ask george & chuck
May 5, 2008

Mortgage fraud, buyer representation ...
Answers to real estate questions as appearing
in the Houston Chronicle

Dear George: I signed a buyer-representation agreement with a REALTOR® who hasn't helped much in my search for a home. I reviewed the contract and noticed there are no dates outlining when the agreement begins and ends. Also, the REALTOR® has changed companies. Is this a valid contract? Am I still obligated to him?

Answer: A Residential Buyer/Tenant Representation Agreement without a commencement date or a termination date in Section 4 of the agreement is a violation of the Texas Real License Act and could be grounds for suspension of revocation of a real estate license. Also, any contract or agreement entered into by a real estate licensee is actually taken in the name of the firm's broker and remains the property of that broker. If the agreement you signed were a valid and enforceable agreement, it would not follow the REALTOR® who changed firms unless the REALTOR® broker provided written permission for the REALTOR® to also transfer the agreement. There are legal precendents that give conflicting opinions as to whether or not your agreement is valid. Therefore, in order to avoid any liability, obtain a written release to your representation agreement from this agent's broker or hire an attorney to advise you.

Dear George: Is it legal for a REALTOR® to advise me, the seller, to raise the price of my home for the closing and write a check back to the buyer for several thousand dollars? The REALTOR® said that this method is approved by FHA and will be disclosed at closing. What should I do?

Answer: What you're describing is mortgage fraud. It falsely represents the true sales price to the lender and creates a false loan-to-value ratio. It allows the buyer to profit at closing, incentivizing the fraud. The buyer probably never makes a loan payment; he just takes the money and leaves. Texas law now requires that if you reasonably expect fraud is occurring, you must notify the appropriate authorities: the Texas attorney general, FBI, or local district attorney. If you don't, you may be looked upon by law enforcement officials as a co-conspirator. Let your REALTOR® know this and suggest that he take appropriate actions. Whether or not he takes your advice, make sure you disclose what you know to the appropriate authorities.

Dear George: Is it a REALTOR®'s responsibility to disclose the defects of a house? Two days after I purchased my home, the sewer line backed up and the plumbers who came to fix it said all my pipes needed to be replaced.

Answer: A Texas REALTOR® is obligated to disclose a material defect provided he knows about the material defect. However, a REALTOR® has no obligation to correct a disclosure regarding a condition of a property about which he does not have actual knowledge. Buyers of property are encouraged to hire licensed inspectors.