Eckley & Associates Video ArticleSURVIVING REAL ESTATE MELTDOWN! - Part X

JULY 1, 2011

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OWNER-CARRIES: A Balm From the Sages Over the Ages!

In a former Newsletter, I noted the increasing turn to seller-carried finance in residential, commercial and business sales and I predicted that the use of it would solidly increase as conventional lending became ever more deleveraged, inflexible, complex, adverse and as sellers (now getting a quarter point on their savings accounts)  saw the benefit of collecting comparatively generous interest on “carries” (now running between 6% and 8%, but a significant number of them are higher).  That prediction has certainly proven to be accurate.  Owner-carries are now a significant part of most markets and they are growing monthly, everywhere.  By way of a growth example for residential sales, in 2009, the various MLS systems in the southwest reported a median average of less than a half of a percent of owner-carry closings; they now report 2% and more. San Diego--which closed .05% of the reported sales on owner-carries in 2009, went to 2.3% in late December, 2010.  Phoenix went from almost zero in 2009 to a little under a current 4% reported to date.  Owner-carried commercial sales are running 22% of all deals in the same areas, sales of business opportunities using owner carry are between 65% and 82% and owner-carries compose almost 90% for bare land, farms and ranches.  This is still below the historical levels during the last downturn (1982-1988) which ranged closer to a third of all dealsWhat this translates to is millions and millions of dollars of deals done and commissions paid that otherwise would not necessarily have happened!  That’s not chump change in these ruptured times.


    It is for the above reason that the policy of some real estate brokers, their  e & o insurers and title underwriters or escrows to bar sales on owner-carries, aside from being singularly stupid, looks like downright malpractice.  And that’s because it is malpractice!  No entity, least of all one owing statutory duties to transactional principals or engaged in open real estate commerce, can “bar” a principal or “veto” a civil transaction in real estate otherwise permissible without committing either licensure violations or committing restraint of trade and contract interference violations.   Yet there is a group of brokerages, insurers and underwriters—some amazingly at national franchise levels (fire your lawyers!)—that are doing this and they need to be reported to their regulatory authorities if they are not also “re-educated” by a thunderclap of a class action lawsuit.


    Let’s start with the real estate agents.  All state licensure statutes and rules make it clear that when engaging in agency with a principal, the real estate licensee  “. . . has a fiduciary duty to act loyally for the principal’s benefit in all matters connected with the agency relationship.”  Restatement (Third) of Agency §8.01.  That includes the duty of putting the principal’s interest ahead of the agent’s own and in obeying the directives of the principal.  See Restatement (Second) of Agency §14.  Comment a to §14 explains further:

“..(the principal has the right to control and that includes) prescribing what the agent shall or shall not do…(t)he right to control is continuous and continues as long as the agency relation exists . . . (t)hus, the agent is subject to a duty not to act contrary to the principal’s directions (or interests)…

    It goes even beyond that general mandate.  Strict obedience to the principal’s requests and to his or her best interests is commanded by specific law.  In Arizona, for example, see the duties enumerated in A.R.S. § 32-2153 and see Commissioner’s Rule R4-28-1101 (imposing a fiduciary duty on the agent to loyally, competently and diligently serve his principal).  In California (as in all other states) real estate licensees owe a duty of honesty, good faith, fair dealings and full disclosure to ALL parties to a transaction.  See California Business and Professions Code; Disclosures in Real Property Transactions, 6th Ed. (2005), State of California. The rules mandating the Real Estate Transfer Disclosure Statement (TDS), and particularly Cal. Civ. Section 2079.13 et. seq. and Cal. Civ. Section 2956 et. seq., 12 USC Section 1701x, The Housing Community Development Act (1987) all require due diligence to obtain a client’s objectives, every professional effort to profit the client and every human effort to solve the client’s problems, including creatively.  For all California Disclosures, including important ones concerning owner-carries, log to   See the California DRE Rules and the terms of the CAR documents and note that CAR has DRE/CAR-approved owner-carry and lease/option documents.  In Texas, New Mexico, Nevada, Hawaii, Colorado, New Hampshire, Michigan, Florida licensure laws—you name it—it is the same rule, everywhere.

    But it is more than rules.  Most times it is also a commitment by express contract.  Focusing just on the effect of the existing transactional documents one quickly finds the express duty to think of and do the deals the client needs and wants:  In Arizona, see for example, the AAR Buyer-Broker Exclusive Employment Agreement specifically states that the agent agrees to “negotiate at (the principal’s) direction to obtain acceptable terms and conditions (to principal) for the purchase, exchange, option or lease of the Property.” (parens  mine.  The Author).  The agent has specifically agreed to act at the direction of its principal and is not free to refuse to act within the given appointment.  The forms approved for state use by ADRE and AAR includes both general agency, disclosure, transactional and owner-carry documents with the same specifically-contracted or stated duty.  It is likewise in most other states.

    If there was any doubt about the right and duty to use the deal types that are available and to have the skills that are required to do them, the role of a real estate licensee is set out in the various state licensing statutes and contains it all as a mandate implicit in agency activity.  All states define “professional real estate activity” that way and for the most part the same. In Arizona (identical to other states), in  A.R.S. § 32-2101(48), the term "real estate broker" is defined to include “a person, other than a salesperson, who, for another and for compensation:

(a) Sells, exchanges, purchases, rents or leases real estate….

(f) Buys, sells, offers to buy or sell or otherwise deals in options on real estate, (and)…improvements to real estate….”

This description appears in any state licensure statutes.  Note that it does not say the activities enumerated must be done “by conventional bank mortgages only” or “cash-out deals only” and it could not without violating the state and federal Constitutions. It says generically that the broker will do these transactions.  And it means it.  Sales licensees are directed to have the same skills under the guidance of the broker.  If one cannot do these roles, tasks and deals or will not do these roles, tasks and deals, can one hold one’s self out as a “licensee” or do so truthfully?  Likely not.

    In Arizona, A.R.S. § 32-2101 (47) defines "real estate" (as do all states) to include not just fee simple titles but  “any estates in land” which includes those not held free and clear and even includes “leasehold-interests” as subjects of sale.  In Arizona, seller-financing is covered by statute as well, setting out the particulars of servicing such accounts and the seller’s remedies on default.  See A.R.S. § 33-741 thru 33-750.  California law is side-by-side with Arizona’s laws for trust deeds, mortgages, land sale contracts, leases and options.  All states authorize trust deeds, mortgages, land sale contracts, leases and options as legal documents on which anyone can do business.  This is why all MLS input sheets have a space to check “seller carryback” and all states have state or Realtor forms or addendums for owner-carried finance.  Who would not check that box as an alternative the seller wants to hear about in every deal?  It opens the whole “marketing door” and “starts the talking.” After all, the seller can always turn it down, but the seller never even gets the offer to consider if that box is left blank.

    NAR itself maintains a dedicated page to assist in seller financing .  See it at  It’s there, it’s a principal’s right to access these methods of commerce, and it’s the law for everyone that they get to.  Even NAR—the premier spokesperson for the entire industry and advocate for approximately 68% of the real estate licensees in the nation--says so.


    There simply is no lawful way for an agent to decline to do a seller-carry transaction that is clearly within the transactional laws and licensure codes or deny their principals access to that method or marketplace.  In fact, it is the agent’s duty to THINK of owner-carries as a potential solution and to advise their clients of them.  Accordingly, to hide or self-veto these options is a violation of fiduciary duties and licensure law—clear acts of malpractice if not, in failing to advise the principal of those available marketing methods and deals--a fraud.  If it is a wholesale office or brokerage policy to deceive or disserve this way, it is also a restraint of trade, actionable at both civil and criminal law. 


    Let’s be perfectly clear:  The only option an agent has if he or she wants for some bizarre reason to opt out of the owner-carry marketplace is to decline the listing or the buyer representation right up front or to advise the client (whether as selling or listing agent) in writing of his rights to this kind of sale option and then resign, instructing the client to go to a competitor who will more fully serve the client's interests by offering these transactional options.  Stated as plainly as possible:  The client is entitled to an agent that will use all of the tools in the tool chest to serve him and who will obey him and who can make a deal that serves him by whatever tools there are.  If you are not that person, the law requires you at minimum to raise your hand, confess the shortcoming or bias, and let the client go to someone who is not a career midget who can get the job done.

    For brokerages which have a “no-owner-carry policy,” the disclosure laws would require them to state that serious professional shortfall right up front in all advertising and before any agency agreement is formed.  In California, Arizona, Texas, Oregon and most other states it would be required under the disclosure laws noted, above.  The NAR Codes of Ethics require a Realtor to refrain from engaging in sales work in which the agent is incompetent, inexperienced or reluctant.  Thus, one can exit this entire field of talent, service and sales by simply quitting, but that is probably, when it rises to a brokerage policy of intended mass deprivation against the interests of principals, an actionable real estate licensure violation by the Designated or Managing Broker and is in any event an unlawful restraint of trade.  If the broker can do the time, I guess the broker will do the crime.  But there’s a name for that corrupted decision: It’s called “electing to become a real estate ‘short-timer.’”


    With the above revelations, it should be no surprise to a real estate professional that seeking to convince a principal not to use owner-carries out of an unspoken fear of affecting a commission or to avoid having to learn this skill or because the agent’s e & o insurer, title company or escrow has (wrongfully—see below) stated it will not cover such transactions is not only a breach of the express agreement to act at the principal's direction within the law and the duty of good faith and fair dealing implied in all contracts, but it’s also a clear conflict of interest for the agent.  The agent is secretly putting his or her own interests ahead of those of the client. The licensure laws of every state in the union prohibit that and the civil courts call it malpractice and fraud. 

    A last concern for licensees refusing to take on seller-financing is the aspect of false advertising.  Every state licensure agency has something akin to Arizona’s Commissioner’s Rule R4-28-502(C)  which, much like those of other states including California,  provides: “A salesperson or broker shall ensure that all advertising contains accurate claims and representations, and fully states factual material relating to the information advertised. A salesperson or broker shall not misrepresent the facts or create misleading impressions.”  A failure to put in all advertising that the licensee or brokerage refuses to work with the owner-carries and refuses to fully conduct the role of real estate agency and licensure would be a falsehood by omission.  A principal deserves to know that the agent or agency intends upon for ulterior motives to bar him from a lucrative owner-carry market.


    Now it is time to turn to the malpractice insurers.  Some brokerages are allegedly being told by some of their e & o carriers (and escrows or title companies) that they “cannot be covered by insurance for doing owner-carry transactions”—the very ones allowed by state contract and property law and mandated by licensure lawIf an agent refuses to write an owner-carry deal the parties want because of this pressure, the agent has committed a clear malpractice (conflict of interest) and if an insurer is taking this position, it is liable for a conspiracy to promote unlawful breaches of agency duties  and anti-consumer acts in violation of state law and at the very least for slander of the seller’s title and an intentional interference with the all of the principals’ (seller’s and buyer’s) property and contractual rights and relations.  The “Devil Made Me Do It” defense cuts no mustard in licensure or trade law.  Moreover, in the e & o policies reviewed by this author, no such limitation is even in them as would be required by state and federal insurance coverage rules for exclusion and the “insurance good faith” laws.  The insurers (and sometimes the brokers for the reasons noted above) are often making this up out of whole bolts of imaginary cloth for darker, ulterior purposes as noted, above.  But whatever this “anti-owner-carry policy” is said by them to be made of, B.S. is actually the main ingredient.  This trade deprivation is no more lawful than the insurer requiring the insured to use only Realtor-approved forms (forcing the use of a labor union product as a precondition to market access) to obtain coverage—an act well-established as another trade violation against both the brokerage and its clients.  Pity the brokerage that targets itself as a co-conspirator by falling for it.


    Let’s talk about restraint of trade and anti-trust for a moment.  All of these players—agent, insurer, escrow, title underwriter--have a duty to serve commerce and act according to law.  When any of them separately or in combination have a policy which acts to “prohibit” or “chill” the transfer of real estate or bar private contracts,  it arises to an unlawful restraint of trade (aside from the other licensure violations, above) and to clear unconstitutionality.  All states and the feds prohibit it.  Arizona’s A.R.S. § 44-1402 is a typical state statute (similar is found in California, Texas, Colorado, New Mexico, Nevada, et. al.) —worded closely to the federal law governing the same acts.  It provides: “a contract, combination or conspiracy between two or more persons in restraint of, or to monopolize, trade or commerce, any part of which is within this state, is unlawful.”  The federal counterpart to this law is the Sherman Act, 15 USC § 1 et seq.   See Three Phoenix Co. v. Pace Indus., 135 Ariz. 113, 115 (1983).  Though some insurance companies are exempt under the Sherman Act for certain innocent acts of insurance development and pure vending, they are not exempt from liability for engineering the wholesale violation of state licensure laws or permitted to unconstitutionally restrict the free and unfettered land trade, the execution of private contracts and the transfering of property. United States v. National Ass'n of Real Estate Bds., 339 U.S. 485 (1950).  If a “chill” on seller-finance results from the acts or omissions of real estate agents, insurers, title and escrows in refusing to handle these deals by agreement, tacit or otherwise, because of their aversion to the “natural risks of their profession” or out of a fear of “lost revenues,” this is pure, adulterated, actionable restraint of trade.  Interestingly, the question is begged:  Will the insurer who contends that it will not cover the agent for owner-carries cover the agent for the malpractice liability for unlawfully hiding these transactional options or refusing to do them when the bilked and irritated principal finally discovers it and sues?


    The facts are in and for as long as the conventional marketplace has more and more “no,” to meet consumer needs, the owner-carries—the “ 'yes’ of last resort”--are here to stay and grow.  Mike Orr, chief statistician of the authoritative Cromford Report points out in a December, 2010 analysis covering Arizona prepared for Eckley & Associates, P.C. that residential owner-carries closed  in 2010 at a 60% price premium over all other sales! (A copy of this report may be obtained by writing asking for it to  This statistical example tracks right alongside what is being reported nationally and what has happened historically:  Owner-carries get more offers, earlier and for more money than any other saleThe 2011 sales year has been even better for owner-carries.  In some venues, owner-carries are “the only act in town.”  Owner-carries are once again assuming their tradition as the “gold standard” for savvy sellers and buyers right now.  They are a flexible, profitable, wise, legal way to sell property in all states of the union. 


    Any real estate agent, brokerage, insurer, escrow, or title underwriter which refuses to handle these and causes damage or an unconstitutional market-denial to a principal is quite likely liable for applicable licensure sanctions, malpractice and, if it is part of a larger policy or a common compact across trade lines, for a claim in restraint of trade, slander of title, or interference with contract.  Let the regulators, the principals and, if you wish, us know who these violators are so that remedial action for the good of all of us (and especially for the innocent citizens who are being victimized by this malevolence) can be taken. Write to with the facts.  In these tough times, we don’t need any more Economic Wrecking Balls with hidden, Armageddon Agendas closing yet more economic doors on our struggling marketplace.  What we desperately need now is people and strategies to kick those doors open!

Let’s do everyone a favor and “Out” this corrupted crowd.

Nuff said


J. Robert Eckley is a multi-state real estate, agency and banking law attorney, successful litigator, popular writer, educator, economist, past Realtor and national speaker with an immense personal and professional involvement in forefront issues over the past three decades. He has established precedent at the Supreme Court and co-founded transactional laws, rules and forms that guide practitioners today. He has been a real estate licensee and a former Realtor for three decades, was named to numerous Commissioner's Advisory Committees and Governor’s Agency Advisory Committees, received a host of leadership and instructor awards, is a CCIM Affiliate, testified in Congress against the due-on-sale clauses in 1982, fought the clause in state and federal courts, fought against all and defended a half dozen state and nationally chartered banks and thrifts, and has received leadership awards and honors from U.S. President Reagan and former Arizona Governor Napolitano, to cover just a few of the miles he has gone.  Often as entertaining as he is practical and enlightening!  See more at