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Avoiding Conflicts Of Interests In Foreclosures

Avoiding Conflicts Of Interests In Foreclosures

A conflict of interest arises when a broker or their agent, acting on behalf of a client, has a competing professional or personal bias which hinders their ability to unreservedly fulfil the fiduciary duties they have undertaken on behalf of their client. In a professional relationship, a broker’s financial objective of compensation for services rendered is not a conflict of interest. However, fees and benefits derived from professional courtesies, familial favors, and preferential treatment by others is compensation which must be disclosed to the client. Alternatively, the referral of a client to a financially controlled business owned or co-owned by the broker is not classified as a conflict of interest. Referral to a financially controlled business is disclosed by use of an affiliated business arrangement (ABA) form. A conflict of interest addresses the broker’s personal situations potentially at odds with the agency duty of care and protection owed to the client. A conflict of interest creates a fundamental agency dilemma for brokers. Thus, a conflict of interest is not a compensation or business referral issue.

A conflict of interest exists when:
• a broker has a positive or negative bias toward the opposing party in a transaction or a person not directly involved in the client’s transaction; and
• that bias in favor of or against the other person might compromise the broker’s ability to freely recommend action or provide guidance to the party they agreed to represent.

This bias regarding a party not directly involved in the transaction, to whom the broker may or may not also owe an agency duty, must be disclosed if the bias might disrupt the broker’s ability to make impartial decisions about the care and protection they owe to their client. Unless disclosed and the client consents, the conflict is a breach of the broker’s fiduciary duty of good faith, fair dealing, and trust owed to their client if the broker continues to act on the client’s behalf.

Situations involving a conflict

A conflict of interest, whether patent or potential, is disclosed by the broker at the time or as soon as possible (ASAP) after the conflict arises. Typically, conditions which bring about the conflict arise prior to providing a buyer with property information or taking a listing from a seller. The disclosure creates transparency in the transaction, revealing to the client the bias held by the broker. When disclosed, the disclosure allows the client to take the known bias into consideration in negotiations. Though the disclosure and consent does not neutralize the inherent bias itself, it does neutralize the element of deceit which would breach the broker’s fiduciary duty if left undisclosed. Potential overlaps of allegiance or prejudice which cause a conflict include:
• the broker or their agent holds a direct or indirect ownership interest in the real estate involved in the transaction;
• the broker or their agent are directly or indirectly a buyer of the property in the transaction, including a partial ownership interest in a limited liability company (LLC) or other entity which owns or is buying, leasing, or lending on the property

• an individual related to the broker or one of their agents by blood or marriage holds a direct or indirect ownership interest in the property or is the buyer
• an individual with whom the broker or a family member has a special pre-existing relationship, such as prior employment, significant past or present business dealings, or deep-rooted social ties, holds a direct or indirect ownership, leasehold, or security interest in the property or is the buyer;
• the broker’s or their agent’s concurrent representation of the opposing party, referred to as a dual agency situation; or
• the unwillingness of the broker or their agent to work with the opposing party, or others, or their brokers or agents in a transaction.
Simply, a conflict of interest needs to be disclosed to the client when the broker has a pre-existing relationship with a person other than the client which might hinder their ability to fully represent the needs of their client. This pre-existing relationship may be based on any form of:
• kinship;
• employment;
• partnership;
• common membership;
• religious affiliation;
• civic ties; or
• any other socio-economic context.
Conflict of Interest is used by a broker or their agent when representing a buyer or seller to disclose the potential conflict of interest which may interfere with their ability to represent their client as agreed. The conflict of interest form provides for information on facts which might create a conflict of interest for a broker or their agents in performing their agency duties on behalf of the client. Listed sources of a conflict include:
• the real estate;
• affiliation with a government agency;
• a business position;
• a business event;
• representation of others in the transaction; or
• Kinship and employee relationships.
With the current glut of foreclosed properties on the books of many banks and lenders, the purchase of an REO property can be an excellent value for your client. The transactions are challenging, as we all know, but making a few sound, initial decisions can help you protect your client from future complications. As the purchase process unfolds, the seller may offer incentives for your client, the buyer, to use the seller’s attorney, generally the same attorney that represents the bank. Even if you haven’t yet missed a mortgage payment, but are worried you might fall behind soon, now’s the time to take action. You may be eligible to refinance or modify your mortgage loan, lowering your payment and making it more affordable. Or, if you’ve missed payments and find yourself buried under late fees and past-due amounts, you may qualify for a temporary (or permanent) solution to help you get your finances back on track and avoid foreclosure. There are better options. The most important thing is to avoid foreclosure and options may be available to assist you if you are ready to leave your home. Some options may even offer cash incentives to help you move and transition into different housing.

Reverse Mortgages

Not understanding your obligations under a reverse mortgage can lead to serious consequences including foreclosure. Review your obligations and find out where to get help if you’re struggling with property-related expenses.

Legislative Conflicts Of Interest Common

One of the Utah Legislature’s perceived strengths is that its 104 members serve part time and bring their private-job, real-world experience into lawmaking. Insurance agents sponsored bills on insurance regulation. Police officers carried bills on criminal penalties. Contractors sponsored bills on construction. The percentage of lawmakers’ conflicts of interest may actually be even higher than 25 percent because some lawmakers reveal little of their real conflicts in their personal disclosure forms, using only broad or vague wording. And Utah lawmakers can’t escape their conflicts of interest when it comes to voting on bills. Unlike members of Congress or other state legislatures, Utah’s legislators, due to internal rules, must vote on a bill even though they may have a clear conflict of interest. However, they are supposed to declare their conflicts, either on a written form available online or through verbal declarations at the time of the vote. Twenty other state legislatures allow a member to vote “present but abstaining,” reports the National Conference of State Legislatures. Of those, 15 allow the “present” vote only after the body hears the member’s reason for not wanting to vote and only after a vote of the body allows the member not to vote. In some states, the vote of the members to allow a fellow member to vote “present” must be unanimous. In Utah, some conflicts could enrich or otherwise benefit lawmakers or their relatives, employers, businesses or civic organizations.

For all the concern, some conflicts can actually be good. For example, a physician/legislator may use his expertise to improve health laws, even though it may also benefit him and fellow doctors. The question is: In the 2007 Legislature that ended in February, at least 70 of Utah’s 104 part-time lawmakers introduced one or more bills that appeared to create a conflict of interest, according to a computer-assisted analysis by the Morning News. The newspaper looked at investments, business holdings and organization memberships of members, and what their bills would do. In some cases, the newspaper used information that was not provided in the legislators’ own conflict of interest forms as those forms may have been incomplete to build personal/professional dossiers on legislators. As may be expected, some members pursued a much higher percentage of bills with conflicts of interest than others. It is those kinds of “unofficial” or “personal” conflicts of interests that may or may not be known to the public or fellow legislators through conflict of interest forms.

HOA Board Can Avoid Conflicts of Interest

Being on the board of a homeowners association (HOA) means making decisions that put the interests of your community ahead of your own. That’s why it is especially important for board members to recognize and avoid conflicts of interest. Just the perception that a conflict exists can create issues and may even result in litigation. For starters, working with a knowledgeable HOA property management company can help you avert potentially sticky situations.

• Put your board duties first: As a board member, you are legally obligated to uphold your fiduciary duty to your HOA. You demonstrate this in two ways: through your duty of care and through your duty of loyalty. You must act with integrity, exercise good judgment and keep the association your top priority when making decisions.
• Evaluate yourself: When performing your board duties, ask yourself: Are there any influences (personal or outside) that might impact how I handle a particular transaction? Do I have any relationships or knowledge that I should be disclosing? Do I have outside responsibilities that might be in conflict with my board duties? If you can honestly answer “no” to these questions, then you probably are not facing any conflicts of interest.

• Learn to recognize potential conflicts of interest: On the other hand, if any of your decisions are influenced by personal or outside interests, you are probably facing a conflict of interest. An example of this would be if you owned a landscaping company and bid on the HOA’s contract. It’s important to recognize when a situation has the potential to become a conflict of interest. Being on the HOA board and owning a landscaping company is only a potential issue. An actual conflict of interest does not occur unless you take action by bidding on the contract.
• Consider your motivations at budget time: Board members’ personal biases can sometimes come out during budget season. Board members may believe that they are working in the interest of the community when, in fact, it is their own interests that are motivating them. Let’s look at an example of how this might happen: A newly elected board member thinks that the HOA’s assessments are too high. At budget time, the new member proposes a steep reduction. However, the reduction means that the budget no longer provides enough money for current operational costs. In this situation, the board member may have thought the proposal was best for the community, but it really wasn’t. The real motivation was self-interest: reducing the member’s own monthly fees.

• Never exploit privileged board information: Board members sometimes have access to privileged information. You should never use that information for your own personal gain. Consider the following scenario: A homeowner is having difficulty keeping up with assessments and approaches the board about selling the property. As is often the case with HOAs, the board has a legal first right of refusal. At the same time, however, one of the board members is interested in buying the property but does not disclose this. This is now a conflict of interest because the board member has a personal interest in the board declining to buy the property. A similar situation could occur if a home goes into foreclosures. The board member must reveal the interest up front and allow the board to make the best decision for the community.
• Apply the rules equally: Board members are not above the rules, and actually, they should set an example by following them diligently. Ignoring parking or pet restrictions, for example, sends a message to other homeowners that it’s okay for them to ignore the rules, too. Even worse, it may create liability issues for the entire HOA.
• Do the right thing even if the developer appointed you: Board members who are appointed by the developer during a community’s development phase may feel split in their allegiances. However, if you are in this situation, you are still obligated to look out for the community’s interests, not the developer’s.

• Be transparent: Being candid about potential conflicts of interest is key to avoiding them. Transparency should involve: Documenting those transactions that could benefit a board member, Reviewing bids openly and honestly, Voting on contracts only after careful evaluation of all materials
• Hold your community managers to the same standards: Of course you should expect your community manager to be guided by strong ethics. Remember that you are the management company’s client. As an employee of the company, therefore, the community manager must put the HOA’s best interests ahead of the interest of any individual board members. If the community manager has any business dealings with a homeowner, the board needs to be aware of it. Additionally, managers should refuse gifts or favors from board members or from anyone who does business with the HOA.
Conflicts of interest may seem difficult to navigate, but you can avoid them easily if you make the HOA’s best interests your priority and apply ethics, openness and integrity to all your decisions. Under the Council for Estate Agencies’ (CEA) guidelines, all property agents have a duty to avoid any potential conflicts of interests. If there are any conflicts of interest, agents must declare them to their clients in writing. Clients can then decide if they still wish for these agents to represent them.
Conflicts of interest in a transaction can arise when your agent:
• is personally or professionally connected with the other party and/or his agent
• receives payment or benefits from other parties because your agent has represented you or has recommended a party’s service to you
Some examples include when your agent:
• is a family member or business associate of the other party/the other party’s agent

• is from the same property agency as the other party’s agent
• receives referral fees from a company whose services are recommended by the agent to you e.g. bank, renovation company
• is collecting a co-broke commission from the other party’s agent (e.g. when you are the potential buyer of a private property and will not be paying commission to your agent)
• is receiving an “angbao” or other benefits from the other party who has not engaged an agent and has asked your agent to help with some paperwork

When must an agent inform me of any conflicts of interest?

Agents should disclose to potential clients any conflict or potential conflict of interests before they are formally appointed by their clients to act for them. Your agent must provide you a written disclosure of the conflict of interest just telling you about it verbally is not enough. The disclosure in writing could be in the form of a letter, e-mail, or mobile text communications e.g. SMS or whatsapp message. If you accept and agree for the agent to represent you, you should similarly provide this approval to the agent in writing. There could be occasions where a conflict of interest arises midway during the transaction. In these circumstances, your agent should declare the conflict once it arises or when he is aware of it. This should also be disclosed to you in writing. He can continue to act for you only if you give your consent in writing.

What information should I be looking out for in the disclosure on the agent’s conflict of interest?

The disclosure should explain the nature of the conflict and how it could potentially impact the agent’s professional relationship with you. This will enable you to make an informed decision on whether you would like the agent to continue to work for you. You should try to obtain as much information as possible given that any conflict of interest could ultimately have some bearing on the final transacted price of the property. Your written consent for the agent to continue represent you in spite of the conflict of interest may be legally binding. Hence, if you are unsure of the contents of the written disclosure, you should seek legal advice.

Responsibility and Risk

Unlike their counterparts at Fortune 500 companies, the board members of co-ops and condos are not usually career executives armed with lengthy corporate management resumes. The boards of co-ops and condos are stocked with people from all walks of life. Some are attorneys, some dentists; some are real estate brokers, some plumbers. Whoever they are, their status as board members automatically exposes them to one of the perils of their position: the potential for conflicts of interest. Board members have enough to contemplate as they carry out their buildings’ administrative duties, but avoiding conflicts of interest or even the appearance of such—is crucial. Nothing undermines a community’s faith in their leadership faster than impropriety and self-dealing among the board and management team. Conflicts of interest can be hard to avoid completely, but how they are handled is of the utmost importance.

Utah Foreclosure Lawyer

When you need a Utah Foreclosure Attorney, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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