[WSBARP] The Point; Option Agreements; Homeowner Benefit Agreements

[Douglas Owens]

Dear listmates, I have a few questions.  Is it the sense that these contracts are usually sold to the purchaser of the property by either the listing or the selling broker in connection with the purchaser’s transaction by which he or she comes into title?  Has anyone seen the wording of one of these contracts?  The company’s website says that a “memorandum" of the agreement is what is recorded.  Much would depend on what the contract says, about such things as are usual in a listing agreement such as the term of the listing, the efforts the broker must make and the amount of the commission.  At a minimum it seems that these contracts raise issues about restraint of trade, being explicit barriers against the property owner using any other brokerage to sell the property in the future, no matter what competitive offers such brokers might make.  This might be a violation of Section 1 of the Sherman Act if the company is out of state, or a violation of RCW 19.86.050 if not.  Another question involves the disclosure given to the property owner at the time of the signing of the agreement concerning the potential securities issues.  By these contracts in effect the property owner is receiving money currently in exchange for a promise to pay the broker a much larger amount in the future if certain conditions exist. I am not a securities expert and perhaps others could indicate whether this issue is any thing a property owner should be warned about.  Yours truly, Doug Owens

On Dec 5, 2022, at 12:26 PM, Dwight Bickel <dwight at dwightbickel.com<mailto:dwight at dwightbickel.com>> wrote:

There are several messages on the King County real property lawyers’ listserve about something that I have not seen, but I believe similar to agreements that have been used around the country. Title companies confirm these are being sold in Washington, binding the property owner to use a certain firm for brokerage upon the next sale. On the national real property lawyers’ listserve, this was posted regarding actions that may need to be filed, and legislation may need to be passed, to protect against such contracts:

From: DIRT - Real Estate Lawyers Listserv <DIRT at LISTSERV.UMKC.EDU<mailto:DIRT at LISTSERV.UMKC.EDU>> On Behalf Of Whitman, Dale
Sent: Wednesday, November 30, 2022 11:11 AM
To: DIRT at LISTSERV.UMKC.EDU<mailto:DIRT at LISTSERV.UMKC.EDU>
Subject: [DIRT] Homeowner benefit agreements (so-called)

You may remember a previous conversation some months ago on DIRT about so-called homeowner benefit agreements, under which a real estate brokerage firm makes a cash payment to a homeowner. In return, the owner signs a contract promising to use the firm for brokerage services when the house is next listed for sale, any time in the next 40 years. The contract is recorded and purports to run with the land, binding future owners. It also has the effect of acting like a lien, discouraging or making impossible the refinancing of the house or placing a second mortgage or HELOC on it.

The brokerage firm will cancel the contract, but only on the payment by the homeowner of a substantial fee, typically 3% of the property’s current value. (One suspects that this is the firm’s main source of revenue from these contracts.) All of this is spelled out in the contract, of course, but is not well explained to the homeowner who is entering into the contract and receiving a check.

The Florida Attorney General’s office has just filed a suit against one of the main purveyors of these sorts of contracts. The AG seeks damages, penalties, and an injunction, relying mainly on the Florida consumer fraud statute. The word is that more state attorney general’s offices are readying similar suits. These things are predatory and deserve, IMHO, to be stamped out.

Dale


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Dwight A. Bickel
Real Property Title Advisor
Washington Title Professional
Dwight at DwightBickel.com<mailto:Dwight at DwightBickel.com>
https:/dwightbickel.com<http://dwightbickel.com/>
206-484-1976

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