GARCIA LEGAL scored a significant trial victory recently on behalf of a pair of clients—two limited liability companies controlled by a local doctor—that lost several hundred thousand dollars at the hands of an unscrupulous real estate agent. The trial court found that the doctor was duped into trusting the California licensee, who misrepresented that he was a broker, acted through a suspended corporation he had formed, and used an expired Nevada real estate license number to make himself appear more substantial and experienced than he was.
The agent met the doctor when he came to the doctor’s office for treatment following an auto accident. He proceeded to represent one of the doctor’s companies in the sale of an apartment building in North Hollywood, and convinced the doctor that he should use the proceeds to engage in an exchange under IRC § 1031 for properties in two other states. In the process, the agent realized that the sale would not be completed as to at least one of the properties because the agent had not left enough time to complete the due diligence and qualification process in the agreement he negotiated, so he insisted that the client pay him his commission from the 1031 exchange funds BEFORE the closing date, or he would abandon the client. That transaction ultimately failed to close, costing the client more than $100,000 for the lost down payment.
With regard to the other property, the agent did not include a financing contingency in the purchase agreement, thereby forcing the client to close the transaction even though the LLC was having difficulty qualifying for the loans on the two properties simultaneously. He also insisted on being paid up front from the exchange funds for his work on the second deal. Because only one of the transactions closed, the client lost the benefits of the 1031 exchange, incurring a significant tax liability. To top it all off, the agent made a secret agreement to divide the commission on the property that closed with the seller’s agent on the property that closed, thus obtaining a commission of nearly 10% all to himself, even though he was not a broker.
The court awarded our client more than $733,000 in damages plus other relief in the case. A motion for prejudgment interest of more than $190,000 is pending at this writing. Steve Garcia represented the client at the trial, which was in the Los Angeles Superior Court.