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Virginia Court Rulings Touch Real Estate Agent Liability

Recent rulings by the Supreme Court of Virginia may impact real estate agents’ potential liability.

First, the Supreme Court recently ruled that the Virginia Consumer Protection Act (“VCPA”) created a private cause of action distinct from common law fraud, and thus plaintiffs seeking treble damages against an agent under the VCPA need only meet the “preponderance of the evidence” standard to succeed on their claim.

What does that mean? In a typical fraud case, a plaintiff must prove each element of the claim by “clear and convincing evidence” – a high standard of proof in civil cases. A “preponderance of the evidence” is a much lower bar, and the standard typically applied in civil cases. It is generally understood to mean that “51%” of the evidence must support your claim. For context, compare that to the “beyond a reasonable doubt” standard applied in criminal cases.

Because of the high stakes in fraud cases, Virginia courts require a higher standard of proof. Not so under the VCPA.

In the case at hand, a homebuyer discovered that the home she purchased had flooded three times under the previous owner. That owner elected to make basic repairs, but did not waterproof the basement. The owner then denied any leaks or flooding, and the real estate agent helped conceal the damage. At trial, the court held plaintiff to the “clear and convincing” standard normally applied to fraud claims, and the jury ruled for the defendant agent on the VCPA claim.

In a unanimous decision, the Supreme Court reversed the defense verdict, ruling that the court applied the wrong standard of proof. Under the VCPA, plaintiff need only meet the lower “preponderance” standard.

In the second case, a Norfolk Circuit Court judge recently ruled that homebuyers may make a claim directly against a real estate agent for an alleged violation of the Virginia Real Estate Brokers Act, Virginia Code Ann. §§ 54.2100 et seq. (“VREBA”). Virginia courts have been split as to whether VREBA provides a private cause of action for breach of a statutory duty to disclose adverse facts to potential homebuyers. In this most recent case, Judge Mary Jane Hall ruled that a plaintiff making that claim may take it to trial.

In this case, a homebuyer purchased a Norfolk home after being told by her agent that the home had no flood-related issues. Three years later, during some renovations, the homebuyer claimed she discovered that wooden support beams in the basement had rotted due to flooding and termites, and the foundation had several large cracks caused by flooding. A year later she sued her agent, seller’s agent, and the brokerage for which each worked seeking the cost of repairs and punitive damages. The plaintiff claimed that the defendants failed to disclose the adverse facts regarding flooding in the basement in violation of the VREBA. The defendants’ counsel asked the court to dismiss that claim early in the case, arguing that VREBA provided recourse to an administrative agency, but did not create a private cause of action.

Judge Hall disagreed, citing § 54-2142.1 of the act. This section discusses the circumstances under which a broker would not be liable for providing false information, but ends with the statement “[t]his includes any regulatory action brought under the chapter and any civil action filed.” According to Judge Hall, this closing language indicates the VREBA may contain a private cause of action, so she did not dismiss that claim, and ruled that it will go to trial.

Judge Hall’s decision does not resolve this issue either way, but it is progress for proponents of the act. And, both cases are a reminder to real estate professionals of the high standards to which they are held.

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GarbiaPlocki, LLP is a law firm of dedicated professionals specializing in helping businesses grow. We offer corporate development, governance, and policy planning and implementation services to help companies build for the future, and commercial litigation services to protect that growth. Our lawyers are licensed in Virginia, Maryland and the District of Columbia. We look forward to the opportunity to serve you.