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June 8th, 2012

Realtors: What happens in Vegas doesn’t always stay there

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Buying justice macroI first read about this story yesterday via this tweet: “REALTOR Association leaders: You Cannot Ignore This Story.” Putting my doubts aside that this was nothing more than Twitter hype, I clicked the link and in just a few short minutes began reading an unfolding story that could wind up impacting Realtors nationwide.

As first reported by Caitlin McGarry in the Las Vegas Review-Journal, three active members of the Greater Las Vegas Association of Realtors (GLVAR) are suing the trade association, its board of directors and its most recent past chief executive, Irene Vogel, alleging misappropriation of funds.

The three plaintiffs have filed a class-action lawsuit on behalf of members past and present, going back 10 years, and the three are seeking damages of approximately $10,000.

According to the Review-Journal, here are plaintiffs’ claims:

The plaintiffs claim that Vogel, who in April retired from the association after more than 30 years as its leader, improperly distributed funds without approval from the board of directors; paid out unauthorized cash bonuses; selected her husband’s insurance agency for the association’s insurance needs without bidding out the contract; purchased tables at political and charitable events, unbeknownst to the board of directors, with GLVAR money; allowed pirated DVDs to be sold out of the GLVAR office; and acted as a one-person pawnshop “by brokering membership jewelry sales” on at least one occasion, among a litany of other complaints.

The lawsuit also alleges that the board of directors election process has been tampered with for five to seven years.

Lawyers for the plaintiffs say the GLVAR has denied requests to see financial records.

It might only get worse

Here’s where things get interesting. Robert Hahn, lawyer and real estate blogger, delved deep into the possible implications of this lawsuit, explaining what it might mean for those accused and even Realtors across the U.S.

According to Hahn, “If you are involved with Associations in any official capacity — serve on the Board or as an Executive Officer — this is a story you cannot afford to ignore. Call your general counsel right now. Make sure your D&O insurance coverage is up to date, and consider increasing the limits.”

Hahn provided several additional reasons why this lawsuit is bound to have far-reaching implications:

  1. There’s a lot of money to be made. Class-action lawsuits have the potential to bring lawyers tremendous sums of cash. Since chances are the plaintiffs’ lawyers aren’t working on a retainer, they stand to make a substantial percentage of any money that’s rewarded.
  2. Hahn said, do the math. The three plaintiffs are seeking $10,000 in damages, or about $3,300 each. Furthermore, they are seeking damages for all the GLVAR members dating back 10 years. Currently, GLVAR has nearly 11,000 members. Hahn speculated that there were far more Realtors in the pre-bubble years. “If we tentatively say we’re looking at a class of 20,000 plaintiffs, that’s a $66 million lawsuit. If [the plaintiffs’ lawyers] Callister & Associates is looking at 30 percent contingency fees, they stand to make $20 million if they win it all.”

    Translation: There’s significant monetary motivation to see this lawsuit through to the end. (And serious motivation for other class-action lawyers to pursue similar cases.)

  3. It might only get worse for the GLVAR. As Hahn explained, “One of the most important strategies for plaintiffs’ lawyers is to sue, and then get into discovery to see what else they might be able to dig up.”
  4. This opens up a floodgate of emails, board minutes, witness depositions, etc., to be examined. Furthermore, lawyers “can always amend the complaint to claim additional wrongdoing and more damages.”

    In addition, the fact that GLVAR has denied requests to see financial records does not bode well.

  5. Copycat lawsuits. Let’s say the plaintiffs prevail in this case and Callister & Associates wins a substantial judgment or settlement. You can bet that other class-action cases will soon follow.

“The local Associations are easy prey, in a sense, since they likely lack the resources to fight well-funded class-action law firms,” wrote Hahn. “(There are usually limits to D&O liability insurance, after all.)”

It all comes down to the records

If executives and board members kept clean notes and detailed records, they’ll have a much better shot at defending themselves. If not, well, things could get ugly.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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