Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving negligence to avoid a similar legal showdown happening to you in your everyday real estate career. And be sure to have a good Real Estate E&O Insurance policy in place to protect you in case you find yourself in the middle of a contract dispute.

A Real Estate agent listed a piece of residential property for sale. The buyer entered into a purchase & sale agreement with the seller, but decided later on to back out of the transaction. The agent located a second buyer who also entered into a purchase & sale agreement with the seller. However, after the second contract was accepted, the first buyer changed his mind and wanted to purchase the property.

Problem
The property was under contract to two separate buyers who both sought specific performance under their respective sales agreements.

Mistake
The real estate agent failed to have the first buyer communicate in writing his initial desire to terminate the sales agreement.

Result
Both buyers filed suit against the seller seeking specific performance and against the real estate agent claiming negligence. The seller brought the real estate agent into the lawsuits and demanded he provide a defense and indemnification in the underlying actions brought by the respective buyers.

Prevention
By failing to obtain the first buyer’s written intent to terminate the sales agreement, the contract remained in force. This oversight left the real estate agent’s seller/client exposed to a possible breach of contract claim from not only the first buyer but the second buyer as well. The seller was not sure how to proceed and had no option but to seek legal advice. Obviously, if the real estate agent followed the proper procedures established under both contract law and office policy, the problem could have been prevented.

In cases like this when property goes under contract to two separate buyers, it is typically resolved when one of the buyers agrees to accept a cash settlement to voluntarily terminate his purchase & sale agreement. When both buyers remain adamant about purchasing the property, the amount in legal fees can be tremendous.

Do you have a similar story involving a charge of negligence to share with us? Send us your learning experience or just let us know what you think about this one! Just leave a reply below!

If you have any questions about Pearl’s Errors & Omissions Insurance for real estate professionals, give us a call at 800.447.4982—whether you’re looking for a new E&O policy or have questions about your current one. We’d love to hear from you!

You can also visit www.pearlinsurance.com/eo to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

The U.S. Department of Housing & Urban Development (HUD) enacted changes to the Real Estate Settlement Procedures Act (RESPA) that went into effect on January 1. These revisions—meant to simplify loan information and comparison for borrowers—requires lenders and mortgage brokers to provide consumers with a standardized Good Faith Estimate form.

Potentially saving borrowers up to $700 on closing fees, this new form allows borrowers to compare their initial estimate with their actual closing statement by including a reference to the original amount along with the relevant line item right on the HUD-1 Settlement Statement.

So, what does this mean for you? Ultimately, it could reduce unexpected mortgage costs and closing-day misunderstandings over loan terms. It will also help your clients find a mortgage more suited for their financial situation, hopefully leading to a decrease in home foreclosures.

Although HUD is requesting that oversight agencies exercise restraint in enforcing these new requirements for 120 days, organizations must still show a good faith effort to comply with the rules as of January 1. To help you get up to speed on this update, HUD has posted answers to Frequently Asked Questions and a pre-recorded webcast of their New RESPA Rule Seminar online.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving negligence and verbal contracts to avoid a similar legal showdown happening to you in your everyday real estate career. And be sure to have a good Real Estate E&O Insurance policy in place to protect you in case you find yourself in the middle of a contract dispute.

Verbal Disclosure Doesn’t Hold Up in Court

A Real Estate agent listed and sold a piece of property that was fronted by a roadway which the local government was planning on widening.

Problem
The Real Estate agent knew that the road was to be widened and verbally disclosed this information to the purchasers prior to the close of escrow. The agent did maintain extemporaneous file notes to support his assertions of disclosure, but neglected to communicate it to the purchasers in writing.

Mistake
Because the agent failed to disclose the information in writing, the purchasers were able to make a strong argument that they did not know about the pending road project.

Result
Both the purchasers and the sellers filed suit against the agent and his broker alleging negligence and negligent supervision, respectively. The sellers specifically argued that they informed the agent of the pending road project—allegations that were indisputable. The purchasers claimed to have no knowledge, leaving the defense of the case hinging on a word versus word proposition.

Prevention
This is one of those cases where a claim could have been averted if the insured actually disclosed the issue in writing—and had the purchasers sign and acknowledge it. If the documents support your story of the transaction, odds are any claim made against you will be dropped. Attorneys don’t want to fight irrefutable evidence. When transaction files are complete and contain clear, concise, and accurate information, you are better protected from frivolous claims. Written disclosure of material defects or potential changes in properties should be standard operating procedure when conducting real estate transactions. You will inevitably minimize your exposure to errors and omissions claims and allow more time to grow a profitable business.

Do you have a similar story involving a lack of documentation to share with us? Send us your learning experience or just let us know what you think about this one! Just leave a reply below!

If you have any questions about Pearl’s Errors & Omissions Insurance for real estate professionals, give us a call at 800.447.4982—whether you’re looking for a new E&O policy or have questions about your current one. We’d love to hear from you!

You can also visit www.pearlinsurance.com/eo to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

Are you providing real estate buyers and sellers a valuable service? Find out just what they’re looking for, how to attract more of them, and what you possibly could improve on by reading the Real Estate Beat blog from LeadingRE.

Let us know what you think about this National Association of REALTORS^® Profile of Home Buyers and Sellers 2009 and about LeadingRE’s blog. If you have any real estate trends or topics you would like us to cover, please comment below!