BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Elder Law
Q: I am a listing agent for a seller who is a 75-year old man. He is living alone in his home and wants to sell so he can move to an apartment. He appears to be in good health and is mentally alert, although he is occasionally forgetful. I am expecting one or more offers in the next several days.
I just received a phone call, followed by an e-mail, from his daughter who lives in another state. She states that her father is suffering from the beginnings of dementia and should not be making decisions on his own. She stated that she and her brothers want him to move to a retirement home where he can get care. She also says that the family does not want the home, which has been owned by her father for over 40 years, to be sold. They prefer to keep it.
She then told me to cancel the listing and accused me of elder abuse. I talked to the seller who says his daughter is always interfering and to ignore her; he wants to continue with the sale. What do I do?
A: Elder abuse laws exist to protect the elderly (defined as anyone over 65 years of age) from abuse by virtually anyone. In the real estate context, an allegation may be directed toward the listing agent claiming that the agent is just trying to earn a commission from the sale of the elderly person’s property.
BACKGROUND: A diagnosis of Alzheimer’s or other dementia does not automatically deem a person to be mentally incapacitated. In fact, a person with a mental disorder may still be able to enter into contracts unless they lack “Contractual Capacity.” The best method to determine legal capacity is a medical assessment such as a “Mini Mental State Examination” or a “Gerontologist Neurological Examination.”
California PC§§ 811-813 define competency to enter into a contract and to make decisions. For example, PC§811 defines:
A. “Contractual Capacity” as the “ability to understand risks and benefits and consequences of a transaction;
B. “Lack of Contractual Capacity” as a deficit in mental function in one or more of the following areas:
1. Alertness and attention;
2. Information processing;
3. Thought processes; and
4. Ability to modulate mood and effect.
This deficit must correlate to the decision in question and significantly impair the person’s ability to understand the consequences of their actions.
TRUSTEE SELLERS: If a Trustee seller is determined to Lack Contractual Capacity, a letter from an attending physician so attesting will remove that trustee under most Trust documents, which usually provide that a Trustee serves until death, resignation or incapacity. But always check the Trust Agreement itself to confirm that Trust’s criteria for removal of a Trustee.
INDIVIDUAL SELLERS: If the property is held in the individual name of the person who is determined to lack Contract Capacity, then a Conservatorship must be established. There can be two different types of Conservatorships:
A. Conservatorship of the Person who is appointed to a person who is unable to properly provide for his or her personal needs for health, food, clothing or shelter.
B. Conservatorship of the Estate who is appointed for a person who is substantially unable to manage his or her own financial resources or resist fraud or undue influence.
Before a Conservator can sell property of the person who is incapacitated, there must be prior court approval of the sale. The sale process is very similar to a Probate sale with a court hearing and overbid, limits on listing time periods, commissions, etc.
ELDER ABUSE: Financial elder abuse is when a person “takes, secretes, appropriates, obtains, or retains real or personal property of an elder. . . for a wrongful use or with intent to defraud, or both. . . or by undue influence.”
“Undue influence” is defined as “excessive persuasion that causes another person to act or refrain from acting by overcoming that person’s free will and results in inequity” taking into account:
A. The vulnerability of the victim
B. The influencer’s apparent authority
C. The actions or tactics used by the influence
D. The equity of the result
Welfare & Institutions Code §15610.70
BEHAVIORAL SIGNS OF UNDUE INFLUENCE: Some things to look out for:
A. Does the person constantly defer to suggestions by another?
B. Does the person seem unable to make a decision without prompting from another?
C. Does the person seem frightened or reluctant to speak in either the presence or absence of another?
PRACTICE TIPS:
1. Elder abuse lawsuits are expensive to defend. Always take elder abuse allegations seriously and report them immediately to your manager or broker.
LISTING AGENTS
2. When listing property with elderly sellers, if you believe that the sellers may be mentally incompetent, you should try to involve other family members. It is usually the family members who may later complain that an agent has taken advantage of the seller. If the family members are complaining, try to involve the seller’s physician.
3. If you believe that the elderly seller IS competent, it is still wise to take protective measures. One step would be to bring your manager or broker on a listing presentation to verify the mental lucidity of the seller. You can ask such questions as: “Do you understand that we will be selling your home?” and/or “Do you also understand that once the home is sold you will no longer be able to live here and will have to find a new place to live?” Having notes of this meeting, and a witness to the stated wishes of the elderly seller, will go a long way in preventing a claim of elder abuse.
4. If you start to notice that the elderly seller doesn’t remember basic things such as that you are marketing the property for sale; that they have signed certain documents or have had certain meetings with you; it is time to take protective measures and involve your manager or broker; as well as the family, family attorney or physician.
5. Meet with the seller several times as this allows you to see the client’s baseline behavior and recognize sudden changes to behavior and to evaluate client’s memory skills. Client may be more comfortable meeting in their home (familiar setting) than your office.
6. It is exceedingly risky to allow a property to sell quickly, without exposure to the market or even the MLS, especially on an in-house dual agency transaction. If the seller is elderly, this is the type of situation that is hard to justify later. It is better to allow the property to have exposure to the market before the property sells – especially for a low price and/or to an in-house buyer.
7. POWER OF ATTORNEY: If you are dealing with a family member who is acting under a power of attorney (“POA”), you should ask for, and obtain, a copy of that POA. If the seller who has given the POA to the attorney-in-fact was, or becomes, incompetent, then the POA becomes invalid unless it is a “Durable Power of Attorney.” If a POA is invalid, the only way that a mentally incompetent person (who is not a trustee) can sell the property is to have a Conservator appointed. This will take some time to accomplish. Also, when dealing with a POA and an elderly seller, be on the look-out for signs that the holder of the POA may be financially abusing the seller. It would be easy for the holder of the POA to sell the property and convert the funds to his/her use. If you have suspicions, contact your manager or broker.
For more information, see Weekly Practice Tip: “Power of Attorney.”
8. TRUSTEES: If the property is held in a trust and the trustee/seller becomes incompetent, here again that person may have lost the capacity to enter into a contract on behalf of the trust. Most trust documents provide that if a trustee becomes mentally incompetent then, with an opinion letter from a physician so stating, that trustee is removed and the successor trustee(s) takes over. But, not all trust instruments are the same in this regard. Once again, it is time to get family members, a family attorney and/or physician involved.
9. Be sure your comps justify the listing and sales price. This is your best protection against a charge of elder abuse that you sold the property too cheaply to make a quick commission.
10. Even if you are dealing with an elderly seller to “help them out” out of the goodness of your heart with the best of intentions, be sure to document your file and bring in your manager or broker to witness and validate your actions. There have been several instances where a well-meaning agent is later accused of elder abuse by a family member of the seller, and the agent is unable to document his/her good intentions. These cases can be time-consuming, expensive, emotionally draining, and difficult to get out of easily.
11. Keep accurate records of all visits, conversations, and steps taken to assure capacity. Do a detailed memo after each conversation, with observations about circumstances, specific phrases, concerns, etc. Keep copies of every e-mail, letter, or other documents. Have seller put reasons why she/he is selling the property in her/his own handwriting. Get signed consents from the seller to communicate with other third parties.
Selling Agents:
12. All of the above can affect your buyer to the extent that a purchase agreement may be terminated because of the incapacity of the seller. If you note or suspect that the seller may lack competency, notify your manager or broker.
13. Again, be careful of a buyer acting under a POA for an elderly person. Be leery of dealing with a person with a POA and you do not meet or talk to the person who gave the POA. The same issues apply here as for the listing side.
14. SCAMS: There could be various scams to defraud an elderly person of their money, such as buying a home in the name of the elderly buyer and then either refinancing the money out of the home, or pressuring the elder person to deed to them and then selling it and pocketing the proceeds. Or, the property is placed in the abuser’s name at the last minute. Be alert for the scam artists. Mortgage brokers in particular should be on the lookout for these scams.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
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