Scapegoating, the Number One Excuse in Real Estate Fraud.
Updated: Dec 19, 2019
Sellers who defrauded someone in real estate transactions rarely accept responsibility when they get caught. Even when the buyer develops indisputable evidence that the seller knew about a material defect but lied about it during the sale, the Seller often still fights. The next line of defense is to find a scapegoat, usually the realtor.
Sellers often blame the realtor for the fraud. They claim their realtor advised them that they didn’t need to disclose something wrong with a property, like a latent defect. It’s generally bogus. Every good realtor gets trained to ask sellers to disclose information related to the property. They even have a standard form titled: “When in doubt, disclose!”
But sellers make this claim for three reasons: 1) They use it to argue that they didn’t intend to defraud the buyer. In other words, they try to characterize it as an innocent mistake. 2) They want to force the realtor to pay for what they did. Arizona law allows juries to divide fault among the seller and realtor when sellers make this claim. 3) They want sympathy. They claim to be victims to curry favor with the jury.
This argument often just hurts the Seller’s credibility. A good trial lawyer can defeat it.
Focus on the Fraudster’s conduct
This defense is nonsense because lying is always wrong. Juries know that. They won’t believe that real estate fraud suddenly became ok because a realtor advised it. The key to holding defendants accountable is focusing on the fact that the defendant affirmatively lied. And that’s where the Seller Property Disclosure Statement is important.
If the parties use the standard Arizona Association of Realtors contract, the seller must complete a Seller Property Disclosure Statement, usually abbreviated SPDS, on a seven-page standard form. That form is thorough, and it asks sellers questions about nearly every detail of the property. It has separate sections covering environmental conditions, roofing, plumbing, electrical, title condition, utility access, and more.
It’s worded well. Many questions ask whether the seller is aware of “past or present” issues. For example:
· Are you aware of any past or present plumbing problems?
· Are you aware of any past or present problems relating to the swimming pool, spa, hot tub, sauna or water feature?
· Are you aware of any past or present problems with the electrical system?
· Past or present damage to the Property by termites or other wood destroying organisms?
That language prevents sellers from avoiding their disclosure requirements. For instance, a cheap seller may try to hide a known defect by performing an improper repair on his own. These shoddy jobs don’t last, but they prevent buyers from seeing problems during the inspection period.
The “past or present” language forces Sellers to still disclose the problem. Even if the seller claims he sincerely believes the problem is fixed, the form asks him to disclose past problems. At a minimum, something that motivated a seller to attempt a repair is a past problem, and the seller must disclose that it occurred. He must also disclose that he performed the repair himself, rather than hiring a licensed contractor.
The SPDS also requires disclosure of any known repairs of improvements to help buyers catch this issue. For example, the seller must disclose “past or present treatment(s) of the Property for termites or other wood destroying organisms?” Even if the seller performs a termite treatment himself and claims the problem is resolved, he must disclose the past treatment.
This form sets up a compelling cross examination against any seller who tries to blame the realtor. That cross examination goes something like this:
Q: Mr. Seller, I’m handing you Exhibit 1. This is a Seller Property Disclosure Statement, correct?
Q: And I’d like to direct your attention to page seven. Is that your signature?
Q: I’d like to direct your attention to page 3, line 105. That form asked: “Are you aware of any past or present plumbing problems?” Did I read that right?
Q: And do you see that the box indicating “No” is checked?
Q: You checked “No”, didn’t you?
Q: And you checked that box with your own hand, didn’t you?
Obviously, this final question will only be used in the case of a hand-written SPDS. But it’s quite common for sellers to complete that document by hand. Realtors are trained to have the clients complete the SPDS on their own, even if the realtor prepares everything else. (They do this to avoid getting blamed for non-disclosure.) If the seller completes it electronically, a good trial lawyer can tweak the question for that.
This line of questioning drives home the seller’s responsibility. It’s no longer a case about his failure to do something. He wrote a lie with his own hand and personally signed it. Once a trial lawyer establishes this, the defendant's excuses fall on deaf ears. His argument becomes: Blame the realtor because he told me to lie. Juries don’t fall for that. Sellers who commit SPDS fraud don’t get away with scapegoating.
In fact, in a recent trial, after using a similar line of questioning on a defendant with similar excuses, I asked the following as my final question before sitting down: “Do you accept any responsibility whatsoever for these buyers purchasing a house without knowing the true condition of the water line?” He said “No.” and the jury was shooting daggers through their eyes at him. They hit him with double damages because he willfully, intentionally signed a fraudulent Sellers Property Disclosure Statement.
Focus on the Fraudster’s motive
A good real estate lawyer also keeps the focus on the Seller by showing the jury that the seller had motive to lie and received a substantial benefit from doing so. Highlighting the seller’s motive to lie demonstrates he made his own choice, for his own reasons, and he’s responsible. Some of the common examples of motive include:
Profit on Sale—In the current market, almost every seller has substantial profit on sale. Even modest properties can generate six figure profits. That’s a huge motive to lie. In trials, I typically walk the seller through purchase price, sale price, and obtain an admission on how much profit the sale generated. One final jab: often the profit on that sale is greater than the Defendant’s annual income. Sometimes it’s several times greater. That profit level shows that the seller had his own reason to make his own decision.
Job Change—Some sellers are moving out of state to take a new job. They generally need to move by a specific date. This time pressure to sell gives a seller unusual motive to sell, and it also gives him additional motive to lie.
New Home Purchase—Many sellers will have a new home under contract before they close the sale of their old. In fact, its common to purchase new property with a contingency clause that lets the buyer cancel if he doesn’t complete another sale. These arrangements are a tell-tale sign of someone who can’t buy the house he wants unless he sells the house he has. Many unscrupulous sellers become more willing to justify disclosure statement fraud when it helps them move into a new luxury home.
Separation from Family—Sellers who need to move out of state (for example, to take a new job) often become temporarily separated from their families. The primary breadwinner may need to move to start the job. But if the old house isn’t sold, the family can’t afford a new house. Often, the primary breadwinner goes out alone and lives in a studio or one-bedroom apartment. The family only sees each other every other weekend. And they become willing to lie to end that situation.
On the Market Too Long—Sellers often feel an elevated urgency to sell if the home has been on the market for a long period of time. They may wonder whether it will sell at all, whether they’ll have to cut the price significantly, or whether the rest of their life will be on hold while they deal with a real estate problem.
Real estate transactions are always significant decisions for sellers. They always involve significant investments of time and energy. These are high dollar decisions that sellers make deliberately, and for particular reasons. For the unscrupulous, the same factors that motivate a sale also motivate a lie. Juries understand that. So digging into motive helps hold the dishonest accountable.
Show the jury he’s a serial liar
When a seller blames his realtor for the fraudulent statement he wrote with his own hand, it’s a great opportunity to catch him lying again. The jury always thinks the excuse is lame. Show them its false, and the hole just gets deeper and deeper.
So I cross examine defendants with the standard written warning every Realtor gives every Seller. When the Seller signs the SPDS, he acknowledges receiving a written warning titled: “When in doubt, Disclose!” In fact, that warning is in bold-faced type. It’s in all caps. And it’s at the very top of the page. You can’t miss it. It also includes the following statement, both underlined and bolded: “If you do not make the legally required disclosures, you may be subject to civil liability.” It warns Seller that they “should complete the SPDS by answering all questions as truthfully and as thoroughly as possible.”
Also, good pre-trial preparation includes a subpoena for the realtor’s file. It should include all emails and text messages between the realtor and the seller. The goal is to catch the Seller blowing off the realtors’ advice. Any example of the Seller blowing off the realtor’s advice helps. Especially if the realtor recommended disclosures that the defendant didn’t make. (This happens with shocking frequency.) Evidence like this establishes a pattern of the defendant making his own decisions, so it contradicts the defendant’s claim that he relied on the realtors’ advice.
Finally, the realtor will generally testify against the seller. Arizona real estate regulations require realtors to disclose, in writing, any material information they know regarding the property. So, if a seller discusses whether to disclose something with his realtor, the realtor will generally need to disclose it in writing if the seller doesn’t. When that type of writing doesn’t exist, it undermines the seller’s excuse.
Finish with a solid closing argument
Finally, good trial lawyers can use this excuse against a defendant with a strong closing argument. By the time of closing argument, we’ve already shown the jury that the excuse isn’t true. We’ve also shown that the seller was the one who personally hand-wrote a lie. He knew it was false when he wrote it and signed it with his own hand.
So when the seller claims the realtor told him it’s ok to lie, just counter with personal responsibility. Ask the jury whether lying would be ok if a realtor suggests it. The jury always says no. The seller is a grown up. He signed a legally binding contract, and he took hundreds of thousands of dollars, maybe even millions, based on that false representation.
Blaming others for our own conduct is one of the oldest schemes in the book. And people know that. Sellers claiming that a realtor told them to lie are no different than folks claiming the devil made them do it. People see through that. And juries see through defendants blame shifting onto their realtor.
Trusting juries is a cornerstone of my practice. They know who’s lying, and they recognize excuses. I never worry about sellers claiming their realtor told them to do it because that just shows the jury the seller is untrustworthy. And when they decide to do what’s fair, they’ll impose personal responsibility on the seller who refused to take it.
Samuel Doncaster is an experienced trial lawyer with a consistent record of victory. He's been rated a SuperLawyer's Rising Star for five years in a row and worked with real estate law in Arizona for over a decade. Set an appointment now to get an evaluation of your disclosure case.