Monthly Archives: January 2017

The enforceability of liquidated damages

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Is the liquidated damages clause in the Agreement of Sale enforceable?

To be clear, the liquidated damage clause at issue in this article is the liquidated damage clause found in paragraph 26(G) of the Agreement of Sale.  The answer is, as is so commonly the case in questions of the law, it depends.

Pennsylvania courts have decided that when a liquidated damage clause is tantamount to a penalty, the clause is unenforceable.  In order to be enforced, the liquidated damage must be a reasonable forecast of the potential harm to the non-breaching party.  The benefit of having a liquidated damages clause is that it should limit litigation over damages and allows the parties a degree of certainty when entering into the contract. While courts strive to enforce the intent of the parties to these contracts for that very reason, courts will not enforce a clause that amounts to a penalty and is essentially unfair to one side.

Courts that have reviewed liquidated damages clauses have applied a five-part test to determine if the liquidated damages are in fact a penalty and therefore, unenforceable.

The courts look at:

  1. the language of the contract
  2. the intentions of the parties
  3. the subject of the contract and its surroundings
  4. the ease or difficulty in measuring the amount of damages
  5. the sum stipulated.

It is unlikely that your average residential buyer or seller considers all of these elements when entering into the Agreement of Sale.  Fortunately, courts that have ruled on the enforceability of the liquidated damages, in the real estate setting, have primarily focused on the ratio between the liquidated damage and the amount of the deposit being held as the liquidated damage.  Specifically, in real estate transactions, courts have held that where the liquidated damage is equal to between 9 to 11 percent of the purchase price the liquidated damage is a reasonable forecast of the potential harm and is enforceable. On the other hand, a court held that a liquidated damage that amounted to 60 percent of the purchase price was not reasonable and was found to amount to a penalty and was unenforceable.

The court has stated that real estate transactions are within the class of cases where the amount of damages for a breach in performance is difficult to determine. It is for that very reason, that Agreements of Sale for real estate include liquidated damages clauses to cover a buyer’s breach.  In the current real estate market, the amount of the deposit paid by buyer may be insufficient to cover the actual damages incurred. Frequently deposits of $500.00 to $2,500.00 are tendered as deposit money, regardless of the purchase price of the property.

Although Pennsylvania Courts have not considered the question of an insufficient liquidated damage, courts in other states have found that in the absence of fraud, duress or unconscionability, liquidated damages provisions are not subject to challenge based on the allegation that the liquidated damage is inadequate to compensate for the damages actually incurred.  The lesson here is that if you anticipate substantial damages, then you might negotiate for a deposit that ranges between 9 to 11 percent of the purchase price.

In the alternative, and rather than accept an insufficient deposit that is the limit of seller’s recovery, remove the check-mark that makes the deposit a liquidated damage.  In that way, a seller may endeavor to recover actual loses in the event of the buyer’s default.

This article was co-authored by James Goldsmith, Esquire.

Debt in U.S. has seen 11 percent increase in last decade

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Debt in the United States has risen 11 percent in the past 10 years.

Today, the average household with credit card debt has a balance of $16,061, totaling $747 billion owed by U.S. consumers, according to NerdWallet. The average household with credit card debt pays $1,292 in credit card interest each year.

The average household with any kind of debt owes $132,529, including mortgages, totaling $12.35 trillion across the country.

NerdWallet reported that income growth has not kept up with the cost of living, leading more Americans to debt. While median household income has increased 28 percent since 2003, the cost of living has gone up 30 percent. Expenses like medical costs have outpaced income growth by 57 percent, while food and drink has increased by 36 percent since 2003.

Housing costs have increased 32 percent, with the average American household owing $172,806 for mortgages, totaling $8.35 trillion for the country. Auto loans have also impacted debt, with the average household owing $28,535, or $1.14 trillion for the country. $49,042 is what the average household owes for student loans, equaling $1.28 trillion.

Despite student loans typically being blamed for lack of homeownership, NerdWallet found that income actually grew more than education costs since 2003 by 2 percent. Student loan debt has increased 186 percent in the last 10 years, but the pace has slowed. Student loan balances grew 6.32 percent between September 2015 and September 2016, the lowest annual growth since 2003, NerdWallet reported.

By the end of last year, the total debt owed was predicted to be higher than the that owed at the start of the Great Recession, thanks to student loans and mortgages. “By all measures, consumers are handling their debt far more responsibly than they have in years past, likely due to a combination of issuers tightening their lending rules and consumers paying their minimums more responsibly,” said Sean McQuay, NerdWallet’s credit and banking expert.

Medina County Ohio REALTORS® Improve, Invest in Community with REALTOR® Party Grants

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With nearly 800 members keeping their ears to the ground, the Medina County Board of REALTORS® (MCBOR) never has to wonder what the needs of the community might be. In 2016, it met three such needs with funding assistance from the REALTOR® Party’s Housing Opportunity Grants and a Placemaking Grant. Ranging from housing for disabled veterans, to vegetable gardens for low-income citizens, to improving a bike path for the public, these projects demonstrate the deep level of investment these MCBOR REALTOR® professionals have in their community. 

Sherry Stell, MCBOR's Association Executive, explains that her organization has strong Housing Opportunity and Legislative Committees, but that its community service issues emerge organically, without any systematic approach. "If the need is there, members will call it to our attention, and we'll try to find out if it is possible to obtain a grant within the REALTOR® Party program," said Stell. For example, a MCBOR committee member who serves as a trustee of one of Medina County's townships recognized an opportunity for the REALTORS® to contribute to public fitness when a former golf course in his township was being converted to a public park and required funding to transform golf cart paths to mountain bike paths.  The Placemaking Grant program does not fund repair work on existing paths, but this fall, MCBOR succeeded in securing a $1,300 grant for a park map and information display case branded with the Medina County Board of REALTOR®S name and REALTOR® logo, along with a "Saddle Buddy" mountain bike repair and cleaning station.

Another significant community service project for MCBOR came about when one of its members handled the sale of a property to an organization that planned to convert the home to housing for disabled veterans requiring round-the-clock care. "That's how we found out about Newbridge Veterans Place," says Stell. "Our membership is more than happy to support our veterans.  Newbridge Veterans Place became the beneficiary of our Annual Charity Bowl-a-Thon, which attracted more than 140 participants and raised more than $3,000." Along with a $5,000 NAR Housing Opportunity Grant and three REALTOR® Care Days, MCBOR volunteers donated their time and skill to help the organization get the property up and running. "So much was needed in this seven-bedroom home to get it ready to house low income/homeless and disabled veterans," notes Stell. "Our members helped with painting, hanging blinds and setting up the kitchen, in addition to purchasing and moving furniture into the home." 

Yet another project arose because of MCBOR's longstanding support of Medina Creative Housing, an organization that promotes the development and management of permanent affordable housing for people with disabilities. In the past, the REALTORS® have received a REALTOR® Party Housing Opportunity Grant to support the programmatic goals of the charity's Life Skills Lodge as a comprehensive occupational therapy environment. "This year," reports Stell, "they wanted help installing raised garden beds, to help residents to grow their own produce and sell the excess at the farmers’ market for income. Our community is so fortunate to have this amazing organization, and this project, in particular, helps the broader population by providing fresh locally grown vegetables. It's a real win-win." On a hot day this summer, a team of MCBOR members got together and met at the site to build the garden beds, with materials paid for by a Placemaking Grant. As always, Stell put the word out among her affiliate members, who not only pitched in to help, but provided coffee, donuts and pizza. "Our members are very supportive of each other in these efforts," she adds, "whether it's with hard labor or coffee service.  Knowing that the REALTOR® Party is behind them with all its resources, makes all of us feel like we really can make a difference when these needs arise."    

To learn more about how the REALTORS® of Medina County, Ohio are making an impact on their community with the help of the REALTOR® Party, contact Sherry Stell, Association Executive of the Medina County Board of REALTORS®, at 330-722-1000.

Texas REALTORS® Take Advocacy to Another Level Using Social Media

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Headquartered across the street from the Texas Capitol and just around the corner from the Governor's Mansion, the Texas Association of REALTORS® has never been shy about political advocacy. In recent years, it has also eagerly harnessed the power of social media to communicate with its 114,000 members. Combining its political prowess and social media savvy, in mid-December TAR upped its advocacy game by offering a preview of the state's upcoming legislative session on Facebook Live.   

The half-hour preview and Q&A event was hosted by TAR's Director of Legislative Affairs Daniel Gonzalez, whose depth of knowledge and engaging demeanor make him a natural spokesperson. Opening with a brief overview of his department's work at TAR, he reminded members that the association's legislative agenda is not driven by staff, but by REALTOR® volunteers from across the state who serve on TAR's Public Policy Committee. Assuring viewers that TAR will read every single word of the six-to-seven thousand bills filed during the course of the session, he noted that it would be tracking roughly one third of them, including many that aren't about real estate or private property rights, but which have a big-picture, long-term bearing on the industry.

In addition to letting viewers know what their legislators will be tackling in the session that began in January, Gonzalez took the opportunity to direct their attention to the latest issue of Texas REALTOR® magazine, and to hiddenpropertytax.com, an educational site that TAR has launched to clarify a complex legislative issue now in play in Texas.  He also urged members to participate in the annual REALTOR® Day at the Texas Capitol this spring. With ten minutes to go, he fielded questions from the live audience on topics ranging from title insurance rates to homeowner associations.  

Brandon Alderete, TAR's Director of Political Affairs, points out that the association is right at home with webcast technology. "We've been delivering CE course content to our 77 local associations via online video for several years now," he notes. "The live feed is the exciting innovation here, allowing us to interact directly with so many members who are already right there, following us on Facebook." Nearly 1,500 viewers tuned in to the live and recorded sessions over the first 24 hours, and the post was also shared by dozens of individual Texas REALTORS® and local associations. TAR had promoted the event with organic and paid social media, through email newsletters and via text message through the REALTOR® Party Mobile Alert system just before the webcast began, generating more than 500 click-throughs.

"Whatever we can do to enhance communication with members, we'll pursue it," says Gonzalez.  "Facebook Live is a fairly new phenomenon, but we thought it would be worth a shot," he adds, noting that based on the enthusiastic feedback, his department will continue to share legislative issues with the membership via live webcasts.  "Our members really responded, and seem to want more. That's the way we like 'em: engaged and asking questions!"

To see firsthand how the Texas Association of REALTORS® is keeping its members connected to legislative issues affecting their industry and their communities, see https://m.facebook.com/story.php?story_fbid=10155514734234298&id=89617004297. To learn more, contact Brandon C. Alderete, Director of Political Affairs, at 512-370-2124.

Central Oregon Restores Balance to City Council with IE Program

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The city of Bend, Central Oregon's principal metropolis, was already growing at a rapid rate when Men's Journal singled it out in 20

15 as one of the "Ten Best Places to Live Now." The latest projection is that Bend will gain approximately 30,000 residents in the next twenty years, a statistic supported by the current reality of about five people arriving to live in Bend every day.  Yet, responsible growth in Bend has been deterred by one of the more restrictive land use systems in the country, and by a City Council that was largely anti-growth and out of touch with issues affecting its citizens. The recent election presented an opportunity for much-needed change, and the Central Oregon Association of REALTORS® (COAR) threw all its weight behind a REALTOR® Champion who would bring balance and sound judgment to the governing body. 

Tyler Neese, COAR's Government Affairs Director, explains why the association backed candidate Justin Livingston with funds from its own PAC as well as a substantial Independent Expenditure grant from the REALTOR® Party. "With this type of growth taking place—and a further boom in population on the horizon—it’s critical for us to have leadership in the community that understands key issues like land use, transportation and affordable housing.  Justin is passionate about making Bend an affordable place to live and raise a family. He's had successful careers in real estate, manufacturing and construction. He has served on several municipal committees, focused on matters from street maintenance to affordable housing. His depth of understanding and his connection to the community are just what Bend needs."

Oregon is one of the few states that allows independent expenditure campaigns to be coordinated with the candidate, which, Neese points out, enabled COAR to make the most efficient use of the support it received from the REALTOR® Party. "We were able to provide resources and support where Justin's campaign needed it most," says Neese, listing radio ads, Facebook and pre-roll video as the big budget items funded by the grant. 

The National Association of REALTORS® identified target sites for the online advertising.  It also advised COAR on strategic timing for some of the campaign's communications, which Neese notes is especially important in a state like Oregon, where voting is all conducted by mail. "You want to get your message in front of your target universe at the critical moment, but about one-third of voters send in their ballots on the first day, another third sometime mid-cycle, and the last third drop them off at the last minute. NAR's strategists had the sophistication it takes to understand these complexities of voter behavior, and helped us plan accordingly."  

When the ballots were counted, Justin Livingston had handily won a four-year term on the Bend City Council, receiving 76% of the vote.  COAR had also backed another candidate for the City Council with funds from its RPAC and a more modest Independent Expenditure campaign, as well as RPAC support for the re-election of one incumbent. Both candidates also won their races.  "We're optimistic," says Neese. "It was critical to restore balance to City Council. We're proud to have helped that happen, with the support of the REALTOR® Party. We look forward to smart growth, fiscal responsibility, and sound solutions to the challenges our growing city faces.  It's a tall order, but the right people will be at the table to make it happen."

To learn more about how REALTORS® in Central Oregon are strengthening the city of Bend and helping to achieve balance on its City Council, contact Tyler Neese, Government Affairs Director, at 541-382-6027.

New Year, New Name, New Application for Placemaking

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The Placemaking Micro-grant is now the Placemaking Grant and REALTOR® Associations can be awarded up to $5,000 to fund the creation of new public spaces (i.e. pocket parks,  trails, gardens,  alley activations, play area, parklets). This year, the grant will not fund adding amenities (benches, bike racks, etc.) to existing public spaces. This change is designed to make a bigger impact on communities and engage REALTORS® in these projects.