Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving an agent taking on what should have been the buyers’ due diligence 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 court battle over negligence.

A Real Estate agent was working with prospective buyers who were searching for a residential property for their growing family. The agent showed them several properties before they decided to submit an offer on a home that recently underwent a complete renovation, including a two-room addition.

Problem:
The renovation was completed by an unlicensed contractor who failed to obtain the necessary building permits. Moreover, the property was located in a state that did not require the owners to complete a seller’s property disclosure statement, leaving the buyers to determine whether any defective conditions existed through the engagement of experts.

Mistake:
Since the buyers were busy with their careers and the school activities of their children, the agent volunteered to do the due diligence for the buyers. This included hiring a home inspector and termite inspector. In accepting the agent’s offer, the buyers assumed that he would also research whether or not the project was “legal.”

Result:
Approximately five months after moving into the property, the buyers received a letter from the city informing them that the renovations were completed without the required permits. The ensuing building inspection discovered that the addition did not conform to the building codes since it lacked a load-bearing wall. The buyers then sued the sellers,
the listing agent, the home inspector, and their buyers’ agent for failing to either disclose or detect the property’s nonconformance. The parties ultimately resolved the litigation after the defendants agreed to pay for the remediation and obtain the certificate of occupancy.

Prevention:
An agent should never volunteer to take on the due diligence for buyers by ordering or attending inspections on their behalf. If there’s any defective condition with the property, the agent will likely be sued for negligently referring the inspectors while putting themselves in the position where a jury could determine that they fraudulently induced the buyers into the purchase. Sound risk management on the part of an agent is to have the buyers select the inspectors and not become actively involved in the conversation between the buyers and the inspector. Although it is best to be present during the inspection should the client seek assistance, an agent should not be interpreting an inspector’s findings or recommendations. The agent may later be held accountable for failing to address something pointed out by the inspector. Lastly, always recommend that the buyers contact the controlling authority for conformance inquiries.

Do you have a similar story involving negligence, failure to disclose, or nonconforming renovations 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 our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more. Or get a quick estimate now!

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® acting outside of your expertise 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 court battle over performing a function that is outside of your realm as a real estate professional.

A Real Estate agent listed an older residential property that needed a roof replacement because water was penetrating the attic and running down the walls. As part of the marketing strategy the sellers agreed with the agent that the best way to sell the home for a better price would be to have a new roof installed. In addition to fixing the water intrusion problem, it was believed that the enhanced curb appeal of the property would likely garner more interest.

Problem:
The contractor that was hired to do the work was not fully paid by the sellers when the work was completed.

Mistake:
After the marketing strategy was agreed to, the agent decided to select and hire the roofing contractor on behalf of  her clients so that they could focus on prepping and painting the water stains on the interior walls of the home. The sellers provided a check to the agent for the down payment required by the roofer, but it was the agent who signed
the contract order.

Result:
When the project was close to completion, a potential buyer tendered an offer on the property that the sellers quickly accepted. However, when the contractor wasn’t paid by the sellers for the balance due, he filed a mechanic’s lien against the sellers and the real estate agent for non-payment. The buyer then sued the sellers for specific performance and
demanded that either they or the agent pay the contractor to lift the lien. Following a two-month delay in the closing, the matter was resolved after the sellers and agent agreed to contribute equal shares to pay the contractor.

Prevention:
An agent should never select and hire any vendor to do work on sellers’ property—and should certainly never sign a work order on their behalf. By doing so, an agent becomes contractually liable to the vendor and may, as in this case, become the object of litigation when a buyer of the property attempts to enforce a Purchase Agreement. It’s also important to remember that most, if not all, real estate errors & omissions policies don’t provide coverage for claims based on or arising out of liability of others assumed under any contract or agreement. Making the simple decision to leave contractor selection and engagement to a homeowner will increase your chances of avoiding litigation from both the contractor and any potential buyer of property.

Do you have a similar story involving acting outside of your expertise 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 our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® misrepresentation 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 court battle over not following standard office procedures.

A Real Estate agent listed a residential condominium in an age-restricted community that required, through its homeowners’ association (“HOA”) covenants, that at least one person residing in each unit must be at least 55 years old. Fortunately for the agent and his seller, he was able to sell it quickly to an out-of-state couple who met the age restriction requisite and who planned to live in the property after their retirement two years later.

Problem:
The buyers intended to have their granddaughter live in the property until they retired while she attended a nearby university.

Mistake:
Before the property went under contract, the buyers questioned the agent on whether the restrictive covenants would allow this living arrangement. The agent informed his clients that it would create no problems since the buyers, who would be the actual owners of the unit, satisfied the age condition.

Result:

Soon after the close of escrow, the buyers’ granddaughter moved into the unit and applied for a parking permit only to be informed by the HOA that she and her grandparents were not in compliance with the age restriction covenants since she, as the only resident, did not meet the age requirement. The HOA then declared that she would have to vacate the property. And after unsuccessfully pleading with the HOA Board of Directors to waive the age restriction, the buyers sued the real estate agent, his broker, and the seller alleging negligent and intentional misrepresentation and demanded that they provide alternative housing for their granddaughter until she graduated from college. Following extensive negotiations, the matter was resolved.

Prevention:
The agent incorrectly assumed that there would be no problem with a college-age woman occupying the unit as long as the owners met the age requirement. To complicate matters further, there was a dispute as to whether the agent actually provided a copy of the HOA covenants to the buyers before they executed the Purchase Agreement. If the agent was able to demonstrate that the buyers acknowledged receipt of the covenants in writing, he would have been able to put himself and his broker in a better position to defend the case. Having the ability to prove that the buyers had the opportunity to review the HOA documents would have certainly helped in that endeavor.

Do you have a similar story involving misrepresentation 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 our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® 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 court battle over not following standard office procedures.

A Real Estate agent listed an owner-occupied, two-family residential property with the sellers residing on the main floor and tenants residing in a ground-floor living unit. The residence was sold rather quickly due to its appeal to investors seeking a steady flow of revenue from the long-time tenants, who expressed a desire to remain there.

Problem:
On numerous occasions over two decades, the City notified the sellers that the property did not meet the zoning requirements because the ground-floor unit had been constructed without a permit and was in violation of City Ordinances and Federal Flood Insurance regulations.

Mistake:
When the agent entered into the Listing Agreement with the sellers, they provided him with copies of documents relating to the property, including the most recent non-conforming notice from the City, which also stated that the bathroom and kitchen on the ground floor had to be removed, along with the tenants. However, the agent did not take the time to review the material and simply placed it in his transactional file.

Result:
Soon after the close of escrow, the buyers applied for a permit to complete renovations and learned from the City Zoning and Planning Office that the property was not in compliance. The buyers then sued the sellers and the real estate agent alleging breach of contract, negligent misrepresentation, fraud, and unfair and deceptive trade practices.

They sought damages for lost income, the removal of the kitchen and bathroom, and diminution of value relating to the amount paid above the true market value and the deficient square footage. During the early stages of litigation, a copy of the City’s non-conforming notice was discovered in the agent’s transactional file. The case was settled shortly thereafter.

Prevention:
The agent was one of the leading producers in the marketplace and had successfully closed numerous transactions over his 25-year career. But in this case, the agent’s success led to complacency, resulting in his failure to follow his real estate office’s pre-established procedure of reviewing all documents prior to marketing and advertising property to the public. A simple review would have alerted him to the potential disclosure issues and that his clients were not fully forthcoming about the dwelling’s status. The real estate broker also learned a valuable lesson to make sure that he, too, should follow his own procedures of reviewing the work product of his agents so that situations like this can be avoided.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® disclosure 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 court battle over not disclosing information about parties involved in a real estate transaction.

A Real Estate agent had an exclusive listing agreement with the builder of a new, 10-lot residential subdivision. The agent was quickly able to locate three individual buyers who entered into purchase & sale agreements and tendered earnest money deposits to the builder. Shortly thereafter, construction was underway and the respective lending institutions began to release money from the buyers’ construction loans.

Problem:
Approximately halfway through the construction process, the builder verbally notified the real estate agent and contract buyers that he was experiencing financial difficulties in a separate development project due to slow sales and the inability to create cash flow.

Mistake:
Despite the contractor’s financial problems, the agent continued to market and sell the remaining lots, accepting additional earnest money and turning the funds over to the builder. The agent decided not to advise the new contract buyers of the builder’s financial problems, assuming he would be able to overcome these problems because he was a “good builder”.

Result:
The builder soon abandoned the projects that were underway and filed for bankruptcy protection. He left three contract buyers with half-completed houses and seven more with lost deposits ranging from a few thousand dollars to six figures. The buyers then sued the real estate agent alleging that he failed to disclose the builder’s true financial ability and status. The claims ultimately settled against the real estate agent, but without immediate contribution from
the builder.

Prevention:
An agent should never make assumptions about any seller’s or buyer’s financial capabilities and should certainly disclose something material in nature such as a builder’s impaired financial ability. Clearly, the agent should not have continued to accept earnest money after having learned about the builder’s financial struggles. Being a “good builder” doesn’t necessarily guarantee good business management skills. For good measure, the agent should also
confirm in writing to the existing contract buyers when a significant development such as this occurs. It should additionally be recommended to these buyers that they seek the advice of legal counsel and other qualified individuals to help them make decisions on how to proceed. Legal and financial advice should never be given by a real estate agent in any situation. Following these practices will not only result in well-informed buyers, but will help avoid
unwanted litigation.

Do you have a similar story involving disclosure 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 our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving REALTOR^® 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 court battle over not disclosing property conditions.

A Real Estate agent listed a residential property on behalf of a married couple who were supposedly going to relocate to another part of the country. Approximately two months later, another couple submitted an offer through their agent that was accepted and formalized in a Purchase & Sale Agreement.

Problem:
The sellers were in the process of going through a divorce, with the wife having moved out of the property and unaware that her husband was trying to sell it.

Mistake:
The agent allowed the husband to sign the Listing Agreement and the Purchase & Sale Agreement on behalf of his wife, when both of them were the legal owners.

Result:
Following the execution of the Purchase & Sale Agreement, the husband informed his wife that he had sold the house and asked her to attend the closing to sign the necessary documents. The wife refused to do so and notified the real estate agents that the deal was not going to go forward. After the buyers were notified, they sued the sellers for specific performance under the contract. The wife seller then third-partied the listing agent into the litigation alleging that she acted negligently in accepting the forged signatures. The case was ultimately settled when the husband seller and the listing agent’s errors & omissions insurance carrier paid a monetary sum to the buyers to walk away from what was otherwise an invalid contract.

Prevention:
Many real estate errors & omissions claims can be avoided by simply exercising ordinary care to your clients. This entails knowing who your clients are and properly communicating to each one of them anything—from the comparative market values to what they should expect during the listing period and after the property goes under contract.

Obviously, getting the proper signatures or initials on all documents will help protect you and your clients, while assuring that the transaction will proceed in a straightforward and legally-binding fashion. Good communication skills and the implementation of other risk reduction methods into your daily routine will help avoid the need to pay costly attorney fees and settlements.

Do you have a similar story involving 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 our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

There are two major property claim databases that contain loss history reports, C.L.U.E. (Comprehensive Loss Underwriting Exchange) and A-PLUS (Automated Property Loss Underwriting System). The C.L.U.E. database, owned by LexisNexis, allows insurance companies to access information on claims that have been filed within the last five years.

More home buyers—concerned about possible previous insurance losses experienced at a property they are considering—are requiring home sellers to provide a C.L.U.E. report as a contingency to a purchase offer. A C.L.U.E. Home Seller’s Disclosure Report is an independent source of information about insurance losses at an address within the past five years. If the home has not experienced a loss within the past 5 years, the report can provide comfort to a potential buyer.

The C.L.U.E. Home Seller’s Disclosure Report does not display information that a home seller may wish to keep private, such as Name, Social Security Number, and Date of Birth. It is available immediately via online delivery for the seller’s primary address or by mail for other properties the seller may own.

Unfortunately, a buyer can’t order a C.L.U.E. report if they are not yet the homeowner. Prospective buyers aren’t allowed to request a C.L.U.E. report for a home they want to purchase, but as an agent, you may want to advise your clients to request one as a condition of the sale.

The C.L.U.E. database tracks numerous “causes of loss” showing why a claim was submitted to a property/casualty insurer for payment, including:

• Contamination
• Damage to property of others
• Dog bite
• Earthquake
• Fire
• Flood
• Freezing water
• Hail
• Liability
• Lightning
• Medical payment
• Slip/fall
• Smoke
• Theft/burglary
• Vandalism
• Water damage
• Wind
• Workers compensation

Considering venturing into the lucrative—if you can handle the extra workload—life of short sales? Roger Higle, course writer for Keller Williams University, Keller Williams Realty International in Austin, Texas, asks four top distressed property agents how they became successful at selling short sales and REOs in A Peek into the World of Short Sales and REOs.

According to Higle’s experts, seller qualification is very important in short sales. A seller must be very forthcoming with his financial situation, have the work ethic to produce the many documents required by banks to make a short sale successful, and trust his agent’s advice and expertise to make the short sale happen. Short sale lead generation is much like traditional lead generation, with one exception: asking the seller a very direct and sometimes unsettling question, “Are you behind in your mortgage payments?”

Lending institutions are now expecting more from agents than ever before. It’s the agent doing a lot of the work that a bank previously performed, resulting in additional overhead for the selling agent. Agents are also taking on additional risk. Since bank-owned properties are typically sold “as is,” agents need to really consider the risks of unforeseen defects and other problems with the properties—and to have all lender contracts reviewed and to know what their E&O insurance will cover.

For the full article, visit A Peek into the World of Short Sales and REOs.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving office policies and procedures 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 court battle over a forgotten detail.

A real estate agent listed a residential property on behalf of its owner who was relocating to another city and looking to sell her home quickly so that she could buy another one before starting a new job. The agent offered to acquire the property under a written guaranteed sale listing contract and established a 90-day time period in the event the property failed to sell on the open market.

Problem
After the property failed to sell, the agent applied for financing to several lending institutions but could not qualify because of an inferior credit history. Meanwhile, the homeowner entered into a Purchase & Sale Agreement on another property and was fully expecting the agent to acquire her existing property. Complicating the matter further, the real estate company that the agent worked for was unaware of the guaranteed sale listing contract and was subsequently reluctant to come forward with the $225,000 necessary to make good on that contract.

Mistake
The agent made the independent decision to offer the guaranteed sale listing contract because he believed that the property would sell quickly and that his broker would not have to become involved financially. Because of his hasty assumptions, the agent never sought the approval of his broker and failed to take the necessary steps to assure financial qualification. In fact, it was also the broker’s policy not to offer these contracts.

Result
The homeowner sued the agent and his broker alleging that they breached the guaranteed sale listing contract and demanded specific performance. She also asked the Court to award money for ongoing mortgage payments, insurance costs, and maintenance expenses, among other damages. The case was resolved when the real estate company ultimately decided to acquire the property and pay the owner her out-of-pocket expenses and legal fees.

Prevention
The broker may have prevented the real estate company from being sued if a system of checks and balances was in place where he or a designee could have reviewed files on a regular basis to make sure office policies and procedures were being followed. This audit process can also be used as a tool to ensure compliance with the proper selection and completion of transactional documents and help avoid costly errors and omissions in all transactions. Lastly, conducting frequent educational sessions for agents is always an excellent opportunity to reinforce policies and procedures and will go a long way in preventing unwanted claims.

Do you have a similar story involving neglected office policies and procedures 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 our website for E&O insurance just for real estate professionals, www.pearlinsurance.com/eo, to find out more about our quality Errors & Omissions program, including policy features, risk management tools, and much more.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving disclosure 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 court battle over failure to disclose.

A real estate agent listed a residential property on behalf of sellers who were involved in ongoing litigation with their neighbors over ownership rights to a driveway that straddled the property line. The neighbor was attempting to prevent the sellers from using the driveway because of the encroachment.

Problem:
In the course of the litigation, the neighbor filed a lis pendens (Latin for “a suit pending”), which provided the sellers with notice that there was a claim on the property. The recording of a lis pendens informs the general public—and particularly anyone interested in buying or financing the property—that there is this potential claim against it.

Mistake:
Because the property was located in a state where a Seller’s Property Disclosure Statement was not required, no written publication as to the property’s legal status was provided to potential buyers. Moreover, the agent learned about the pending litigation from his sellers but misunderstood the ramifications of not disclosing it to those interested in purchasing the property.

Result:
The property went under contract to some unknowing buyers who ultimately decided to cancel the Purchase Agreement just prior to the close of escrow upon discovering the existence of the lis pendens. They subsequently sued the agent, his broker, and his sellers alleging that they misrepresented the property’s legal status and demanded the return of their deposit money, as well as moving & storage expenses, home inspection costs, bank fees, and the lost opportunity of a favorable interest rate, among other damages. The case was settled quickly since it was clear that the court would likely determine that the property’s legal status was material information that the buyers should have been made aware of.

Prevention:
In this situation, the agent should have followed pre-established office procedures and asked for assistance from his broker to learn what the impact of existing litigation would have on the sale of the property.  And regardless of the state’s written disclosure requirements, the agent should have had the sellers provide a document to any potential buyers informing them of the legal dispute with the neighbors. Also, the broker may have prevented the agent and business from being sued if he closely supervised the agent throughout the transactional process.

Do you have a similar story involving disclosure 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.