Trying To Get An Elder To Sell At An Under-Market Price Could Be a Form Of Elder Abuse

Elder abuse in any form is a bad, bad thing. To those of us in the real estate business, the financial abuse of elders that we see from time-to-time is particularly distasteful. You'd hate to see someone who engaged in such behavior get off on a technicality. In the California case of Bounds v. Superior Court (Second Appellate District, Sept. 3, 2014) the bad guys did not get off on a technicality. The court's reasoning is instructive.

Helen Bounds, an eighty-eight year old widow, was the trustee of the Helen J. Bounds Living Trust. The Trust owned real property in Torrance, California. A family business, Bounds, Ltd., of which the Trust was the majority shareholder, operated on the property. The business shares a driveway and parking lot with Kopykake Enterprises. Mr. Gerry Mayer was a principal of Kopykake. Mrs. Bounds knew and trusted Mayer.

By mid-2012, the Bounds' business was in financial difficulty. Mrs. Bounds -- without the family's knowledge -- began negotiating with Mayer to sell the property to Kopykake and an LLC (KMA) of which Mayer was also a principal. At that time, Mrs. Bounds had not yet been diagnosed with Alzheimer's, but her cognitive failings were evident.

The negotiations were joined by Joseph Sojka, a commercial broker, who attempted to persuade Bounds to sell at what would have been a bargain price.

According to the record: "In the fall of 2012, Bounds consulted with an attorney and accountant to draft a counter-offer to sell the real property for $3.45 million. At about the same time, Bounds' family members first learned about the negotiations. Ultimately, Bounds' family and professional advisors explained to her that even a $3.45 million sale would not raise sufficient funds to maintain Bounds, Ltd. And that, in fact, the sale would result in a severe tax liability for Bounds and would leave Bounds, Ltd. without a location to operate. As a result, Bounds decided not to sell the real property."

The record picks up again in December, 2012, "while Bounds' family was away on vacation. Mayer saw Bounds at the real property and asked her if she had changed her mind. This led to further discussions between Bounds, Mayer and Sojka. At this point, Bounds felt overwhelmed by mounting debt, suffered from pain in her head, and had difficulty sleeping. Mayer took advantage of Bounds' distress to convince her to sell the real property."

First, Mayer persuaded Bounds to execute a four-page letter of intent (LOI) to sell the real property to KMA for $2 million. She was also to sell some of the manufacturing equipment belonging to Bounds, Ltd. On January 10, even though no purchase contract had been signed, Mayer and Sojka had Bounds execute escrow instructions. The court noted that "Sojka knew the sale price was substantially under market and that Bounds was acting without any professional assistance but with impaired mental capacity."

Bounds did not inform her family of these events. However, about a month later, she consulted her attorney. When the buyers refused to renegotiate the terms, Bounds, through counsel, terminated the escrow.

The buyers filed suit, seeking specific performance of the escrow contracts. The trust and Bounds filed a cross-complaint, including charges of financial elder abuse. Then the cross-defendants file a demurrer -- essentially a motion to dismiss -- on the elder abuse charges. The trial court sustained the demurrer, so Bounds then appealed.

The relevant law examined by the Appellate Court is found in California's Welfare and Institutions Code at §15610.30. Financial abuse occurs when a person "takes…real or personal property of an elder [anyone 65 or older] ... for a wrongful use or with intent to defraud or both." A taking is for a "wrongful use" if the person knows it is likely to be harmful to the elder.

Mayer and the cross-defendants argued that there had been no taking, because title never transferred. The deal was not consummated.

The Appellate Court found this line of argument "troubling." If correct, it implied that an elder could not bring an action "until the object of the abuse had been achieved…" Moreover, the Court agreed with Bounds' position that, even though title had not transferred, there was still a loss of property rights. She [her lawyer] pointed out that she had lost her ability to sell or refinance the property at reasonable terms, because it would have to be disclosed to any potential buyer or lender that Mayer et al. claimed to have an enforceable contract for her to sell them the property.

The trial court was ordered to vacate its previous order (upholding the demurrer) and to issue a new and different order overruling the demurrer. The elder abuse claim may now go forward.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.