This is a true story. It happened here in our market in the time frame mentioned. I was not involved but the hero of this story wants to share it with you in hopes that it helps with your education.

Imagine you are the seller's agent and in your excitement to close a deal with a "rock star" you actually handed over the signed contracts. How do you spell "nightmare?"

We are truly blessed to have some of the talent we have in our KW office and the corporate culture that supports agents helping each other.

As you read this keep in mind the elements the cons are using:

• Credibility - presenting an established relationship with another agent you know as leverage for you to assume due diligence has been done.
• Time pressures
• Delay tactics that make sense
• Your eagerness to make a big commission 

MONTHLY PRACTICE TIP

Keller Williams Realty – Danville

January 8, 2007

Case Study:  Standard of Practice Regarding Verification of Identity.

I represent a Seller on a VERY high end listing.   We were contacted by an experienced and reputable real estate Broker who is the owner of the regional offices of a national real estate firm regarding setting up a showing for someone he said was the lead singer for a very famous rock group.   I was told there was another Realtor involved who was the Northern California representative for this “rock star’s” real estate dealings and the Buyer’s agent would be sharing the commissions with this other Realtor.  A showing was arranged.  Both Realtors and a large entourage with this famous “rock star” drove up to the home in a large limo and proceeded to preview the home for approximately an hour.   The potential Buyer even sat down at the piano at the house and played one of the rock star group’s most famous songs and didn’t even miss a note or a word.   The that night I was alerted that an all cash offer was being written for the home and the negotiations needed to be concluded by the end of the next day because of the timing of a 1031 Exchange transaction where the “rock star’s” next property needed to be identified by at least the last day of the year.   An all cash offer was presented with a good faith deposit was written for 3% of the purchase price - $300,000, and made out to a local title company.

There was no name printed on the good faith deposit check that was written from a national bank from one of the bank’s local branches.   I asked why there was no name printed on the check and I was told by the Buyer’s Broker that the account had just been opened and that a wire transfer had been arranged that would arrive the next morning by 11AM – the last day of the year.   The negotiations continued until late into the evening between the Buyer and Seller’s Realtors and me,   and a final agreement was agreed upon.   During the negotiations I also learned that the Buyer’s Broker had been referred to the “rock star” by the national president of his company.   (The president of this national real estate company is someone I have known for years.)

The following morning I was told that the good faith deposit funds would be verified by noon – the last day of the year and the last day that the Buyer’s 1031 Exchange property could be identified.   At noon I contacted the Buyer’s Broker and learned that it would not be verified until approximately 2:30PM because of the volume of wire transfers that were ahead of the “rock star’s” order.   At 2:30PM I arranged to be at the Seller’s home to finalize all of their signatures on the original contract and on the two Counter Offers.   As soon as I arrived at their home I called the Buyer’s Broker again to see if the good faith funds had been verified.   He let me know that there were eleven more wire transfers still in front of the “rock star’s” order and that it might not be verified until the end of the business day – again the last day of the year.   He asked if I could schedule one last showing of the home for the Buyer at 5PM because the Buyer was flying out to Augusta, Georgia that evening in his private jet to attend the funeral of James Brown.   I asked the Sellers and they agreed to allow the showing at 5PM.  I proceeded to go through all of the contract work with Sellers over the next two hours and had them sign all of the original contract paperwork.   However, I let them know that I would not give the fully ratified originals to the Buyer’s Broker until the good faith deposit funds were verified to be good.

At 5PM I called the Buyer’s Broker again to see if the verification of funds had been completed by the bank.   He said that they not yet been verified and it appeared that it would not happen until the next Tuesday morning – the first working day of the new year.   He still asked if his Buyer could tour the home at 5PM anyway and wanted at least a copy of the fully ratified contract with both the Buyer and Seller’s signatures.   I let him know that I would provide him a copy of the contracts with just the Buyer’s signatures because there would be no contract unless the funds could be verified.   He assured me that they would be verified on Tuesday morning.

The “rock star” again arrived in the stretch limo for his second tour of the home on Friday evening with a new entourage with him plus his two Realtors.   The Buyer was very excited about the opportunity to own such a magnificent home and he stated he would use it for all of his West Coast parties and entertaining.   During that tour I gave the Buyer’s Broker a copy of the contract and counter offers that the Buyer had signed but no copies of the one the Sellers had now signed.   The full ratified original contracts were still in my possession until the funds were finally ratified.   The long weekend arrived and the Sellers were pleased how they well they were served and there was great excitement on their part about what the next steps where in finding them a home since it was going to be a 25 day close.

I spoke with the Buyer’s Broker over the weekend reminding him that we expected that the checks would be delivered to the title company on Tuesday morning by 9AM and that the funds needed to be verified at that time.   He agreed that is what he would do.   On Tuesday morning I called the title company and it was confirmed that the checks had just been delivered and that they would contact me within the hour as to them receiving the verification from the bank that the funds were good.   Within a half hour from that call the title company called me back and told me they had returned the $300,000 check to the Buyer’s Broker because the funds could not be verified to be good by the bank and the title company would not hold the checks until they were verified to be good.   I contacted the Buyer’s Broker and he revealed to me that there was a possibility this was a case of identity theft and the purchase contracts and counter offers may have been a fraudulent act.   As the day unfolded the facts that were discovered by me were as follows;

• The Buyer’s Broker had never done an identity verification check on his client.   He also had never called the national president of his company to verify the referral to him.   He eventually made the call to his president because of my insistence and discovered that the president had never known this “rock star” and had never sent the Broker a referral.   He told the Broker that if he had made the referral he would have sent him either a written or emailed confirmation of that referral.
• The Realtor that was supposedly the California representative for the “rock star’s” real estate dealings had only met the Buyer the day of the first showing.   They had spoken on the phone for almost a month, but had never personally met.   The good faith deposit checks were written from a checking account he jointly opened with the “rock star”.   In fact, this Realtor had loaned the “rock star” his credit card that day since the “rock star” had left his wallet on his Lear Jet at the Livermore airport.   During the five days that the “rock star” had his credit card more than $18,000 in charges had been made on the card.   He also revealed to me that before becoming a Realtor he had been a county sheriff so he really felt stupid that he had been so naïve to not have checked the “rock star’s” identity.
• The limo service called both of the Realtors on Tuesday and asked who would be paying for the five days of service they had provided the “rock star” because they had been told the Realtors would be taking care of the bill.
• Realtor #2 alerted the police who were waiting for the “rock star” to arrive when the limo drove back to the company with the “rock star” in their car.   When they confronted him he showed them his driver’s license and the name on it was not the name of the “rock star”, it was Allen Young.   He was not arrested because no one had claimed there had been a crime committed yet.   The limo company had the “former rock star” sign a promissory note that stated the bill would be paid within 24 hours or a warrant would be posted for his arrest.
• It was further learned that the “former rock star” was a resident of a half-way house and was on parole for the illegal laundering of real estate that he did not own.

OK, here are the questions:  

What could have been done differently with this case to have prevented the mess that was been created?  

How would you deal with the Sellers after it was learned that the purchase contract and the Buyer were frauds?

Is there any compensation due me from the Buyer’s Brokerages given the work that was done to secure an accepted purchase contract?

Dean Harper’s Opinions (Keller Williams Legal Counsel):   The verification of the identity of a Buyer is the responsibility of the Buyer’s Realtor.   The challenge with this case is that it appears that the Buyer was a professional regarding identity theft.   He had certainly done his homework on the background information about the “rock star” he was impersonating.    However, when you are dealing with an all cash offer that starts producing “red flags” you may want to formally ask for a verification of the identity of the Buyer as part of the terms for release of the original signed contacts and counter offers.  

It was a smart move on your part to not have given an original copy of the fully ratified contact to the Buyer’s Broker.   When you are dealing with the laundering of real estate you don’t own,   the con-artist takes the original of the fully ratified contract and attempts to resell it on the open market while it is in escrow for a much reduced price and run with the money.   You and your Seller dodged a BIG bullet on this one.

A final suggestion is to make sure that you contact your Brokerage attorney for advice when you have a case that unfolds in the manner this one did.   She/he will be familiar with these types of case and be able to advise you regarding how to keep your Seller’s safety as the main focus.   This is the type of case that can really rattle a Seller and even have them remove their home from the market and/or ask to be represented by a different Brokerage.

Some ideas that your attorney may suggest to you is to have the Buyer’s Broker and Realtor #2 pay for 24- guard service of the Seller’s home,  pay for the changing of the home’s locks,  and pay for any changes that may be required for the home electronic security system.   The Seller will also need to do a detailed inventory of the contents of their home to make sure nothing was stolen during the two visits the fraudulent Buyer made to the home when he had so many people present.   These all may need to be in place until the whereabouts of the fraudulent Buyer are determined, and a verification that he is in custody and on his way back to jail.

The only recourse you have against the Buyer’s Realtors is to file a claim with the DRE and with the ethics division of your Board of Realtors.   I am not sure how to create a “bill” to send to the other Brokerages because no contract was completed.

One last thought is to have both of the Realtors representing the Buyer send you a written confirmation that they were in the physical presence of the Buyer and his entourage the entire time he was at the home during his two visits.   These written verifications will be of great benefit to you if there is anything missing from the home.   It will put the entire liability on Buyer’s Realtors for any cost recovery.

Note:  Our next case study will deal with the steps required to secure an accepted offer when you are dealing with a relocation company and a multiple offer.

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