Matt Drewes Quoted in Several Articles at HOALeader.com: Dealing with renters; Associations issuing speeding tickets?; Getting an inactive association back on track

Matt Drewes recently contributed quotes for the following articles published at www.hoaleader.com, a national web-based publication focused on homeowners association and condominium board members and association management professionals:

• “Smart HOAs Get Tenants on Their Side”; published March 8, 2013 at HOALeader.com
  • Publisher: Plain-English Media, LLC (quoting Matthew A. Drewes); Read it now

 

•  “Restarting Your HOA? Where to Begin”; published March 2013 at HOALeader.com
  • Publisher: Plain-English Media, LLC (quoting Matthew A. Drewes); Read it now

• “Court Says HOA Can Issue Speeding Tickets; What’s next, Undercover Ops?”; published March 2013 at HOALeader.com
  • Publisher: Plain-English Media, LLC (quoting Matthew A. Drewes); Read it now

• “Getting Tenants Invested in Your HOA”; published March 2013 at HOALeader.com
  • Publisher: Plain-English Media, LLC (quoting Matthew A. Drewes); Read it now

Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s eight-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations and real property issues. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Repose Revised: A change in the statute establishing limitations and repose periods for construction defect cases

A significant amendment to Minnesota’s statute establishing time limitations applicable to construction defect lawsuits will take effect on August 1, 2013. The statute, Minn. Stat. § 541.051, governs not only how long a person may have to sue for many claims “arising out of the defective and unsafe condition of an improvement to real property” once an injury is discovered, but also has contained a “repose” provision that provides no such cause of action shall accrue more than 10 years after substantial completion. There have been a couple of exceptions to this repose period, however, one of which was for the benefit of parties who may have been sued already and who want to add new parties to the case.

The bill, which Governor Dayton approved on April 24, 2013, does not change the limitations of time within which a person may bring an action once the injury is discovered (two years) or the original plaintiff’s repose period (10 years). Rather, it clarifies what has been a source of some confusion and concern among the parties who may be sued in such cases.

Frequently, when a person commences a construction defect lawsuit, that person sues the primary contractor or builder with whom the person may have signed a contract and with whom that person may have dealt during the construction process. Even where the current property owner or manager didn’t deal with the prime contractor or builder, that party is usually easier to find than the various subcontractors or materials suppliers who may have contributed to the project. Once the contractor or builder is sued, it may argue that one or more of the parties to whom it delegated a portion of its work (i.e., a subcontractor) is fully or partially responsible for the alleged defect(s). To ensure proper allocation of the plaintiff’s damages to the parties truly responsible for the defect(s), the prime contractor or builder usually will add these subcontractors (and sometimes suppliers) to the case under the theories of contribution and indemnity.

For some additional insight into the current development, it’s useful to mention that this same statute was amended in 2007. Before the 2007 amendment, it used to be that a contractor or builder that was sued had a somewhat indeterminate amount of time within which to add other parties under its claim for contribution or indemnity. Pursuant to the statute a cause of action for contribution or indemnity historically did not arise until the party seeking contribution or indemnification had paid on a final judgment, arbitration award, or settlement. Thus, if the builder was sued in year 10 after substantial completion, and the case for some reason didn’t go to trial or settle until year 15, and payment wasn’t made until year 16 its subcontractors would still be on the hook 18 years after the work was complete. In that time, memories fade, witnesses disappear, and records may be destroyed. The 2007 amendment then provided that the cause of action for contribution or indemnity arises upon the earlier of such a payment on the original settlement or judgment, or when the party seeking contribution or indemnity is sued. This meant a prime contractor or builder that was sued couldn’t delay in adding any other parties it may believe were responsible for the defect(s).

But the 2007 amendment appeared to leave a loophole that there was no end date for claims against subcontractors that may not have been placed into suit against the prime contractor or builder, and instead were settled out of court. This is what happened in connection with the 35W bridge collapse case. The contractor involved in performing the work was threatened with suit, but instead settled out of court; its claim for contribution or indemnity was only triggered by its settlement payment, meaning it then had a legitimate argument that the designer of the bridge that completed its work decades earlier could still be sued for contribution or indemnity, even though none of the people injured by the collapse could have asserted their own claims directly against that same designer.

This new amendment to 541.051  now provides that even claims for contribution or indemnity may be barred from accruing. These claims must now be discovered within 14 years of substantial completion of the improvement or they will be deemed not to have accrued, and will be barred. This now gives certainty to all parties involved in construction projects that may go bad. Subcontractors and contractors alike will benefit from the certainty, and while the 35W bridge collapse was an exception, in most cases this new limitation will not affect the people claiming to be injured by a defective or unsafe condition arising out of an improvement to real property.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s eight-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations and real property issues. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Is There a “Total Loss”?—Not an Insurance Appraisal Panel Decision

In Auto-Owners Insurance Company v. Second Chance Investments, LLC, a decision released March 20, 2013, the Minnesota Supreme Court held that under the Minnesota standard fire insurance policy, the question of whether there is a total loss is not a question that can be determined by the an appraisal panel.

The Minnesota standard fire insurance policy is really a statute defining the minimum that fire insurance policies can provide and is found at Minn. Stat. 65A.01, subd. 1.  In that statute, there is an appraisal provision for determining what the amount of loss is, which requires that such an issue be determined by an appraisal panel (typically three people: one chosen by the insured, one by the insurer, and one by the two chosen by those respective party), if requested by the insurer or the insured.  See Minn. Stat.  65A.01, subd. 3. Minn. Stat. § 65A.01, subd. 3.  However, that statutory provision contains an important clause that reads “except in case of total loss on buildings.”  The Minnesota Supreme Court recognized that language and held that an appraisal panel can’t determine whether there is a total loss.  The full opinion can be read here.

Obtaining an appropriate insurance settlement is often not an easy task.  As this case exemplifies, there are many details of and aspects to insurance policies, claims, and recovery.  Insureds should contact an attorney to ensure that they are properly submitting a claim and that the processes in relation to that claim are not being abused or improperly foreclosing relief.  Contact a member of the Thomsen Nybeck litigation team  with insurance-specific experience to help advise you.

This blog entry is written by Chris Renz, a shareholder at Thomsen Nybeck. Chris practices in the litigation area of the firm with primary focus on real estate litigation, employment litigation, insurance law, townhome and condominium law, and criminal law.

Do you have sufficient motor vehicle insurance?

Whether due to the economy or otherwise, many motor vehicles on the road today are not covered by liability insurance, or have grossly inadequate insurance. If an uninsured or underinsured driver causes injury to you or your family members in a car accident, you may need to rely on the limits of your own insurance to cover the damages.

Many people have decided not to purchase insurance or believe they cannot afford coverage that has coverage limits more than the minimum limits required by law.  Moreover, some insurance companies are not offering liability coverage with limits that would be adequate to cover the injuries of someone in another vehicle who suffers severe injuries.    

To protect yourself and your family, contact your insurance agent about the coverage you maintain to make certain you have adequate insurance for yourself and your family.  You need insurance that will be available to cover potentially substantial injuries caused by another driver.  If the other driver does not have insurance, you need adequate uninsured motorist coverage (UM coverage).  If the other driver does not maintain sufficient insurance, you need to rely on your own underinsured motorist coverage (UIM coverage).   

The amount of UM/UIM coverage you maintain on your own motor vehicles is very important.  If you do not purchase adequate UM/UIM coverage, your family could suffer a financial catastrophe if someone in your family suffers seriously debilitating injuries due to the fault of another driver.  To guard against a potential disaster such as this, you should try to maintain UM/UIM coverage with limits as high as you can obtain from the insurance company you select — and that you feel you can afford. 

While coverage limits of $1 million may seem high, very serious injuries may result in substantial wage loss, loss of earning capacity, treatment expenses and other financially significant damages that can and often do exceed that amount.  Thus having adequate insurance to cover potentially substantial damages is so important.  You cannot expect others to maintain the amount of insurance coverage you may need to avoid a financial catastrophe.

If you have any questions about your rights and obligations under the law with regard to motor vehicle insurance claims and damages, talk to the attorneys at Thomsen Nybeck.

This blog entry is written by Bill Sjoholm, a shareholder at Thomsen Nybeck. Bill is a senior trial lawyer in the litigation section of Thomsen & Nybeck and the head of the firm’s Litigation Practice group. He concentrates his practice in the areas of employment law, commercial law, plaintiffs’ personal injury, community association law, and general civil litigation. In addition to practicing before the state and federal courts, Bill has been active in pro bono activities, including serving on the Minnesota State Bar Association Civil Litigation Governing Council, the Board of Directors for Central Minnesota Legal Services, the Lawyer Referral Oversight Committee and the Volunteer Lawyer’s Network.

Whose Foot Is It? Subway sued for failing to ensure all footlongs are 12 inches

Two men in New Jersey have sued Subway, alleging that the sandwich chain’s sandwiches aren’t as advertised. A New York Post story on the suit is available here.

The attorney for the men explained the suit: “The case is about holding companies to deliver what they’ve promised,” according to the Post article.

The piece also includes an investigation performed by the newspaper that revealed four out of seven sandwiches purchased in Manhattan, Brooklyn, and Queens measured less than 12 inches, instead running 11 to 11.5 inches.

The attorney in the New Jersey case plans to seek class action status for this lawsuit, and to commence a similar class action suit on behalf of allegedly short-changed customers in Pennsylvania, according to this piece from the Associated Press.

It appears these cases and the New York Post’s investigation arose from a recent post on Subway’s Facebook page holding a tape measure up next to a sandwich apparently showing it to be just 11 inches long.

For its part, it appears Subway hasn’t run from the controversy. While it has stated that sometimes individual stores may deviate slightly from corporate practices, resulting in varied sandwich lengths, according to the linked article its spokesperson has also stated that Subway intends to honor its “footlong” representations going forward.

At this time, we have not seen whether or how the New Jersey lawsuit may be resolved. But while it’s easy to scoff at something relatively minor to an average sandwich purchaser, news sources say Subway has more than 37,000 stores worldwide, and cutting even small corners (if done intentionally) can lead to significant total savings for those who own the stores. It is worth noting that Minnesota laws currently on the books likely would apply to this situation, including the Minnesota Consumer Fraud Act, and Minnesota’s version of the Uniform Deceptive Trade Practices Act. These laws are to protect consumers and competitive businesses from one party misleading people into purchasing its products over a competitors, or purchasing a product that is not what it’s supposed to be. Whether this is a case that justifies invoking these strong public protections is another question.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations and real property issues . He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Real Estate Buyers Beware: Supreme Court opinion demonstrates importance for investors and developers to perform due dilligence before closing

We’ve all heard the old adage: An ounce of prevention is worth a pound of cure. It surprises me how frequently I learn that clients or other savvy investors or businesspeople proceed to purchase real estate without receiving critical advice or performing adequate due diligence.

The Minnesota Supreme Court’s decision in Mattson Ridge, LLC v. Clear Rock Title, LLP, et al. demonstrates why, when purchasing land for investment, development, or even for personal enjoyment, due diligence is so important. The case involves Mattson Ridge, a real estate firm seeking investment opportunities in real estate, and presumably a savvy real estate investor in its own right. The company purchased 64 acres of farmland with the intent to hold it as an investment to sell to another party for future development.

Mattson Ridge read the market perfectly. It closed on its purchase of the property in September 2005 for $1.286 million and by the end of October 2005 had a purchase agreement in place to sell the property for $2.9 million. The sale was scheduled to close in May 2006, but a problem with the legal description of the property prevented the sale because it constituted a defect in the title to the property. In real estate terms, the seller was unable to provide “marketable title” to the property as of the date the buyer was ready, willing and able to close.

Mattson Ridge did take one step to protect itself that a surprising number of parties fail to do, which was to secure title insurance to protect against any title issues that might arise based on defects existing at the time it purchased the property. Unfortunately, that wasn’t enough to completely protect it. The limits under the title insurance policy were set at Mattson Ridge’s purchase price ($1.286 million), rather than at a higher figure that would have covered the full market value of the property (which the evidence suggests was $2.9 million, in light of the purchase agreement it entered into to sell the property).

In its opinion in the Mattson Ridge case, the Supreme Court held that the title to the property was defective, but that Mattson Ridge was not permitted to recover more on its insurance than the policy limits. This means Mattson Ridge is entitled to recovery $1.286 million, plus about $11,000 of out-of-pocket expenses, but it will not recover the profits it lost as a result of the failed closing; more than $1.6 million beyond those policy limits. An ounce of legal advice and assistance with due diligence in this matter would have prevented the need to seek more than a pound of cure -a cure that the buyer was denied because just buying title insurance was not enough.

What’s even more alarming than the $1.6 loss that wasn’t covered by insurance was that the case could have turned out even worse for Mattson Ridge. The Supreme Court declined to decide certain additional issues, which included whether a clause in the insurance policy called a “coinsurance provision” or “coinsurance clause” should reduce the coverage available to Mattson Ridge. A coinsurance provision in an insurance policy states that, if the insured purchases a policy with limits that are more than a certain percentage below the actual extent of potential loss that may arise (often 80 percent), the insured’s recovery may be reduced significantly. This issue did not affect Mattson Ridge because the title insurer did not raise it before the case reached the Supreme Court, but it certainly could have done so and if it had, the buyer could have lost even more money. This represents yet another reason to get advice and assistance when performing the proper due diligence required to make a sound real estate purchase.

Mattson Ridge ultimately was able to remedy the title defect, meaning it could be sold with a title that is now marketable (i.e., without the title defect that prevented its sale under the October 2005 purchase agreement). But the delays and defects that existed because the problem was not discovered prior to its own purchase means Mattson lost its opportunity to obtain a profit of more than $1.6 million in less than a year, and that kind of opportunity may not present itself again.

If you’re considering buying or selling real estate, or have a potential problem with providing or obtaining marketable title, consider taking a heavy dose of prevention and contact an attorney with Thomsen Nybeck. We have been assisting parties with real estate transactions and disputes for 40 years, and we can help you avoid the need for a painful cure that may never come. And, if need be, we can help administer the cure as well.

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Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and the firm’s Creditors’ Remedies Group. and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted on issues involving construction litigation, community associations and real property issues in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere. He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Business owners – review your year now

Making an annual review or “check-up” part of your corporate routine

Now is the time, as the calendar year comes to a close, to have a business “check-up”.  This is particularly important in small to mid-size businesses, as they do not always have routines and practices where such check ups are automatic.  Large corporations have the benefit of deeply-entrenched and well established corporate policies, routine practices, and risk management procedures.  For many publicly-held companies and those with enough employees to have “mid-level-managers”, the corporate books and risk management oversight are often being tended to by specific employees within the company, in addition to outside advisors.

However, over my years of assisting clients with formation, organization and ongoing operation of small to mid-size businesses, I’ve realized that small business owners often tend to the fires that are burning, rather than the sparks that may ignite a fire.  Small businesses are often so focused on the details of day-to-day business, that it’s easy to overlook the big picture.  They may not see a problem arising until the fire has grown to a size that it cannot be easily contained.

Nearly every individual knows that an annual check up with a doctor and dentist is prudent.  Most small business owners probably know that a regular check-up with their accountant and their attorney may also be prudent, yet they aren’t always as diligent about getting it on the calendar.  Outside of those businesses who use an accountant for tax preparation or ongoing advising, many business owners fail to check in with an attorney or accountant regularly.  As a result, sometimes they miss the “spark” that may ignite the fire of a problem within their organization.  Far too often, it takes a lawsuit, shareholder dispute, breach of contract, or other controversy for a business to look at its internal records, contracts, and policies, only to find obvious deficiencies once it’s too late to correct them.

What kind of “check-up” should you do?

Rely on your accountant and attorney to help you identify what you may want to review in an annual or more regular check up.  Small to mid-size businesses may find that key issues to review include (but are not limited to) the following:

• Maintain good standing.  Verify that your entity is in good standing with the Secretary of State, and that it is authorized to do business in other states in which it transacts business
• Contract review.  Review contracts and vendor agreements to ensure the entity is meeting its obligations to others, and that others are meeting their obligations to your entity
• Lease and real estate status review.  Verify that any leases your company has entered do not expire or renew within the next year.  To the extent they do, identify an action plan for how those will be renewed, amended or what the company intends to do when they expire.
• Corporate record updating.  Review your “major actions” taken during the last year.  Did you hire employees, lease new space, take on new members/owners or take other action that should be properly documented by a written action or resolutions?   If so, your attorney can help you address these changes appropriately in your company records.
• Employment and personnel matters.  Does your company have employees or independent contractors?  If so, do you know how recently you have updated your employment agreement, policy manuals, and independent contractor agreements?  If you can’t remember when they were last updated, it’s probably been too long.
• Risk management review.  Does your company anticipate litigation or have any unresolved or outstanding issues which may be better handled proactively than re-actively?  It’s easy for companies to wait until the last possible moment to address potential controversies, when in fact that is sometimes the least successful approach.

Ultimately, businesses of all sizes should be proactive in their use of legal counsel just as individuals should be proactive in their use of doctors.  Diagnosis and prevention of problems can often be infinitely less expensive, less disruptive, and less challenging than “treating” a problem.  Allocating the time and relatively small expense of regular check-ups can be invaluable when it comes to risk reduction and  cost savings when compared against the clean-up required if a company runs on auto-pilot until a problem arises.

Consider the month of December as an opportune time to check in with your company’s legal counsel to address these issues and more.  If your company does not have counsel, now may be an opportune time to get that resolved.  Mark the issue on your calendar for follow-up, before the pace of day-to-day business takes you to the next issue without getting a proactive plan set into motion.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  Brad has worked with a wide array of small and mid-size businesses through all stages of the business life-cycle, from formation, to ongoing operation, to shareholder disputes, work-outs, and sale or dissolution.

Conciliation Court Limit in MN increased to $10,000 Today

In Minnesota, Conciliation Court (the term used for small claims court) has been the forum to resolve legal disputes concerning a smaller amount of disputed damages than would otherwise be pursued in District Court.  Until today, the limit on the amount in controversy that can be pursued in Conciliation Court was capped at $7500.

Due to the Minnesota Legislature changing that cap, an amount in controversy up to $10,000 may now be pursued in Conciliation Court.  The $10,000 limit became effective today (August 1, 2012).  While it is still possible to handle a Conciliation Court matter without utilizing an attorney, having the possibility of obtaining a judgment for $10,000 (or conversely having a judgment against you for $10,000) is likely a sufficiently significant financial proposition that is its prudent to consider hiring an attorney to at least advise you about your options, help you prepare for Conciliation Court and so forth.

Now that a dispute up to $10,000 can be held in Conciliation Court, determining whether a matter is “worth litigating” and whether or not to enter an arbitration agreement in various business or real estate transactions is something to consider anew.  If you are faced with a Conciliation Court action, or are contemplating initiating one, some preliminary information can be found at the Minnesota Judicial Branch website (mncourts.gov).  Separately, you might find the guide available at the Attorney General’s Office website useful.  They have a “User’s Guide to Small Claims Court”, which you can find here.  Once you’ve reviewed that information, your next step should be to contact your attorney.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals, and is a frequent speaker for real estate continuing education throughout the state of Minnesota.

Minnesota Supreme Court Holds That The “Cause of Loss” Is To Be Determined By the Insurance Appraisal Process

In a decision issued on June 13, the Minnesota Supreme Court analyzed whether the cause of loss, in addition to the amount of the loss, was a determination to be made by the insurance appraisal process.

In Quade v. Secura Insurance, there was a dispute regarding property damage from a windstorm.  The insurance company took the position that some of the damage claimed by the insured was not caused by the windstorm, but rather continual deterioration over time.  The insurance policy required that the appraisal process be initiated prior to a lawsuit being commenced.  The insured did not initiate the appraisal process, but instead brought an action directly in district court.  The insured contended that the appraisal clause didn’t apply because the dispute was about whether the damage was covered by the policy, not the cost of that repair, and that the question was a coverage question inappropriate for an appraisal panel.  The district court disagreed with the insured and held that the appraisal process had to be used.  The court of appeals reversed.  The Supreme Court then took up the case.

The Supreme Court held that the insurance policy’s language concerning the appraisal process’s determination of the amount of loss includes a determination of the cause of the loss.  As a result, where there is a dispute about what the cause of certain damage was, the question is one to be determined by an appraisal panel.  The Court was careful to clarify that the appraisal process can’t construe the policy or decide whether an insurer can pay, but it does determine the amount of loss, which includes determining what the cause of the loss claimed was.  The Court noted the public policy in favor of appraisals.

A copy of the decision can be found here.

This blog entry is written by Chris Renz, a shareholder at Thomsen Nybeck. Chris practices in the litigation area of the firm with primary focus on real estate litigation, employment litigation, insurance law, townhome and condominium law, and criminal law.  Chris and his colleagues at Thomsen Nybeck have extensive experience representing clients in insurance appraisal hearings.  More regarding the firm’s abilities in that area can be found here.

Finally a break in the real estate industry

Last week the United States Supreme Court decided a case which refines a commonly debated interpretation of the Real Estate Settlement Procedures Act (“RESPA”) by lower courts.  RESPA is a Federal law that plays a significant role in how real estate brokerage companies (among others) conduct day-to-day business.  It has myriad prohibitions, restrictions and disclosure requirements that are applicable to such “settlement service providers” as title companies, mortgage lenders, real estate brokers and more.  Generally, it prohibits referral fees and unearned fees by settlement service providers in connection with a federally-related mortgage, imposes restrictions and requirements on “affiliated business providers”, mandates certain disclosures to increase transparency of transactions for consumers, and more.

Until this month, the issue of how RESPA impacts “administrative fees” charged by real estate brokers and agents was a controversial and often debated real estate brokerage issue, nationwide.  There was a split in how the decisions in various cases across the country interpreted Section 2607(b) of RESPA.  That section provides:

“[n]o person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service [...] other than for services actually performed.” 12 U. S. C. §2607(b)

The various split in decisions and HUD interpretations addressing this issue left some unanswered questions as to whether a real estate brokerage would find itself in hot water when charging an “administrative fee” or similar charge in addition to a commission, if the real estate broker could not readily identify what service was being rendered pursuant to that admin fee.

The United States Supreme Court decided a case last week (May 24, 2012) which clarifies this issue significantly, and simplifies this issue for real estate brokers.  In the case of Freeman v. Quicken Loans, the Supreme Court found that there is no violation of §2607(b) of RESPA without showing that a charge for a settlement service was divided with a third party.

The full decision of the Freeman case can be found here: http://www.supremecourt.gov/opinions/11pdf/10-1042.pdf.  An interpretation of how this decision impacts real estate brokerage companies and brokers/agents was offered by the National Association of Realtors(R) (“NAR”), and their article can be found here: http://speakingofrealestate.blogs.realtor.org/2012/05/24/supreme-court-rules-fee-split-required-for-respa-violation/.

In short, this author suspects that some of the national controversy and confusion surrounding real estate brokerage admin fees will now become an easier topic to  address consistently, and with less controversy. Prior cases, including the controversial 2009 decision in Busby v. JRHBW Realty, Inc. d/b/a Realty South, had suggested that merely charging an “admin fee” in addition to a commission, even if it is disclosed to the consumer paying such fee, is in and of itself a violation of RESPA.  In January 2010, a HUD letter from Helen Kanovsky (Office of the General Counsel at HUD) clarified that there may be some room from brokerages to have commissions composed of a flat fee or commission or both.

Now that the Supreme Court has weighed in, it would seem likely that admin fees charged by real estate brokers should draw less scrutiny.  Additionally, the prior caselaw and unfavorable decisions interpreting RESPA in such a way as to further restrict the real estate industry than was explicitly stated in RESPA are probably of dramatically less impact, or their impact is narrowed significantly by this decision.

Stay tuned to the Thomsen Nybeck Legal Update blog for further discussion of this issue as more information, interpretations, and decisions bring this issue into even sharper focus.  For now, real estate brokerage companies, agents, and brokers who charge (or have ceased charging) administrative fees may wish to discuss these issues once again with their legal counsel to identify how they want their business practices to fit within the fluid and evolutionary laws surrounding these practices.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals, and is a frequent speaker for real estate continuing education throughout the state of Minnesota.