inspections.

First, every REALTOR®, whether representing a seller or a buyer, should make certain that the buyer has the opportunity to condition the purchase of a home on a satisfactory inspection. The case law protecting the rights of sellers, buyers and REALTORS® successfully obtained by MAR over the past several years is based on the buyer having an opportunity to have the property inspected prior to being required to purchase the property.

Second, REALTORS® should not be directly involved in arranging inspections for buyers. Instead, if a buyer does not have sufficient information upon which to select a home inspector, or requests a recommendation from a REALTOR® as to a home inspector, the REALTOR® should provide a list of choices of home inspectors to the buyer. This recommendation is based upon the fact that, in the past, REALTORS® in other states have been found liable for the mistakes of an inspector, based at least in part on the fact that they directly arranged for the inspector.

Third, members have been advised to let the home inspector do his work. Members should not second-guess an inspector during an inspection, or directly take issue with an inspector’s findings which the REALTOR® thinks are incorrect. For example, if a home inspector concludes that the furnace in a residence is in good condition, and the REALTOR® has a good faith basis for believing that finding to be wrong, then the REALTOR® should disclose his concerns to the buyer and suggest to the buyer that he get a second professional opinion on the furnace. This recommendation is particularly important where the REALTOR® is acting as an agent for the buyer, inasmuch as buyers’ agents have a fiduciary duty to disclose all material information to the buyer.

Fourth, it is recommended that a REALTOR®’S recommendation to the buyer to obtain a home inspection be placed in writing to the buyer. There have been several cases in Michigan where buyers have contended that they did not get an inspection because their REALTOR® told them they did not need an inspection. Fortunately, in each of these cases, the REALTOR® was able to point to a purchase agreement or other document which set forth the REALTOR®’S written recommendation that the buyer get a home inspection.

There is apparently some confusion among the members as to whether MAR or its legal counsel has ever made any recommendations on whether the listing agent or buyer’s agent should be in attendance at the time of any home inspection. Neither MAR nor its legal counsel has ever made any recommendations on this issue. MAR’s legal counsel is aware of no case or statute which imposed an obligation on an agent to attend a home inspection. Further, a general review of listing agreements and buyer’s agency agreements used in Michigan indicates that REALTORS® do not normally contractually obligate themselves to attend home inspections. The issue of whether an agent should attend home inspections is a business decision, which should be determined on a firm-by-firm basis. Obviously, sellers should be involved in any decision regarding who will have access to their home.