All too often, real estate prospects look to foreclosures as an easy way to buy property on the cheap. Although there are likely decent foreclosure deals available, purchasing a foreclosed home can come with a fair amount of headaches. Keep these in mind if your client decides to go ahead with acquiring a foreclosure.

1) Get it inspected by a professional.

Stipulate to your client that they need to get the property checked out by a certified professional home inspector, and don’t bid on houses that aren’t available for inspection. Don’t let your client base their buying decision on appearances alone; the home could have mold, pests damaging its structural integrity, an insulation problem, shoddy construction, asbestos … you name it. Your client needs to know how much work (and money) they will need to put into the home up front.

2) Consider factors that may have led to the foreclosure.

Is crime on the rise in the neighborhood? Are the schools not making the grade? Is the view not so pleasant? How long has the home been empty? Are there plenty of other foreclosures in the area? Foreclosures aren’t always due to a lack of money or budgeting skills; maybe the previous homeowner bought the house without realizing there was a particular blight on the property.

3) Be cautious if the house is currently occupied.

Keep in mind that some people involved in the foreclosure may be living on the property and may be difficult when it comes time to leave. Even with title in hand, your client could have a hard time evicting the unwanted tenants. And once they do leave, they may have retaliated by destroying the property. (This may not be an issue in certain areas.)

4) Advise your client against flipping.

Unless your client has an arsenal of cheap contractors and materials at their disposal, there always seems to be pitfalls along the way that end up costing more than the person looking to make a quick bundle bargained for.

5) Recommend to buyers that renovations are within the their budget.

Even for properties needing a seemingly modest amount of renovation, there’s usually more work and money involved than planned. In order to make the most of the foreclosure’s bargain price, the buyer should not go into further debt by taking out loans and losing money on interest. Have a home inspector detail all work needed and make sure the buyer has enough cash to fix it all.

6) Recommend they find a reputable lender.

The wrong lender might not spend as much time on a foreclosure case as on a standard real estate purchase, because they stand to make less money on the former. A good lender will research what your client’s best option is. Tell your client to ask a lot of questions—the lender should explain everything to your client very clearly. You should advise them to meet with a real estate attorney as well.

Pearl Insurance is a nationally known broker, marketer, and administrator that specializes in the design and administration of quality insurance plans for associations, affinity groups, unions, and large firms. In addition to providing real estate professionals with quality products and services for 30 years, their partnership with the XL Insurance companies (through Indian Harbor Insurance Company and Greenwich Insurance Company) solidifies their strength, allowing them to offer association members an A rated (by A.M. Best) E&O program. For more information about Pearl’s sponsored E&O programs, call 800.289.8170.

Information provided within this article is not to be taken as legal advice and is to be used for educational and illustrative purposes only.

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.

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving failure to disclose 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 sellers who completed a Seller’s Property Disclosure Statement, which revealed problems with leaky windows in the attached garage.

Problem
The property went under contract to prospective buyers, who hired a home inspector. The inspector discovered that the windows throughout the home were either defective or had been installed improperly. The findings resulted in a failed transaction, with both the sellers and the real estate agent having received a copy of the report.

Mistake
Another buyer came along and eventually purchased the property and was provided a copy of the Seller’s Property Disclosure Statement. However, the statement was not amended to reflect the results of the recent home inspection and the buyer was not provided a copy of the inspector’s report. The real estate agent claimed that she verbally advised the buyer of the content of the report.

Result
Following the close of escrow, the buyer soon discovered that most of the windows were experiencing problems. He then sued the sellers and the real estate agent alleging that by not providing the inspection report and not amending the Seller’s Property Disclosure Statement, they failed to fully disclose the defects. It was further alleged that the real estate agent recommended to the buyer that he waive the inspection contingency in the Purchase Agreement. The case ultimately settled for $12,000.

Prevention
The litigation may have been prevented if an amended Seller’s Property Disclosure Statement and the home inspection report were provided to the buyer. Although this would not necessarily guarantee that the buyer would not have brought suit under the same pretext, it would have helped the defendants position their respective cases to request that the court dismiss the 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 unauthorized entry 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 repairs made before the close of escrow.

A real estate agent listed a residential property while, at the same time, working with prospective buyers who were looking for a home that could be renovated and sold later at a profit. The agent subsequently showed the property to his buyers who saw the potential in a positive resale if the floor plan could be opened up by removing portions of walls between the kitchen, dining room and living room. Eventually, the parties entered into a purchase and sale agreement.

Problem:
Due to job relocation, the seller vacated the property prior to the close of escrow and, at the request of the agent, allowed the buyers access to the property in order to take measurements for the renovation project.

Mistake:
The agent thought that it would be easier if he provided the lockbox combination to the buyers since he was confident that the buyers would meet the financial contingencies to acquire the property.

Result:
The buyers shared the agent’s confidence that the deal would go forward. They decided to get a head start on the renovation project and proceeded to remove the walls and electrical wires. Shortly thereafter, they received notification from the lending institution that their mortgage application had been denied. After applying to several other lenders with the same result, they abandoned the project and notified the agent that they were terminating the contract. The seller then sued the agent alleging that he negligently allowed the buyers unsupervised access. The seller also sued the buyers alleging unlawful entry and property damage. Four months into litigation, the parties resolved the dispute for $17,500.

Prevention:
Obviously, an agent should never provide keys or access codes to any buyer, contractor, or other unauthorized persons prior to the close of escrow. In the event a contractor must enter a property, the agent should be present only if the seller is unable to attend. In this situation, it is good practice to recommend to sellers that a relative or friend meet with the contractors in order to avoid any liability claims should something go wrong at the property. Also, a contractor will sue a real estate agent if the seller fails to pay for his services when the agent makes repair arrangements on behalf of the seller. Lastly, written authorization from the seller with “release of liability” language will go a long way in the defense of any unwarranted lawsuit.

Do you have a similar story involving unauthorized entry to a property 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.

Are you on the fence regarding whether or not you need Errors and Omissions Insurance to protect you in your daily real estate business practices? Sometimes, no matter how careful you are to manage your risk in your day-to-day operations, you still get sued because of a forgotten detail or a minor misstep. Here are the Top 5 Reasons you need real estate E&O coverage!

Sometimes the past is one of the best learning tools around! Use the following Real-Life Errors & Omissions Claim Situation involving 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 a seemingly minor detail.

A real estate agent was workinAgentg with a prospective first-time buyer who was searching for a residential property that did not require significant improvements because she did not have the financial resources to invest in structural remediation. The agent showed his buyer several properties before she decided to submit an offer on a home that she believed only needed cosmetic improvements.

Problem
The home had a history of water intrusion problems resulting in extensive wood rot and insect infestation.

Mistake
While walking through the property, both the real estate agent and the buyer noticed water stains on the ceilings and walls in the second floor bedrooms. They were advised by the sellers that the stains were a result of “old damage” and that a pre-existing roof problem had been repaired. The agent, unfortunately, took the word of the sellers and failed to recommend that his buyer obtain a home inspection for further investigation.

Result
After taking possession, the buyer discovered during a rainstorm that water was penetrating the roof and seeping through the second floor ceiling and walls. She then hired a contractor who determined that the wood rot and infestation was so extensive that the ceiling joists, wall studs, and sheetrock had to be replaced. The buyer subsequently sued the sellers alleging intentional misrepresentation and the agent alleging misrepresentation and failure to recommend a home inspector. The parties ultimately resolved the litigation for $42,500.

Prevention
Always conduct a careful visual inspection of any property whether you’re serving as a listing agent or buyer’s agent and be sure to look for clues or “red flags” that may indicate latent defects which may involve more extensive problems. Never act outside the area of your expertise. You should recognize when to ask for help from another professional or recommend the use of services from other professionals such as home inspectors and pest inspectors. It is essential that buyers realize their right to request any type of property inspection—and that inspection contracts and reports may contain disclaimers. If the buyer decides not to do so, have them acknowledge this choice in writing and keep all documents for your records.

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.