Back track mentally to 2004 and the market boom.
Meet Vernon and Mary Ummel (ages 71 and 60, respectively), San Francisco area residents.
Enter Mike Little, agent with ReMax Associates in Carlsbad, California, the destination market for the Ummels and their relocation plans. Toss in Geoff Mountain, a co-owner and Broker of the firm.
Fast forward to purchase contract executed by the Ummels in the amount of: $1.2 million.
Add a twistÃ¢â‚¬Â¦Mr. Little also managed the mortgage piece for the Ummels.
Factor thisÃ¢â‚¬Â¦the seller was a real estate agent.
Throw this into the soup: The Ummels claim no comparables were shown to them prior to contract and that better values were available at the time they purchased and the appraisal amount was not disclosed in writing prior to close.
There’s more. The Ummels have already settled part of their suit with the mortgage company and the appraiser. Translation: Errors and Omissions insurance paid off the Ummels..
The claim by the Ummels is that they were duped, so to speak, into buying a home that was not the best bargain in the neighborhood, since others, they claim, were being sold for close to $175k less. The agent didn’t exercise fiduciary, so they claim.
On Monday, the lawsuit lands in Superior Court.
Imagine a jury of peers judging this oneÃ¢â‚¬Â¦most of whom will own properties in California that are probably not worth what they once were. Ouch!
All the earmarks are here. Agency, disclosure, price opinions, ABAs, RESPA and more.
Is the class action blame-game lawsuit trend about to evolve, complete with vulnerable adult statutes in play and treble damages? Lawyers are no doubt salivating and Errors and Omissions companies shaking in their boots.
According to other news outlets, Mike Little calls Ms. Ummel a Ã¢â‚¬Å“nut job.Ã¢â‚¬Â Hmmm…not nice. Mike, here’s some advice from REALonomics; if you did say that, shut up.
This puppy could go either way, not because of the validity of the suit but because the consumer (remember them?) (a) loathes the industry; (b) wants to blame the industry for the decline in values; and (c) jurors may be sympathetic for self-serving reasons (their own property values).
Our opinion: The suit, if properly contested with adequate counsel, will fail and we hope the brokerage firm does not settle, which could open a pandora’s box to E&O claims.
Keep an eye on this.
REALonomics received positive and negative feedback, online and offline, regarding our PhotoBlog entitled “REALonomics: Recession!” posted yesterday, January 22, 2008. By this PhotoBlog we have proven that a picture is worth MORE than a thousand words!
About six weeks ago, REALonomics came to the conclusion that that we were at the door of recession, the strength of which we were not prepared to estimate. A post was prepared in advance but not published. After watching Washington’s call for stimulation, Chairman Bernanke’s testimony, the global market downturn two days ago and the Federal Reserves mid-night pajama telephone conference to lower the prime by .75, the highest reduction in a quarter century, we felt that our position was confirmed…the door to recession was now open…rather than text posting…be photo-blogged.
For too long, the real estate brokerage, mortgage and title industries have adopted a “let’s not say anything negative” approach to the largest financial crisis since the Great Depression. REALonomics thinks this passive position has been a huge mistake on the part of the industry and indeed, may have kept us from aggressively pursuing solutions within our industry.
Our “recession” call is not predicated on the old GDP decline rule (2 down quarters = recession). We believe we have entered a powerful global economy where the connectivity of markets, east and west, have re-written the old assumptions and rules, creating international definitions, rather than just national definitions of recession.
What would you call the following?
- A global financial institution crisis
- Real estate inventories at nearly 20 year highs
- Unprecedented escalation in foreclosures
- Huge market declines in Japan, Singapore, Hong Kong & other markets
- Calls for economic “stimulation” with uncharacteristic bi-partisan support
- A .75 cut in the prime by the Federal Reserve in an emergency conference
- Up-ticks in unemployment rates
- Declining consumer confidence and high personal indebtedness
- The weakest dollar value in recent memory…1/14th the value of 50 years ago
- Sell-off of significant percentages of national banks to foreign interests?
- Loss of most of the stock market gains for 2006-2007?
REALonomics believes the door of recession is now open and that we are passing into a zone of real economic challenge. It’s necessary to the clean-up and we cannot expect ‘happy days’ to be here again until we face the music…we won’t heal the industry’s problems until we acknowledge illness and create cures.
Your thoughts are?
There’s a bear in the woods of the economy and in the real estate sector in particular…he’s tired, angry, confused and very hungry. His insatiable appetite can no longer be assuaged by an industry lacking the fortitude to initiate collective, pragmatic and meaningful change to its business model and its relationship with the consumer.
Who is the bear?
As REALonomics forges this post, we estimate that nearly 40% of all real estate brokerage firm owners are the edge of financial collapse. Agents are leaving the industry for jobs at the malls. One said to me, “hey, I gotta eat.” The bear grunts its disapproval and hot steam shoots from its nostrils.
Who is the bear?
While the mortgage industry scrambles around attempting to locate financial relief, 1.8-2 million homeowners will experience up-ticks in their adjustable rate loans in 2008. The money changers are reaching out to foreign investors for capital due to a weakening dollar, indications of recession, bailouts of some of our most cherished lending institutions. Countrywide was just absorbed by Bank of America in what has to be one of the sweetest deals in decades. The bear rumbles through the woods, pacing and snorting.
Who is the bear?
Title and escrow companies have already started trimming, not the Yule tide tree but rather, their staffs…more layoffs are just around the corner…office consolidations are underway…middle managers are updating their resumes…sub-leases opportunities are growing. The ability to sustain the overhead and retain experienced personnel is waning. The roar of the bear is deafening and its hunger is obvious.
Who is the bear?
The landscape of contemporary and financial relevance is starting to shift under the feet of real estate franchisors whose transaction revenue streams have plummeted to amazingly low levels. It’s likely that franchising may become a negative growth industry in 2008…this will be a first since 1976. Wanna buy a real estate company? Eight of ten may be on the market by mid 2008. Market value, zero. The bear stalks the woods, its movements tracked by the sound of snapping branches.
Who is the bear?
The National Association of Home Builders (NAHB) reports are full of sub-prime finger-pointing and predictions that new home recovery will rebound in 2009. Some Midwest markets report that contractors are simply shutting down, packing up and walking away from unfinished projects and unfinished home construction jobs, leaving owners in a lurch with no trades available to complete their project. The forest belongs to the bear and no segment of the terrain is beyond its reach.
Who is the bear?
Finally, the National Association of Realtors (NAR), with declining membership and revenue, while locked in an ongoing and costly herky-jerky legal dance with the Department of Justice (DOJ), recently announced its plans for change, relevance and transparency as only it can define it…drill-down pseudo Web 2.0 mapping for major markets via www.Realtor.com coupled at the neighborhood level with FSBO MLS listing opportunities through www.HousePad.com. Indeed, strange bedfellows. The bear’s ears are penned to its head, flattened in an instinctive response to a threat…he rises on his hind legs, assuming a posture of potentially fatal engagement.
Does a bear sit in the woods? If so, who is the bear?
The heat is going to be turned up today and REALonomics is issuing its first Industry Alert for 2008, a new feature of this blog. All real estate industry participants should track Bernanke’s comments carefully. Tune in to C-Span for details.
It is rare for the Chairman of the Federal Reserve to endorse programs initiated by the Executive or Congressional branches and REALonomics predicts that Bernanke will avoid specific detail endorsements. Make no mistake about it; politicians from both sides of the aisle are looking at the economic situation in terms of potential recession and in true predictable fashion, are calculating political moves that will enhance their longevity.
Bernanke is on fire and under fire. REALonomics is alerting the brokerage, mortgage and title industries to watch this situation closely. More coming! Your comments are welcomed.