40 Year Listing Agreements?

Florida’s Attorney General Files Suit. Two (2) months ago, Florida’s Attorney General filed a forty (40) page lawsuit against MV Realty, PBC, LLC under Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA). 

The Complaint alleges a Florida licensed real estate brokerage, headquartered in Delray Beach, would offer to pay consumers between $300 to $5,000 in exchange for a forty (40) year exclusive listing agreement appointing MV Realty as the consumer’s exclusive real estate agents; but that’s not all. 

Allegations in the Complaint. The AG claims that both MV’s trade practices, in getting lower income property owners, senior citizens, and non-native English speakers to sign MV’s agreements, and MV’s agreements themselves were collectively deceptive, unfair, and unconscionable in violation of Florida law in the following ways: 

  • MV recorded over 9,000 short form “Memorandums” summarizing the essential terms of their forty (40) year listing “Agreements” in county public records;
  • The recordings constituted a cloud on title encumbering the properties, acting like a forty (40) year lien against homeowner properties;
  • Homeowners were handtied from being able to refinance, obtain a reverse mortgage, HELOC, credit line, or otherwise use their home equity without first paying MV a 3.00% penalty to remove the recording;
  • If during the next forty (40) years the property was sold using another brokerage, gifted, lost in foreclosure, sold by owner, transferred at death, sold by the consumer’s heirs using another brokerage, or transferred in any way whatsoever without MV being paid its commission, then MV would be entitled to 3.00% of the property’s value;
  • The Homeowner’s five year statute of limitations to sue MV were contractually shortened to only one year; and
  • Lastly, and probably most problematically, is MV’s damage clause.  Under MV’s  agreement, charging 3.00% of the property’s value is illusory because the Agreement allows MV to determine the property’s value.  Additionally, requiring a consumer to pay the full 3.00% commission without MV reducing that amount by their cost savings for not having to actually do any listing services is very likely an unenforceable penalty; because MV would be placed in a better position than if it actually had to work for the 3.00% commission.

Realtor Liens. While the AG concedes that Florida recognizes different types of liens such as: Statutory liens (i.e. those permitted by Florida Statute or law); Judgment liens (i.e. those permitted as a result of a party securing a judgment against a debtor); and Consensual liens (i.e. those voluntarily permitted by a debtor against the debtor’s property), the AG believes that the consensual liens created by the 40 year Agreement signed by the consumers are all invalid.    

In citing to Florida Statute §475.42(1)(i), the AG claims that it is a 2nd Degree Misdemeanor, meaning a crime, for “A broker or sales associate [to]  place, or cause to be placed, upon the public records of any county, any contract, assignment, deed, will, mortgage, affidavit, or other writing which purports to affect the title of, or encumber, any real property if the same is known to her or him to be false, void, or not authorized to be placed of record, or not executed in the form entitling it to be recorded, or the execution or recording whereof has not been authorized by the owner of the property, maliciously or for the purpose of collecting a commission, or to coerce the payment of money to the broker or sales associate or other person, or for any unlawful purpose.”[1]

Possible Realtor Defenses. However, to MV’s point, Florida Statute §475.42(1)(i) also says, “nothing in this paragraph shall be construed to prohibit a broker or a sales associate from recording a judgment rendered by a court of this state or to prohibit a broker from placing a lien on a property where expressly permitted by contractual agreement or otherwise allowed by law.”

Although the civil court docket shows MV has not filed any defenses to the lawsuit as of yet, it is anticipated that MV might claim that the AG’s office lacks jurisdiction to pursue MV.  Florida Statute §501.212(6) states that “This part (i.e. Florida’s Deceptive And Unfair Trade Practices) does not apply to: An act or practice involving the sale, lease, rental, or appraisal of real estate by a person licensed, certified, or registered pursuant to chapter 475, which act or practice violates s. 475.42.” 

Moreover, to MV’s credit the lawsuit also states then when consumers wanted to refinance their properties, MV would usually agree to subordinate their lien and allow the consumer’s Lender to take first position and priority over MV’s lien.  The AG adds however that on occasion MV has also refused, particularly when MV believes that the consumer is trying to strip all the equity from the property leaving nothing for MV.  

Fines, Fees, & Penalties demanded by the AG. Finally, the AG’s suit asks the Court to award civil penalties in the amount of $10,000 per violation or $15,000 if a senior citizen is involved, reform MV’s contracts to strike the unreasonable clauses, disgorge all ill-gotten gains to reimburse the purported victims, grant injunctive relief from causing any further injury to the public and from engaging in the same conduct in the future, plus award attorney fees, and costs of suit.

Since the filing of the AG’s lawsuit, a review of the public records reveals that MV has been actively removing the clouds it placed on homeowner titles by recording countless “Terminations” of MV’s  Memorandums.   Notice that I said termination of the “Memorandums.”  It does not appear that MV has gone so far as to expressly terminate the actual “Agreements.”  The Termination of Memorandums state that, the “Property … is released from the … encumbrance….” Nothing therein actually releases the individual consumer from still being sued for breaching the contract.

MV’s Statement to ABC News. MV released a statement to ABC news which is also following the story, which in part reads: “Recently, our Company became aware of a complaint filed by the Florida Attorney General. Our attorneys are currently reviewing it. We are confident that after a full airing of the facts, the Florida Attorney General will find that MV Realty’s business transactions are legal and ethical and that our team has operated in full compliance with the law. We look forward to and are fully committed to working with the FL Attorney General’s office to regulate these transactions.”

Legislative changes – NTRAPS.   The American Land Title Association (ALTA) represents the title insurance industry and has drafted a model bill prohibiting  NTRAPS (Non-Title Recorded Agreements for Personal Services).  NTRAPS are documents filed in the property records to provide notice to anyone looking to buy property that the owner has agreed to a future service relating to the property in exchange for receiving upfront money.  Regardless of what these agreements are called, they are recorded even though they do not constitute a real property interest. NTRAPS are agreements recorded in property records and purport to run with the land, binding future successors and adding cost, complexity and barriers to transferring or financing their property.

Notwithstanding, it is ALTA’s position that “Real property covenants should touch and concern the land.  Non-Title Recorded Agreements for Personal Services (NTRAPS) in and of themselves DO NOT create a valid interest in real estate. Treating these agreements as real property covenants erodes the certainty of property rights and unreasonably restrains transferability. … Property recordings should be limited to documents legitimately affecting the title to real estate.”

Accordingly, ALTA has drafted model legislation prohibiting the recording of service agreements against consumer’s real estate.

DISCLAIMER:  The foregoing are allegations by the AG and have yet to be proven. Topics discussed are general concepts, not intended to constitute legal advice, accuracy, nor completeness, and may not be relied upon as such; consult an attorney or accountant.  The author Randy Gilbert, J.D. is neither an attorney nor an accountant.  FTIC is a national award winning title insurance company known for its white glove customer service and “No Junk Fee Guarantee.”

[1] Chapter 475 does allow for liens for commercial realtors but they are limited.  See, Fla. Stat. §475.703 – Broker’s lien for sales commission (providing for lien against net proceeds as being against personal property, but not against the real estate), and Fla. Stat. §475.803 – Broker’s lien for leasing commission. (providing for lien against either the landlord’s interest in the commercial real estate or the tenant’s leasehold estate).