A limited liability company (LLC) is a business structure that protects its owners from personal responsibility for its activities, including its debts or liabilities. Protection from personal responsibility is the most significant advantage of creating an LLC. An LLC can have a single owner (member) or can have multiple owners (members).
LLCs are hybrid entities offer unique advantages to its members. They combine the characteristics of a corporation with those of a partnership or sole proprietorship. LLCs are easier and cheaper to form than corporations while limiting the liability of the owners more than a partnership would. Its Owners are called Members, rather than partners or shareholders. The limited liability feature of LLCs make LLCs very attractive to investors of real estate, as well as many other business ventures. In fact, the LLC is the most common form of business entity in Georgia.
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A listing broker’s duties to the seller are enumerated in the Seller Brokerage Engagement Agreement. Among other duties, there is a clearly defined duty to timely present all offers to and from the Seller, even when Property is subject to a Contract to Sell. (F101 Seller Brokerage Engagement Agreement Section 7.(a)(2).
The obligation to present all offers, even after the property is subject to an offer to sell, is also included in the Code of Ethics Article 1 Duties to Clients and Customers. Standard of Practice 1-7. When acting as listing brokers, REALTORS® shall continue to submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived this obligation in writing. Upon the written request of a cooperating broker who submits an offer to the listing broker, the listing broker shall provide, as soon as practical, a written affirmation to the cooperating broker stating that the offer has been submitted to the seller/landlord, or a written notification that the seller/landlord has waived the obligation to have the offer presented. The only way the listing agent is relieved of this obligation is if the seller has waived the obligation in writing. The market has shifted. Multiple offers have slowed down, but sellers still want the best price for their property. In an effort to increase prices, sellers may ask their agents to reveal the terms of competing offers to the prospects. This is called “shopping an offer.”
Here’s an example. Even though their neighbors got 9 offers 6 months ago with no contingencies, no inspections and huge escalation clauses, their listing has produced only (!) 3 in 2 weeks. And the lowest price has the best terms – cash and a quick closing. The seller wants cash and a quick closing, if only that offer was as high as the best price. The seller instructs his listing agent to reveal the price of the highest offer to the buyer he wants in an effort to get that buyer to increase the price. Can the listing agent do that? Can the seller do that? Is it legal? Under Georgia law, a fiduciary duty exists whenever a person places the highest level of confidence or trust in another person regarding a particular transaction or in financial affairs and the other party accepts that confidence or trust. That is, a fiduciary owes the highest duty to its clients.
Brokers in Georgia do not owe a fiduciary duty to clients. The law on fiduciary duty changed in the early 1990s with the introduction of the Brokerage Relationships in Real Estate Transactions Act, O.C.G.A. §10-6A-1 et seq.; (BRETTA). BRRETA, states as follows: A broker who performs brokerage services for a client or customer shall owe the client or customer only the duties and obligations set forth in this chapter, unless the parties expressly agree otherwise in a writing signed by the parties. A broker shall not be deemed to have a fiduciary relationship with any party or fiduciary obligations to any party but shall only be responsible for exercising reasonable care in the discharge of its specified duties as provided in this chapter and, in the case of a client, as specified in the brokerage engagement. The GAR Listing Engagement Agreement and the GAR Buyer Brokerage Agreement are consistent with BRETTA and do not impose fiduciary duties upon the broker when acting in a brokerage capacity. That’s tremendous protection for brokers. Since the introduction of BRETTA, the frequency of lawsuits in Georgia based on a realtor’s breach of duty has dropped significantly. In other parts of the country, licensees do owe fiduciary duties to clients and the liability of those brokers remains high. The Brokerage Relationships in Real Estate Transactions Act (BRRETA) requires licensed agents in Georgia to provide to buyers material adverse facts or defects pertaining to the physical condition of the property that could not be observed by routine inspection.
Sellers, unless they are licensed agents, are not similarly required under BRETTA. There is no corresponding statute or legislation governing the conduct of an unlicensed seller. However, under Georgia case law, a seller does have a duty to disclose defects in the property that the seller knew about or should have known and that a buyer would not have observed upon a reasonably diligent inspection of the property. If a defect is discovered that a seller should have disclosed, the seller can be sued in a civil action for fraud. There are 4 basic elements that must be proved in a case for fraud for non-disclosure. Why do we require the Lead Based Paint Disclosure (LBP)?
The LBP is required by a federal law written in 1992 to protect purchasers and renters against exposure to lead based paint. The act is called the Residential Lead-Based Paint Hazard Reduction Act of 1992, also known as Title X (“Act”). What housing is required to have an LBP? Housing that was built prior to 1978, whether it is for sale or for rent. There are 2 different GAR disclosures tailored for each situation. For sales, it is GAR F316. For rentals, it is GAR F918. If you are using RE forms, the LBP disclosure form is RE 140 and the LBP pamphlet is RE 141. Do fixtures manufactured or painted prior to 1978 require an LBP? Yes, the Act includes lead-based paint hazards. A “LBP hazard” includes fixtures that may have been manufactured or painted prior to 1978, even if the property itself was built in 1978 or later. Consider includes antique doors, antique light fixtures or any other elements in the property that may have been created prior to 1978. If in doubt, disclose. When must LBP disclosures be made? The LBP disclosure of known information on lead-based paint and lead-based paint hazards before the binding date of contracts and leases. What if a LBP disclosure is not in compliance with the federal law? The Act carries huge fines for violations. Each violation carries a fine from $11,000 to $16,0000. Each disclosure has multiple sections that need completion. Assume that investigators from the EPA are here in Georgia, spot checking for violations. Because they are here. What is Required and When? Buyer’s Right to Inspect in the GAR Purchase and Sale Agreement & Temporary Occupancy Agreement7/29/2022 A buyer’s right to inspect is covered in the GAR Purchase and Sale Agreement (PSA) in Section 8, page 3, Inspection and Due Diligence. It is also included in the Temporary Occupancy Agreement (TOA).
The GAR Purchase and Sale Agreement allows buyers or their agents to enter the seller’s property to inspect, both during due diligence and after due diligence, right up until the day of closing. Frequent, extended or unscheduled inspections can create friction between the parties. Communication, cooperation and courtesy can win the day. Can a Client Terminate a Buyer Brokerage Relationship?
The GAR Brokerage Relationship Agreements do not contain any early termination clauses. In the absence of an express early termination provision or a material breach by the broker, clients do not have the right to unilaterally terminate brokerage engagement agreements. If the client does unilaterally terminate, that client is in breach of the agreement. Am I Owed A Commission if a Buyer Unilaterally Terminates and Purchases Within the term of the Agreement and Protected Period? Yes, so long as the BBEA is an Exclusive BBEA and the broker is not in default. If the buyer’s obligation to pay a commission is in the agreement, the broker is owed a commission, regardless of whether the property is one that the broker identified for the buyer or not. (Exception for a non-exclusive BBA. See below.) The Exclusive BBEA provides that the buyer’s real estate broker will seek to be paid his commission from the seller or seller’s broker pursuant to a cooperative brokerage arrangement. In the event neither of these parties pays a commission to the buyer’s broker, then the commission may be paid by the buyer if such obligation is indicated in the brokerage agreement, regardless of whether the property is one that the broker identified for the buyer or not. This provision contractually modifies the general common law rule that the broker is only entitled to a commission if the broker is the procuring cause of the sale (i.e., the broker’s efforts resulted in an uninterrupted series of events that resulted in the sale). Under Georgia law, the parties to a contract are free to agree on whatever terms and about any subject matter in which they have an interest in the absence of a violation of public policy or law. The GAR BBEA contractually makes this distinction. Consider this recent example. A buyer has executed an Exclusive BBEA with a broker. The buyer goes alone to an open house within the term of the agreement and tells the listing agent that she does not have a brokerage agreement with any buyer broker. The buyer purchases directly from the listing agent. Very often, a listing broker, particularly a lease listing broker, will also work with a tenant or a buyer as a customer. The duties owed to that customer by the listing broker are defined in BRETTA § 10-6A-5 - Duties and responsibilities of broker engaged by seller.
The listing broker must timely disclose the following to all parties, including the customer. Remember, failure to disclose can result in a claim of fraud. We are often faced with selling property after an owner has died. Every situation is different, but here are a few basics you should know. The following are examples starting from the quickest and easiest to the more time consuming and difficult.
Joint Tenancy with Right of Survivorship Property owned in joint tenancy with the right of survivorship automatically passes to the surviving owners when one owner dies. No probate is necessary. Joint tenancy can be used when couples (married or not) acquire real estate, vehicles, bank accounts or other valuable property together. Property Held in A Living Trust A Living Trust is basically an alternative to a will for the property held in the Living Trust. A decedent creates a Living Trust before death, just like a will. Title to property is transferred to and held in the Living Trust and beneficiaries are named. The creator of the trust is the initial Trustee and has the power to sell it as the Trustee while the initial Trustee is alive. In the Living Trust document, a successor Trustee is named and the beneficiaries of the living trust are named. Except for the Joint Tenancy with Right of Survivorship, this is the easiest way to transfer property after death without the property going through probate court. No probate, no court and no judges are involved. The property can be promptly transferred to the beneficiaries. The Living Trust is becoming very popular, for good reasons. If Tom Thompson is the owner of property held in a Living Trust and he wants to transfer it during his lifetime, he would execute a Purchase and Sale Agreement as Tom Thompson, Trustee of the Living Trust of Tom Thompson. If there are 2 or more trustees in the living trust, both or all must execute purchase agreements and closing documents. The closing attorney will request the living trust document and will examine it prior to closing to be certain the document includes proper authority to sell. Property of a Decedent That Died With a Will An estate with real property that is NOT a part of a joint tenancy or in a Living Trust will have to be administered by the probate court or “go through probate.” If the will names an Executor with expanded powers, including the power to transfer real estate, then the Probate Court is petitioned by the Executor or Executor’s attorney for a “Letter Testamentary.” When the “Letter Testamentary” is granted, the Executor can legally sell the property as the representative of the Estate. If an Executor is not named or the Executor was not granted the expanded power to sell property in the estate, then the Executor has to petition the court for leave to sell and the court then has to grant permission to sell. It can get complicated. Before granting permission to sell, the court must notify all heirs or beneficiaries and ask for any objections to the court granting an ability to sell to the Executor. If there are objections, a hearing may be required. The Executor cannot sell the property until the process has concluded. Obviously, the process of obtaining court permission to sell in a limited power situation is time consuming and expensive. Property of a Decedent that died Without a Will The proper term for the situation of death without a will is that the party died intestate. Georgia law controls the distribution to beneficiaries of an intestate estate. The representative for the estate is called an Administrator. The probate court names the Administrator, who performs the same functions as an Executor. How long does all of this take? Joint Tenancy with Right of Survivorship and Property Held in A Living Trust are the quickest and easiest ways to transfer real estate. Assuming no complications, property can be sold almost immediately with Joint Tenancy and Living Trusts. Other property that goes through probate, particularly property in an intestate estate, can take months to years. If a seller comes to you with Letters Testamentary or Administrative Letters already in their possession, you can list and sell right away. Otherwise, count on a significant delay. Note: Probate cannot be avoided entirely. Even if all of the property, including real property, cash, stock and insurance policies, in an estate can pass directly to the joint partner and beneficiaries, the probate court still requires that a will be validated. The probate court must also approve any requests to avoid probate. Moral of this article: Before you list and sell real property after an owner’s death, be certain that the Executor or Administrator has the proper authority to sell in the form of Letters Testamentary or Administration. If in doubt, contact one of the Broker Team or your closing attorney! |
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