Love Letters & Lawsuits

In an effort to stand out from the crowd, it’s not uncommon for a Buyer to submit a personal letter with their offer to purchase a home. This seems harmless enough. After all, we live in a world where attaching a letter or personal note to a job offer or college application is not only encouraged, it’s often required. Buyers often talk about how much their kids/dog/cat/etc. love the home, why they are moving to the neighborhood, all the plans they have for their new home, etc.

The idea is to tug at the heart strings of the Seller in the hopes that their offer might win out over another similar - or better - competing offer on the property. From the Buyer’s perspective, the rationale is that emotional appeals are valuable negotiating tactics. Given that we live in a world of college entrance essays, job cover letters, and reality TV contestant videos, it’s actually sound logic. From the Buyer Agent’s perspective, a Love Letter presents a novel opportunity to get a home under contract and finally get paid for the work they’ve done.

Sellers too, have gotten in on the action. It’s not uncommon to see listings with “Offers without Buyer Letters will not be presented” stated in the Broker Remarks. Seller’s like the idea of knowing who they are going to be doing business with, and that the next person who owns their home is going to be as vested in caring for it as they have been. What’s more, given that it’s not uncommon for Sellers to receive 10+ offers on their home at times, a Love Letter can make the decision process easier, by giving them another tool with which to evaluate prospective Buyers.

But here’s the rub: Love Letters are a HUGE liability and the worst part is, nobody seems to realize that.

In the United States, all real estate transactions are governed by the 1968 Fair Housing Act (FHA), which makes it unlawful to refuse to sell, rent to, or negotiate with any person because of that person’s inclusion in a protected class. Under the FHA and Colorado law, protected classes include:

• Race

• Color

• National Origin

• Religion

• Sex

• Familial Status

• Disability

• Sexual Orientation (CO Law)

If someone believes that they have been discriminated against, they have one year to file a complaint with the Department of Housing and Urban Development (HUD). Keep in mind, that law doesn’t require concrete evidence in order to file a complaint, just a belief that discrimination occurred.

Think about that for a second.

From there, HUD will review the complaint, assign an investigator, and from that moment on, the burden of proof is on you. In addition, someone can file a private lawsuit against you in conjunction with a HUD complaint, forcing you to fight on two separate fronts simultaneously. You can read more about the complaint process here. 

If you are found guilty of violating the FHA, HUD can fine you up to $19,787 per violation in addition to actual damages and attorney’s fees. If you’re unlucky enough to find yourself being sued privately at the same time, loosing to HUD is not going to help your private case, which means more damages and attorney’s fees. Add to that the potentially enormous legal fees it would take to defend yourself from such events, even if the case against you is dismissed entirely.

Knowing this, let’s go back to Love Letters and look at how this seemingly benign item could come back to haunt you:

Scenario #1

Jack and Jill are selling their home and receive three competing offers. Each offer is similar, but each offer also includes a Love Letter. Buyer 1 is a husband and wife with three young kids, Buyer 2 is a single mom with two pre-teen boys and Buyer 3 is a retired couple who recently immigrated from Vietnam to be closer to their adult children and grandkids. Jack and Jill decide to accept Buyer 3’s offer. They tell their agent that they like the idea of an older couple living in the home who will not cause problems with the neighbors. The deal closes without a hitch. 

Eight months later, Jack and Jill find out they are being investigated after a complaint was filed with HUD under the FHA. Shocked, they call their listing agent who tells them that he too is being investigated and that they need to hire an lawyer. About a week later, Jack and Jill’s attorney calls to tell them that he has been served with legal papers outlining a private lawsuit brought against them by Buyer 1. Buyer 1, having been told by their agent that their offer wasn’t accepted because the Sellers didn’t want kids living in the house by the listing agent, hired an attorney and contacted HUD to file complaint.

To make matters worse, Buyer 1 also filed a complaint against the listing agent, who promptly told the HUD investigator everything they wanted to hear in the hopes of saving their own skin. The testimony of the listing agent is now being used as evidence of Jack and Jill’s willful violation of Fair Housing Law.

Jack and Jill spend the next several months defending their actions on two fronts. In the end, they are fined $19,787 by HUD and ordered to pay $28,946 in actual damages to Buyer 1 as well as attorney’s fees to both the Buyer’s attorney and their own.

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Scenario #2

Bill is a widower. His wife passed away several years ago and he is finally ready to sell the home that he and his wife, Peggy, spent their life together in. Bill tells his listing agent that he and Peggy had always wanted kids, but were unable to do so. His dream was to have children in their home, playing in the yard and hiding in the crawl space behind the guest room closet. He very much wants to have a family with kids buy his home, so his agent suggests they ask potential Buyers to submit Love Letters with their offers. Bill agrees and the house receives two offers shortly after being listed for sale. Buyer 1 is a husband and wife with 5 kids. In their letter, they talk about how much their kids loved the crawl space and how, despite not being able to offer full-price for the home (95% of list price), they have been saving for a down payment and they hope that their offer is accepted anyway. Buyer 2 is an unmarried couple, Adam and Becky with no children. In their Love Letter, Adam and Becky talk about how Adam grew up just a few blocks from Bill’s house and that they’ve always wanted to live in the area. Because their agent told them there was a competing offer, Adam and Becky offer Bill 100% of list price. 

Bill’s agent reviews the offers with him. Bill is pleased to have two offers in hand, but he wants to know whether any of the Buyers includes a family with kids. Bill’s agent explains that while one offer does have a family with Kids, one offer is clearly stronger. The Buyer is offering a higher price and better loan terms. Bill agrees, but still wants to know which Buyer has kids. After reading the letters, Bill tells his agent that he needs to think about it. The next day, Bill calls his agent to tell him that he wants to accept the offer from Buyer 1, because he feels like it’s what his wife would want. After all, it’s just money.

Adam and Becky are disappointed that their offer was not accepted, but they continue their search. After Bill’s house closes, Adam and Becky see that the home sold for less than what they offered. They are upset and want to know how this could be true. Their friend, who is a family law attorney, encourages them to investigate and offers to help them find answers. 

A few weeks later, Bill finds out that he is being investigated by HUD. Furious, he calls his attorney, who tells him, among other things, that the Love Letters that Bill requested are going to be problematic for his case. Not long thereafter, Bill files a lawsuit against his listing agent for failing to disclose the risks that requesting and accepting Love Letters could pose.

Bill goes on to lose his case with HUD, but is able to successfully hold his listing agent liable for failing to disclose the potential legal problem of Love Letters.

These are just two of literally countless scenarios that could play out with Love Letters. No one in a transaction is immune to the potential problems they can cause.

Given this, you have to wonder, why are they used at all?

There’s two reasons: Buyers and Sellers don’t know any different and Untrained Agents

Because of the world we live in and the social norms we practice, Buyers and Sellers don’t view Love Letters through a legal lens. Buying or selling a home is an emotional process that is often cold and transactional in nature. Love Letters humanize the process and help both parties feel like they have more control over the process. Many Buyers will use Love Letters each time they buy a home with great success. Likewise, there are people who have sold multiple homes, using Love Letters each time to vet Buyers without issue. On top of all that, they interact with agents who regularly taught their usefulness as a tool in buying or selling a home. These agents are the pros, so how could it be a problem?

But the real cause of the symptom of Love Letters is untrained agents. Agents perpetuate the need/value of Love Letters because they either lack the other skills necessary to negotiate effectively for their clients or they see them as an easy way to gain an edge in the negotiation process. In doing so, these agents are violating not only the REALTOR® Code of Ethics that they have pledged to abide by but they are failing to uphold the fiduciary responsibility that they are obligated uphold for their clients, by encouraging their clients to violate Fair Housing Laws and open themselves to potential liability during the course of a real estate transaction. 

I do not encourage my Buyers to submit Love Letters and I will refuse a listing with a Seller that demands to receive them. If my Buyer wants to put an offer an a home requesting one, I reach out to the listing agent to politely decline the invitation and explain why. Most agents are shocked to hear the news. I’ve been told that I am “not doing right by my Buyers” of that “the Seller will not consider offers without a Love Letter.” This is frustrating, but it’s better than the potential alternative. My job as an agent is to protect my client’s interests and I’m confident that "keeping them out of a courtroom" is included on that list. 

At the end of the day, if my client can’t count on me to close the deal using my professional skills to effectually communicate with the other side, what are they paying me for?

So what do you think? Have you used a Love Letter with success? Would you use one now that you know the liability that they create? Let me know in the comments!