In re Waggoner

• Decision Date: 31 July 2019
• Docket Number: Case No. 17-11381 t7
• Citation: 605 B.R. 222
• Parties: IN RE: Roy Mitchell WAGGONER and Jewel Kay Waggoner, Debtors.
• Court: U.S. Bankruptcy Court — District of New Mexico

605 B.R. 222

IN RE: Roy Mitchell WAGGONER and Jewel Kay Waggoner, Debtors.

Case No. 17-11381 t7

United States Bankruptcy Court, D. New Mexico.

Signed July 31, 2019

Gerald R. Velarde, Albuquerque, NM, for Debtors.

James A. Askew, Benjamin A. Jacobs, Edward Alexander Mazel, Jacqueline Ortiz, Daniel Andrew White, Askew & Mazel, LLC, Albuquerque, NM, for Trustee.

OPINION

Hon. David T. Thuma, United States Bankruptcy Judge

Before the Court is the chapter 7 trustee's motion to sell the debtors' house. Debtors initially objected to the sale but later withdrew the objection in large part. Now, they only object to the payment of a proposed "finder's fee" to a creditor. The U.S. Trustee's office joins in this objection. The Court rules that the proposed sale should be approved as beneficial to the estate, but that payment of a finder's fee is contrary to New Mexico law and the Bankruptcy Code.

I. FACTS ¹

For the purpose of ruling on the motion, the Court finds:²

Debtors filed this case as a chapter 13 case on May 30, 2017. By stipulated order, the case was converted to chapter 7 on February 7, 2018.

Debtors own and live in a house in Aztec, New Mexico, with a street address of 10 CR 2101, Aztec, NM 87410. On June 22, 2018, the chapter 7 trustee filed a motion to sell the house to the Debtors in exchange for $20,000. The agreement was based on Trustee's estimated value of $309,280, a mortgage of $125,598, Debtors' homestead exemption of $120,000, costs of sale, and potential litigation costs, among other things.

Creditor Rebecca Heizer objected to the proposal, arguing that the house was worth about $385,000. The trustee eventually withdrew the motion.

On December 17, 2018, the trustee filed a motion to sell the house to Randy and Thipsuda Orbesen for $380,000. The proposed sale included the following language: "Seller will pay 6% finder's fee to BLH & Associates from Seller's gross receipts."³ BLH & Associates is wholly owned by Heizer.

After the motion was filed, the Orbesens had the property appraised. The appraised value was only $318,000. The Orbesens could not obtain a loan large enough to complete the sale based on the appraised value.

The trustee filed the subject motion on March 26, 2019, proposing to sell the house to the Orbesens for the reduced price of $355,000. The language concerning payment of the finder's fee to BLH is the same as before.⁴ Debtors and United States Trustee's office object to the payment of the proposed finder's fee.

The trustee did not know of the Orbesens' interest in buying the house until Heizer's counsel brought it to the trustee's attention.

Heizer is not a licensed real estate broker in New Mexico. She was a licensed Colorado real estate broker until October, 2015.

The trustee did not retain Heizer to perform any services on behalf of the bankruptcy estate, nor did he ask her to perform any such services. The trustee does not know of anything Heizer did to market the house other than to introduce the Orbesens to the trustee.

Based on consultation with a real estate broker, the trustee believes the house is worth about $309,000.

Other than possibly Heizer, there are no real estate brokers involved in the proposed sale of the house to the Orbesens. Other than possibly the finder's fee, there are no commissions payable in connection with the proposed sale.

Under the current proposal the sale of the house is expected to net the estate between $60,000 and $80,000. The trustee believes the bankruptcy estate will realize more net proceeds from the proposed sale (including the deduction of the finder's fee), than if he retained a broker who marketed the house, sold it for fair market value, and was paid a commission at closing.

On August 8, 2017, Heizer filed a general unsecured proof of claim for $104,317. She also filed an adversary proceeding against Debtors, objecting to their discharge and to the dischargeability of their debt to her. The adversary proceeding is pending.

II. DISCUSSION

The sole question before the Court is whether the proposed finder's fee to Heizer can be approved. The Court concludes it cannot be. First, New Mexico law prohibits payment of the proposed fee because it would constitute the payment of a brokerage commission to an unlicensed broker. Second, the Bankruptcy Code prohibits payment of the fee because Heizer is a "professional person" who has not been and could not be employed by the estate.

A. Paying Heizer a "Finder's Fee" is Illegal Under New Mexican Law.

The New Mexico statute regulating real estate brokers is N.M.S.A. § 61-29-1 et seq (the "Real Estate Brokers Act" or the "Act"). Section 1 of the Act provides:

Prohibition

It is unlawful for a person to engage in the business or act in the capacity of real estate associate broker or qualifying broker within New Mexico without a license issued by the commission. A person who engages in the business or acts in the capacity of an associate broker or a qualifying broker in New Mexico, except as otherwise provided in Section 61-29-2 NMSA 1978, with or without a New Mexico real estate broker's license, has thereby submitted to the jurisdiction of the state and to the administrative jurisdiction of the commission and is subject to all penalties and remedies available for a violation of any provision of [the Act].

Section 2 of the Act defines a broker⁵ as a person who:

for compensation or other consideration from another:

(a) lists, sells or offers to sell real estate; buys or offers to buy real estate; or negotiates the purchase, sale or exchange of real estate or options on real estate;

(b) is engaged in managing property for others;

(c) leases, rents or auctions or offers to lease, rent or auction real estate;

(d) advertises or makes any representation as being engaged in the business of buying, selling, exchanging, renting, leasing, auctioning or dealing with options on real estate for others as a whole or partial vocation; or

(e) engages in the business of charging an advance fee or contracting for collection of a fee in connection with a contract under which the qualifying broker undertakes primarily to promote the sale of real estate through its listing in a publication issued primarily for that purpose or for the purpose of referral of information concerning real estate to other qualifying brokers or associate brokers;

Section 16 of the Act provides:

Suit by qualifying or associate broker

No action for the collection of a commission or compensation earned by any person as a qualifying broker or an associate broker required to be licensed under the provisions of Chapter 61, Article 29 NMSA 1978 shall be maintained in the courts of the state unless such person was a duly licensed qualifying broker or associate broker at the time the alleged cause of action arose.

Section 17 of the Act provides:

Penalty; injunctive relief

A. Any person who engages in the business or acts in the capacity of an associate broker or a qualifying broker within New Mexico without a license issued by the commission or pursuant to Section 61-29-16.1 NMSA 1978 is guilty of a fourth degree felony. Any person who violates any other provision of Chapter 61, Article 29 NMSA 1978 is guilty of a misdemeanor and shall be punished by a fine of not more than five hundred dollars ($500) or imprisonment for not more than six months, or both.

B. In the event any person has engaged or proposes to engage in any act or practice violative of a provision of Chapter 61, Article 29 NMSA 1978, the attorney general or the district attorney of the judicial district in which the person resides or the judicial district in which the violation has occurred or will occur may, upon application of the commission, maintain an action in the name of the state to prosecute the violation or to enjoin the proposed act or practice.

C. In any action brought under Subsection B of this section, if the court finds that a person is engaged or has willfully engaged in any act or practice violative of a provision of Sections 61-29-1 through 61-29-18 NMSA 1978, the attorney general or the district attorney of the judicial district in which the person resides or the judicial district in which the violation has occurred or is occurring may, upon petition to the court, recover on behalf of the state a civil penalty not exceeding five thousand dollars ($5,000) per violation and attorney fees and costs.

Finally, § 17.2 of the Act provides:

Unlicensed activity; civil penalty; administrative costs

The commission may impose a civil penalty on any person who is found, through a court or administrative proceeding, to have acted in violation of Chapter 61, Article 29 NMSA 1978 in an amount not to exceed one thousand dollars ($1,000) for each violation or, if the commission can so determine, in the amount of the total commissions received by the person for the unlicensed activity. The commission may assess administrative costs for any investigation and administrative or other proceedings against any such person. Any money collected by the commission under the provisions of this section shall be deposited into the real estate recovery fund.

In Watts v. Andrews , 98 N.M. 404, 649 P.2d 472 (S. Ct. 1982), the New Mexico Supreme Court ruled that a "middleman" who brings two parties together in a real estate transaction acts as a broker and must be a licensed under the Real Estate Brokers Act to collect a fee.

We hold that a person who simply brings two parties together in a real estate transaction must be licensed to sue for recovery of a commission. To rule otherwise would be to violate the clear intent of the Legislature in requiring that real estate brokers or salespersons be licensed. By requiring licensure, the Legislature intended that the real estate occupation be regulated. See § 61-1-2(C), N.M.S.A. 1978 (Repl. Pamp. 1981). The Legislature intends to protect the public by requiring the New Mexico Real Estate Commission to evaluate the competence and moral character of persons in the real estate business through

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