It has been a strong year for residential real estate sale prices in Massachusetts. The median house price topped $400,000.00 for the first time ever. https://www.bostonglobe.com/business/2017/07/25/median-home-price-massachusetts-tops-for-first-time/rVsP7BwWZCtKwP9BqZQOKJ/story.html Much of the rising home prices were in Boston neighborhoods, but the red hot residential real estate market has also been felt on the North Shore, in Towns such as Lynnfield, Saugus and Danvers, with the median price of homes in Essex County up 7.5 percent from last year. According to the Boston Globe, the driving force behind the high cost for homes is attributed to the lack of housing inventory in Massachusetts. Many homeowners looking for an upgrade are opting to fix-up their homes to meet their needs rather than sell and wade into the real-estate frenzy in search of a new home.
Options for funding home projects include refinancing existing mortgages, opening a home equity line of credit or taking out a second loan on your house. Each of these financing options are considered “real estate transactions” and in Massachusetts an attorney is required to conduct the closing. Obtaining a loan secured by real property may seem like a straightforward transaction, however it remains complicated and fraught with potential problems. As such, MA law requires the services of an attorney to conduct a closing. Understanding the scope of the transaction and the scope of the closing attorney’s duties to the borrower and the lender is important to the borrower.
A recent Massachusetts Supreme Judicial Court case, Fergus v. Ross, SJC-12231 (August 2, 2017), discusses how principals of agency may complicate the scope of a closing attorney’s duties to the parties. In Fergus, the plaintiff sought a loan to complete renovations on his property. The plaintiff contacted Bernard Laverty, Jr. (“Laverty”) who recommended securing a loan from the defendant, an attorney who operated a private lending operation through his law firm. The defendant agreed to loan the plaintiff $260,000.00, which loan would be secured by a mortgage on the plaintiff’s property. Throughout the process leading up to the closing of the loan, the plaintiff and the defendant never met. All communications between the defendant and the plaintiff were conducted through Laverty. Laverty and the plaintiff had a side agreement wherein the plaintiff agreed to loan Laverty $120,000.00 from the loan proceeds from the defendant in exchange for a deed-in-lieu of a mortgage for property located in Marshfield; however, unknown to the plaintiff at the time, Laverty did not have title to the Marshfield property. Laverty represented to the plaintiff that the defendant would act as the closing agent for both the loan from the defendant and for the side loan.
The defendant prepared the loan documents and on the date of closing, the plaintiff signed the documents without reading them. The side loan was not mentioned at closing or referenced in any of the documents. On the next day, the plaintiff transferred $120,000.00 to Laverty for the side loan.
The lower court found that the defendant was the closing agent for the side loan and that the defendant was “negligent for failing to inform the plaintiff prior to the closing that the side loan was not secured.”
The issue before the Supreme Judicial Court was whether or not the defendant had conferred apparent authority on Laverty so as to make him an agent of the defendant for the side loan. The SJC found that Laverty was not the defendant’s agent with respect to the side loan and, “[a]s a result, the defendant lacked constructive knowledge of the side loan, which was essential to the breach of the alleged duty.”
In support of its decision, the court noted “[a]pparent authority exists when the principal, by his or her words or conduct, causes a third person to reasonably believe that the principal consents to the agent acting on the principal’s behalf.” Because the defendant’s conduct did not demonstrate that he acquiesced to or ratified Laverty’s conduct concerning the side loan, no apparent authority was conferred on Laverty.
The facts of Fergus are more complicated than most common-place single loan closings, but the lesson from the case is applicable to many real estate transactions. Hire an experienced and knowledgeable real estate attorney to represent your legal interests. As a borrower, selecting an experienced attorney to represent you through the process can save thousands of dollars and avoid troubling complications.