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{legal Realtor®} The Menace of Chapter 93A – Part 1

by ROBERT S. KUTNER, ESQ. Partner, Casner & Edwards | Jan 02, 2018
Since 1978 Massachusetts real estate agents have been plagued with claims asserted under the Massachusetts Consumer Protection Act, commonly known as “Chapter 93A.” Realtors® who pride themselves on honesty and ethics have found themselves defendants for the first time in their careers. Having defended real estate agents against more than 500 Chapter 93A claims, as well as having drafted appellate briefs, my firm has helped the Massachusetts Association of Realtors® to establish important legal precedents that reduce the risk to real estate brokers and salespersons.

This is the first part of an article that will describe the obligations that real estate agents have under Chapter 93A and how to reduce the risk of liability.

The Landscape Before Chapter 93A:

Before enactment of Chapter 93A in 1968, a buyer, seller, landlord, or tenant
who was injured through a misrepresentation was usually limited to seeking relief
by filing a civil lawsuit for fraud or misrepresentation at common law. The reference
to the claim being one at “common law” meant that there was no specific statute
upon which the claim was asserted, but that the lawsuit was intended to recover for the misrepresentation under general legal principles.

The problem for many buyers was that Massachusetts common law did not impose an affirmative obligation on a seller or broker to volunteer negative information about a
home or product being sold.

The decision in Swinton v. Whitinsville Savings Bank (l942) is illustrative. A seller of a home had been sued by the buyer for common law fraud for failing to disclose a termite problem about which the seller was aware. The Court found no liability, because
the seller had made no false or misleading statement and the buyer had not inquired about termites. The Court concluded that a claim for common law fraud required proof of more than “bare nondisclosure” by the seller.

Enactment Of Chapter 93A:

In an effort to provide greater protection for consumers, the Massachusetts legislature
enacted Chapter 93A in 1968. That statute expressly prohibits any “unfair or deceptive act or practice in the conduct of trade or commerce.” It applies to all forms of commerce, not just real estate transactions.

Regulations of the Attorney General, attempt to provide a definition of the phrase “unfair
or deceptive,” but do so broadly. Those regulations state that an “unfair or deceptive act” is committed if a person acting in trade or commerce “fails to disclose to a buyer or prospective buyer any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.”

Originally, enforcement of Chapter 93A was limited to suit by the Attorney General. In l969, Chapter 93A was amended to allow civil lawsuits by consumers. According to the amendment, the amount recoverable by a successful consumer was monetary damages to compensate for the consumer’s loss.

Unlike common law claims, the statute also authorized recovery of attorneys’ fees, and,
if the violation was willful or intentional, punitive damages that doubled or trebled the
compensatory damage award. This made it more rewarding for buyers to sue under Chapter 93A than at common law.

Not Applicable To Private Sellers:

Until l978, it was uncertain whether Chapter 93A applied to private sellers as well as to
businessmen. In Lantner v. Carson, the Supreme Judicial Court ruled that a private individual who sold his own home was not subject to Chapter 93A, since the private individual was not acting for a business purpose.

Later decisions have held that owner-occupants of two- and three family houses are generally not subject to Chapter 93A either in their dealings with their tenants or when selling their properties. Lantner shifted the buyers’ focus for claims to real estate
professionals who became the target of Chapter 93A claims.

Refinement Of Disclosure Standard:

Because the regulations issued by the Attorney General were so broad, numerous claims were asserted by buyers against real estate agents. These claims alleged that the agents were liable, because they should have discovered and disclosed all problems with listed homes.

For example, buyers claimed that the agents should have disclosed conditions such as: basement water problems, roof leaks, structural problems, lead paint, septic system problems, insect infestation, zoning violations and building code infractions. Because
disclosure of such problems would have “influenced the buyer . . . not to enter into the transaction.”

The cost of defending such claims often forced brokers to settle, even when they had not known about the problem. In an effort to protect its members, MAR sought a test case to clarify the duties owed by agents, in an effort to reduce the risk to its members. That test case, Underwood v. Risman, came along in 1993.

The Test Cases:

In Underwood, the Supreme Judicial Court (SJC) held that there was no Chapter 93A liability of a landlord/rental agent for failing to disclose to prospective tenants the agent’s
suspicion that the apartment probably contained lead paint (revisions in the lead laws that were not in effect at the time of Underwood, now require testing for lead paint.)

In Underwood, there had been no specific discussion of lead paint with the tenants and there was no proof that the landlord had actual knowledge that lead paint was present, because no test had ever been performed. As an experienced Realtor®, the landlord
merely suspected a problem. 

The SJC overturned a $2 million judgment for injuries to the tenants’ child, ruling that there was no liability under Chapter 93A for the landlord’s failure to disclose suspicions. Only facts need be disclosed, adopting the reasoning contained in the amicus curiae brief that I filed on behalf of the Massachusetts Association of Realtors®.

Two years later, another important precedent was developed in Fernandes v. Rodrigues, where it was held that a real estate agent was not liable for innocently passing along incorrect information obtained from town records concerning a listed property.

In 1995, the Massachusetts Appeals Court affirmed dismissal of all claims against a listing broker who represented that the property contained four acres. After the closing, the buyers discovered that the property contained only 2.8 acres.

The source of the incorrect information that the parcel was four acres had been the town assessor. The Court ruled that my client, the broker, hould not bear liability for the
error, because there was no evidence that a broker, who exercised reasonable care, would have known of the correct acreage. Of particular significance, the Court ruled that it was not necessary for the broker to have informed the buyers that the town was its source to use this defense.

What this all Means:

Chapter 93A imposes an obligation on each agent to volunteer information about defects in a property to a prospective buyer about which the agent has actual knowledge, even if the buyer does not ask.

When providing factual information about a listed property, an agent will have no liability for passing along facts from a source on which the agent acts reasonably in relying. As long as the agent uses due care and reasonably believes the information to be accurate, the agent will have no liability.

Part 2 of the next article will focus on procedural issues under Chapter 93A and will suggest how to reduce the risk of becoming the target of a claim.