Court Upholds Licensee Penalty for Property Flipping

A New Jersey court has considered whether the state’s real estate commission properly disciplined two licensees who were part of a plan for a second buyer to purchase a unit in a new development before the first transaction had closed.
Peter Petridis (“Salesperson”) was licensed as a real estate salesperson and his supervisor was Margaret Steadman (“Broker”), a licensed real estate broker. Both licensees were affiliated with Prudential Fox & Roach REALTORS (“Brokerage”).
In 2006, Osprey Estates, LLC (“Developer”) signed a listing agreement with the Brokerage, designating it as the exclusive listing brokerage for its development. The Broker was named as the listing broker and she made the Salesperson responsible for the development’s listing duties. The listing agreement allowed the Brokerage to act a disclosed dual agent.
In November 2007, the Salesperson prepared an offer for Richard Vizzi (“First Buyer”) to purchase a unit in the development. The First Buyer was a long-time client of the Salesperson and he was purchasing the Developer’s property as an investment. The Developer accepted the First Buyer’s offer and a closing date of January 18, 2008 was established.
On Jan. 1, 2008, the Salesperson met with Yishai Kedar (“Second Buyer”), who was also interested in purchasing a property in the development. The Salesperson informed him that all of the constructed homes were under contract, and the Second Buyer was unwilling to wait six months for a home to be constructed.
The Second Buyer expressed an interest in the property that the First Buyer was in the process of acquiring. The Salesperson never told the Developer about the Second Buyer’s interest in purchasing a constructed home. Instead, the Salesperson contacted the First Buyer about the Second Buyer’s interest.
The Broker and the Salesperson met to determine how to proceed, since the First Buyer did not yet hold title to the property. The Broker and the Salesperson concluded that they had no duty to disclose the Second Buyer’s interest to the Developer. The duo also concluded that the First Buyer could sign the purchase agreement even though he did not yet hold title to the property, and the agreement for sale did not need to disclose the fact that he did not hold title. The Broker and Salesperson also concluded that they could act as dual agents in the transaction.
The Second Buyer purchased the First Buyer’s property for $130,000 more than the first purchase price, and the Brokerage collected commissions from both transactions. Upon learning of the second transaction, the Developer filed a complaint with the New Jersey Real Estate Commission (“Commission”), charging the Broker and Salesperson with unethical practices and violations of the state’s license law.
After a hearing, the Commission found both the Salesperson and the Broker liable for multiple violations. The Salesperson had his license suspended for two months, and the Broker’s license was downgraded to a salesperson license for four months. Both were also fined $5,000. Both licensees were ordered to take remedial education courses and placed on probation for a year. The Broker and the Salesperson filed a lawsuit challenging the discipline imposed upon them by the Commission.
The Superior Court of New Jersey, Appellate Division, upheld the Commission’s determinations. An appellate court will not overturn an agency’s determinations unless the agency’s action is arbitrary, capricious, or unreasonable.
First, the court examined whether the Commission had properly found that the Salesperson and Broker had made a misrepresentation when they did not insert a provision into the purchase agreement indicating that the First Buyer did not hold title to the property. Both the licensees conceded that they were required to insert such a provision into the listing agreement, but argued that they had not misled the Second Buyer because he knew that the First Buyer had not yet completed his purchase of the property. The court state that the Statute of Frauds requires a writing for all real estate contracts, and so the fact that the Second Buyer knew this fact did not have any legal effect because the written contract was a binding legal document. Thus, the court upheld the misrepresentation allegations against the licensees.
Next, the court looked at the Commission’s findings of incompetency and breach of fiduciary duty. The court agreed that the licensees failure to obtain dual agency consents for both transactions and also not including the necessary language in the purchase agreement constituted incompetency. The court also agreed that the licensees had breached their fiduciary duty to the Developer because they had put their own interest in collecting two commissions over its client’s interest in possibly making its own sale to the Second Buyer. Thus, the court affirmed both findings and so upheld the discipline imposed upon the licensees.
New Jersey Real Estate Comm’n v. Petridis, No. ATL-09-031, 2011 WL 5137877 (N.J. Super. Ct. App. Div. Nov. 1, 2011). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].