reading time: 4 minutes
Wheel of Misfortune: 40 Year Listing Memos

For all of its benefits, one downside of owning real estate is that you opt-in to an asset class that is continually targeted by unscrupulous people who see the money involved and just can’t seem to help themselves. In my experience, most of the bad stuff we hear about is actually the result of unintentional ignorance or incompetence or, at worst, gross negligence.

There are, however, always a few inspired individuals who devote their time and energy to taking advantage of people. While some of the more obvious ones are blatantly fraudulent, every now and then we come across a truly creative and unique approach which are typically the most concerning, especially when they are well disguised as offering something helpful.

Our latest edition of homeowner jeopardy comes to us from a licensed, seemingly legitimate real estate brokerage. As I understand it, the company, MV Realty, is offering to pay homeowners a sum of money, ranging from a few hundred to a few thousand dollars, for the exclusive right to sell the home at some point in the future. Homeowners are voluntarily entering into these agreements and having them notarized so, on the surface, this looks and sounds above board and may even be considered legal. Unfortunately, as with most things, the devil is in the details.

These contracts apparently last for forty years. While our state-approved listing contracts are also exclusive, they are never for anything close to this length of time for obvious reasons. I’ve also never heard of a listing agreement being signed for a home when a seller isn’t ready to sell it; much less offering cash for the rights to do so.

But wait, there’s more! It’s been reported that among the terms of the agreements, homeowners agree that, if they default on the agreement during the 40 year period, either by listing the home with another broker or losing it to foreclosure, the homeowner will owe the brokerage a fee equal to a percentage of the property’s fair market value. Oh, and by the way homeowners also waive their rights to participate in a class-action lawsuit… Raising any red flags? I sure hope so.

The best part is that these “memorandums” or “Homeowner Benefit Agreements” are, in some cases, being recorded with the county clerk and recorder’s offices so they show up as a lien on the home that can then be foreclosed on forcing the homeowner to pay it off or sell the home to make good on the termination fee.

And yes, while MV was the first company I’ve heard of using this approach, there are others who see this as a viable business strategy, which is stomach-turning. MV is operating in Colorado and I’ve heard reports that they are already part of a lawsuit in our state. I’ve also heard that our state attorney general’s office is monitoring this closely. With any luck this won’t become a wide-spread issue.