Tom Ramstack is a Washington, D.C. lawyer, journalist, author, foreign language translator and owner of The Legal Forum.
Realtors Who Help Sellers Reinvest Not Negligent if Investments Fail
Real estate agents who help clients reinvest earnings from property sales are not liable if the investments fail as long as the realtors act in good faith, a state appellate court ruled recently.
In the case of Gibson v. Bankofier, a seller of a home and surrounding land asked a real estate agent how to defer taxes from the sale so she could give more of the money to her children.
The real estate agent, Sharon Bankofier, suggested a 1031 exchange.
Section 1031 of the Internal Revenue Service Code allows sellers to defer capital gains taxes by investing the income into replacement properties. The replacement property must be purchased within 180 days of the first sale.
Although the case was located in Oregon, the tax law is federal and uses common principles of negligence found in Washington, D.C. and elsewhere.
Bankofier suggested the seller invest in a tenant-in-common property, or TIC. TICs are owned by several investors at the same time.
The client followed Bankofier’s suggestion after signing an agreement in which the real estate agent agreed to locate the TIC properties but would not provide additional services.
Bankofier found four TIC properties for the seller and received $24,000 in referral fees for them from the sellers. However, the elderly client’s cognitive condition deteriorated. She was declared incompetent.
Three of the four TIC properties eventually failed as investments. The client’s children sued Bankofier, alleging elder abuse and negligence.
The trial court ruled in favor of Bankofier. The state appellate court affirmed the decision.
The court noted that the agreement between Bankofier and her client said the client should seek outside help for advice on property valuations and tax advice.
Even if the realtor was seen as managing her client’s investments, there was no evidence of negligence because the four TICs could have been considered good investments when they were made. The real estate market collapse that led to the client’s financial losses occurred after the investments, which the real estate agent could not have foreseen, the court said.
The case is Gibson v. Bankofier.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2016 Tom Ramstack