Appeal from a judgment of the Superior Court of Orange County, Frederick Paul Horn, Judge. (Super. Ct. No. 30-2010-00393682)
The opinion of the court was delivered by: O'leary, P. J.
CERTIFIED FOR PUBLICATION
Jennifer and Guy Worthington (the Worthingtons) filed a complaint against their real estate broker and several other defendants alleging they were the victims in four fraudulent real estate transactions. The case was arbitrated, and the Worthingtons prevailed. When the Worthingtons discovered the defendants' assets were insufficient to cover the judgment (approximately $280,000), they filed an application with the Department of Real Estate Recovery Account (Recovery Account) for payment of the unsatisfied judgment (pursuant to Business and Professions Code section 10471)*fn1 . The Real Estate Commissioner (the Commissioner) granted part of their application, awarding $50,000 for one of the transactions. The Commissioner denied recovery on the other three transactions on the grounds judgment on those claims was based on breach of the broker's fiduciary duty rather than "fraud, misrepresentation, or deceit" as required by section 10471, subdivision (a).
The Worthingtons filed an application in the superior court for an order directing payment out of the Recovery Account on the remaining three transactions. The trial court, reviewing the issue de novo, determined two of the remaining three transactions involved a breach of fiduciary duty based on intentionally fraudulent misrepresentations and therefore must be paid from the Recovery Account. Both the Real Estate Department (the Department) and the Worthingtons appealed from this ruling, disputing whether all or none of the three transactions should qualify for payment from the Recovery Account. We find substantial evidence supports the trial court's judgment. The judgment is affirmed.
In the winter of 2006, the Worthingtons filed an amended complaint in the superior court against several defendants including their real estate agent, Thomas
Polander, for breach of contract, fraud, breach of fiduciary duty, and other causes of action.*fn2 They alleged that in January 2006, Polander solicited them to purchase real estate from his clients. Polander represented he knew of several income properties and he would secure qualified tenants or buyers for any property the Worthingtons purchased. Polander made offers on seven different properties on behalf of the Worthingtons, and "induced" them to refinance their own residence "to obtain lower mortgage payments by representing to [the Worthingtons] that doing so was necessary to qualify [them] to purchase the investment real properties. Accordingly, [the Worthingtons] refinanced their 30-year fixed rate mortgage, at [an] interest rate of 6.25 [percent] to an adjustable rate mortgage with a large pre-payment penalty."
Thereafter, Polander represented the Worthingtons in four real property transactions. In our record, the real estate transactions are referred to by their respective street addresses: (1) the "Camomile" agreement was executed on January 2, 2006;
(2) the "Laurel Lane" agreement was executed on January 4, 2006; and (3) the "Mambrino" agreement, and (4) the "Drover" agreement, which were both executed on January 8, 2006. As will be explained in more detail below, each of these transactions proved to be poor investments, resulting in great financial losses for the Worthingtons.
The case was sent to binding arbitration pursuant to the parties' agreement. The arbitration award, prepared by retired Judge Tully H. Seymour, provided the following recitation of the facts, which we incorporate into our opinion as follows: The arbitration award recounted the Worthingtons were interested in investing in real estate and they met Polander, a licensed real estate sales agent. Polander was employed by Income Realty, owed by Van Wilson. Polander's supervisor was Gallegos. Polander acted as the Worthingtons' agent in the following five real estate transactions.
i. The Mambrino Transaction
The arbitrator described the facts of this transaction as follows: Wilson told the Worthingtons that James and Nina Manry were buying the property from Wilson but the Worthingtons could first buy out Wilson's interest for $4,000. Polander told the Worthingtons they would make a lot of money on this transaction and that "he had screened the Manrys regarding their finances and determined they were o.k." Polander also represented the Manrys "had money and good jobs."
The arbitration award noted, "Polander testified that he met the Worthingtons through . . . Wilson at Wilson's home. Polander . . . told the Worthingtons that he and Wilson had made money investing in real estate. There was a discussion about the Mambrino property and the fact that Wilson had a contract to purchase the property. It was decided to change the contract so that the Worthingtons were substituted in as the buyers with a price increase from $630,000 to $670,000. Wilson had the Manrys as tenants and potential buyers. They were not able to purchase the property because of poor credit. Polander said that he never saw any credit report for the Manrys. Guy Worthington stated that Polander had told him that he received a letter from the Manrys describing their finances and that they were going to receive $60,000 from the sale of a coffee business. Polander did not make any investigation of the Manrys' finances. He took their word that they had the ability to pay the monthly payments. Polander testified that he left it up to the Worthingtons to check out the credit of the Manrys. Polander acted as the Worthingtons' agent in negotiating the lease and lease option with the Manrys. The Manrys made only partial payments of the rent. The Worthingtons had to evict them."
ii. The Drover Transaction
The arbitrator described the facts of this transaction as follows: Polander showed this property to Ron Hewitt, but when he learned Hewitt would not qualify to buy the property due to bad credit, Polander (acting as a dual agent) introduced Hewitt to the Worthingtons "as a potential optionee on a shared appreciation agreement. Polander told the Worthingtons that Hewitt would make a $35,000 down payment. Polander did not check Hewitt's credit nor did he verify his employment. He told the Worthingtons that Hewitt made a lot of money in the boat repair business."
The Worthingtons presented evidence that "Polander represented that he had made a thorough background check of Hewitt and that Hewitt made a lot of money from working on boats. Hewitt gave [the Worthingtons] a check for $11,000. Polander told Guy Worthington to give Hewitt the keys. He did and Hewitt moved in. The $11,000 check bounced. Hewitt paid a total of $2,900 in rent for a period that lasted from March to October 2006 when the Worthingtons were finally able to evict him."
iii. The Laurel Lane Transaction
The arbitrator described the facts of this transaction as follows: "The Worthingtons purchased this property from Carl Held for $5,000 and began assuming the monthly mortgage payments of $3,138. As part of this transaction, Polander had the Worthingtons execute a promissory note in the principal amount of $48,000 payable to [the] Fresh Start Foundation . . . . Polander explained the note by saying that if the Worthingtons were not able to obtain financing, Polander would make up the difference. The Worthingtons subsequently lost the property through foreclosure." The Worthingtons also alleged Polander misrepresented his ability to secure a tenant to occupy the property.
iv. The Camomile Transaction
The arbitrator described the facts of this transaction as follows: "Polander represented the Worthingtons who were the buyers, and the seller Carl Held in the sale transaction. The terms of the sale called for the Worthingtons to pay $20,000 to Held and assume the mortgages which were represented by Polander to total $540,000. The purchase price shown on the contract was $560,000. In reality, Held's mortgages totaled approximately $458,000. This resulted in an undisclosed equity of approximately $102,000 in the property. Polander delivered the $20,000 cashier's check to Held and then had him sign over the property to the Fresh Start Foundation which Polander controlled. Both Held and the Worthingtons testified they believed that the transaction was between them. They said they did not realize that title was going to the Fresh Start Foundation."
Polander asserted he disclosed the Fresh Start Foundation's involvement to both Held and the Worthingtons and they should have realized what was happening from the paperwork. The arbitrator stated, "Polander's explanation for this bizarre transaction was that he set it up that way so that he could get a commission since he did not have a listing from Held. Polander admitted he did not disclose the profit that he was going to make on the transaction."
The Worthingtons made mortgage payments on the Camomile property for nine months. Polander refused to convey title to them. The Worthingtons filed suit against Polander and his wife, as the record owners. In response, Polander's attorney, Scott Sayre, sent the Worthingtons a letter stating Polander had secured a buyer for the property. He proposed the following settlement of the lawsuit: Polander would split the net profits from the sale (totaling $59,000) if the Worthingtons would release the lis pendens. In addition the selling costs would include payment of a three percent commission to Polander. The Worthingtons accepted the proposed settlement and released the lis pendens. After the property was sold, the Worthingtons learned Sayre's attorney fees and the repayment of an undisclosed third deed of trust ($24,000) recorded against the property reduced the net profits to $7,000.
v. The Marsh Court Transaction
This final transaction mentioned in the arbitrator's award is not at issue on appeal, but we nevertheless include it because it is evidence of one more failed transaction between these parties. Polander represented to the Worthingtons this property would be a good investment. The Worthington's ...