Mental Capacity and Fraud Issues Involving the Elderly

The elderly population is particularly vulnerable to fraud and exploitation, especially in these times. The elderly are targeted because they are frail, suffer from ailments or live alone. They are susceptible to duress and undue influence from family, friends or advisors (i.e., real estate agents, attorneys, mortgage bankers, etc.).

Real estate licensees are in a unique position to be able to assess if the elderly person with whom they are dealing has the capacity to enter into transactions or whether the person with whom they are dealing has the authority to transact business on behalf of an elderly person. They may also be in a position to assist the elderly client in instances of elder abuse.

Before a real estate agent agrees to represent an elderly client or said person’s alleged representative, the agent must understand his or her duties and obligations. It is critical for brokers and salespersons to be aware of the potential liability when the elderly clients may not have the capacity to understand what they are doing and may be vulnerable. The salesperson can be primarily liable for claims and the brokers can also be found “vicariously” liable for the actions of its salesperson.

Cases Involving Elderly Clientele, Fraud and Exploitation

In Van Heyde v. Miller (799 S.E.2d 133 (W. Va. April 20, 2017)), the administratrix (i.e., the authorized estate representative) of the seller’s estate sued the agent (salesperson) and brokerage firm representing the seller (as dual agents along with the prospective buyer) (hereinafter collectively referred to as the “defendants”) in connection with the sale of the seller’s property while he was still alive. The seller, who was 85 years old, entered into a listing agreement with the brokerage and salesperson to sell his property for $90,000 and indicated that the price would include both surface and mineral rights, after some back and forth regarding the issue. Eventually the seller agreed to move forward and the property was sold for $90,000.

Soon after the closing occurred, the seller passed away. The medical examiner indicated that his death was due to pneumonia and further noted “…probable Alzheimer’s dementia as a contributing factor.” Based upon these findings, the estate claimed that the seller did not wish to include the mineral rights, and that the salesperson “knew or should have known” that the seller was not mentally capable of legally transferring the property. The defendants filed a motion to dismiss the case and the court granted summary judgment in the defendants’ favor. The Appellate Court affirmed the summary judgment of the lower court and held that the estate failed to present evidence establishing that the seller was not competent. The burden was on the estate to prove that the seller failed to understand what he was doing when he signed the contract and the deed.

The Appellate Court pointed out that the seller’s physician, who had examined the seller shortly after the closing and before his death, “…testified that [the seller] was coherent during the examination and had sufficient mental capacity to understand the nature of his medical treatment and to refuse to be admitted to the hospital for further evaluation of a suspected underlying cardiac issue.” The doctor further stated that “…he was ‘as certain as [he] can be’ that [the seller] was fully competent.” Additional testimony by the closing attorneys also established that the seller appeared to understand his actions at the closing.

The estate further sued the defendants for breach of fiduciary duty alleging that the defendants pushed the seller to sell the property below market value along with the mineral rights just so that they could earn their commission. The estate argued that the defendants were aware of the seller’s mental state. The court again held that “…there was no breach of fiduciary duty because the property was listed in accordance with the seller’s wishes.” While the estate submitted affidavits from acquaintances indicating that the seller was “…increasingly forgetful, lost and unable to identify the current day or month,” the court relied on the testimony of the physician and the attorneys, ultimately deciding in favor of the Defendants and affirming the trial court’s decision.

Fraud and Exploitation: Trevarthen v. Wilson

In Trevarthen v. Wilson (No. 4D16-2032, 2017 WL 1718814 (Fla. Dist. Ct. App. May 3, 2017)), the plaintiff, a 93-year-old woman, sued the agent (licensee) and brokerage firm representing the plaintiff, claiming that the licensee “exploited and abused” her by utilizing the plaintiff’s funds to purchase a condominium for the licensee’s own account, to renovate numerous other condominiums which the licensee made the plaintiff purchase for licensee’s benefit, and also used plaintiff’s funds to pay for licensee’s personal expenses. The plaintiff further sued the firm under a theory of vicarious liability. The plaintiff “…alleged that the [Broker] was vicariously responsible for the [Licensee’s] actions because [the Firm] facilitated and earned commissions from [Licensee’s] unlawful real estate transactions….” The trial court granted a summary judgment motion in favor of the broker holding that the broker was not vicariously liable for the licensee’s actions.

The Appellate Court reversed the lower court’s decision and held that the Broker could be held vicariously liable for the acts of the Licensee and remanded the case back to the trial court. The Appellate Court explained that the “…general principles of vicarious liability establish that a principal is responsible for the wrongful acts of its agent if the agent was either acting ‘(1) within the scope of [its authority], or (2) during the course of [the agency] and to further a purpose or interest of the [principal]’[citations omitted].” The Appellate Court further explained that “…a principal may still be liable for the acts of its agent which were outside the scope of the agent’s authority if the principal subsequently ratifies the actions…. [And, a] principal may ratify an agent’s actions which would have otherwise been outside the scope of its authority by accepting the benefit of the agent’s actions.” Therefore, since the broker received a commission from the transactions and may have had knowledge of the licensee’s wrongful use of funds and exploitative behavior, the Appellate Court reversed the summary judgment and remanded the case to the trial court for further proceedings.

What To Be Aware of When Representing an Elderly Client

The above cases highlight the issues licensees should be aware of when representing an elderly client. In Van Heyde, while the court found that the broker or salesperson did not have liability, it is clear that one must be aware of whether the client is mentally competent to transact business and enter into valid contracts, whether a listing agreement, contract of sale or even sign a deed at a closing. The law does not require one to evaluate whether a person is competent, but if there is any question from the apparent actions or behavior of an elderly client, the agent or broker must take the appropriate actions. One may have to terminate an agent-client relationship or reach out to another professional (such as a doctor or an attorney) to determine what the next step should be.

Duress and Undue Influence

In Trevarthen, the licensee clearly took advantage of and exploited the elderly client, but it is important to note that the firm could be also held liable for the actions of its licensee. While the broker in Trevarthen argued that the licensee acted “outside of the scope of its authority,” if it is established that the broker knew what was going on and accepted the commissions arising from the licensee’s actions, then the broker could be held vicariously liable for the licensee’s actions.

The Trevarthen case highlights a classic form of elder abuse and exploitation, which occurs when a trusted advisor (i.e., the licensee and fiduciary) takes advantage of the client. In many instances, family members are common culprits in fraud, elder abuse and exploitation of the elderly. In an article entitled “Look Out for Older Clients,” by Jessica Edgerton, Realtor Magazine, National Association of Realtors (November, 2016), Edgerton points out that “[a]n ill-intentioned adult child may convince his parents to sign their home over to him, and then sell it out from under their feet. Family members or other confidants with a power of attorney may similarly cause harm to the people who trusted them, forcing victims into quick, financially inadvisable home sales and other transactions.” Edgerton provides some helpful tips that one should utilize when representing an elderly client:

Document and follow up.

Remember who your client is.

Your duty is to work for your client.

Understand powers of attorney.

Educate your team and clients.

Know the signs of elder abuse.

Report suspected abuse.

It is important for the real estate professional to ensure that he or she is acting in the client’s best interest at all times. If a family member or other person seems to have excessive influence over an elderly person, the agent or broker must act to protect the client. Many times, it is a good idea for an agent to discuss these issues with the principal broker or an attorney to determine what the next step should be? It is important for brokerage firms to educate their agents and ensure that they understand the issues and do what is best to protect the client, especially if that client cannot protect himself or herself.

Editor’s Note: The foregoing article is for informational purposes only and does not confer an attorney-client relationship.

John Dolgetta, Esq.
Legal Corner author John Dolgetta, Esq. is the principal of the law firm of Dolgetta Law, PLLC. For information about Dolgetta Law, PLLC, please visit http://www.dolgettalaw.com. The foregoing article is for informational purposes only and does not confer an attorney-client relationship.”