Anyone who has experience in real estate transactions may have seen or drafted a love letter. Written by a potential buyer to a seller, these letters are a great way for buyers to connect with sellers in an effort to get their offer chosen. Given the limited supply of homes in California, buyers will do almost anything to have their offer stand out, which only makes love letters more prevalent.
There is no set formula for a love letter. In fact, the content of these love letters varies, but they often contain personal information regarding the buyers, such as gender, religion, and familial makeup. It is this personal information that makes love letters problematic for sellers who accept them from potential buyers.
To understand how a love letter can create a problem for a seller, one must turn to The Fair Employment and Housing Act (Gov’t. Code §§12900–12996), as well as the Unruh Civil Rights Act (Civ. Code §51) which are California’s primary fair housing laws. These California fair housing laws essentially prohibit discrimination because of race, color, national origin, religion, sex, familial status, and disability. Keep in mind that we are only talking about California law, this does not take federal fair housing law into consideration.
At this point, if you are a seller, you may be asking
How can accepting a buyer’s love letter violate fair housing laws?
The answer is simple. If a seller uses any of the prohibited information in their decision to accept one offer over another (such as race, gender, or familial status) it is a violation of fair housing laws.
However, in any choice a seller makes, be it based on the information in the love letter or not, the appearance of discrimination can be actionable in a lawsuit brought by a potential buyer.
Consider this example: Seller has several offers. One of the potential buyers submits a love letter explaining they belong to a certain religious denomination and would love to purchase the seller’s home. The potential buyer’s offer is not accepted by the seller but is similar in price and terms to another offer accepted by the seller. The Buyer then brings a Fair housing action lawsuit, claiming they were discriminated against based on religion. What makes the claim credible is the fact that the offer was similar to the offer submitted by the successful buyer, the only difference being that the potential buyer informed the seller of their religious denomination. There was no malicious intent on behalf of the seller, but the appearance of a violation creates the problem.
In our scenario, the seller likely did not even consider the potential buyer’s religious denomination but relied on other factors when accepting, such as it being a cash offer, etc.
Fortunately for sellers, proving a discrimination claim may be harder than getting their offer accepted in the current market. Although there is not any pending wave of these discrimination lawsuits, there has been increased scrutiny of these love letters recently, as their use has increased.
The California Association of Realtors has even commented on the use of love letters, advising its members to be extremely cautious when accepting the letters.
Moving forward, the best practice probably is not to accept love letters. It is not worth the potential headache of a lawsuit. Also, if you choose not to accept love letters, let potential buyers know through the MLS that they will not be accepted, and if they are sent they will not be opened.
As the supply of homes continues to shrink, the use of love letters will continue to increase and possibly bring more issues to the forefront. However, real estate professionals should be aware of these issues and how to prevent any lawsuits against your client.