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 a delayed response to a real estate errors and omissions lawsuit 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.

Following the close of escrow on a residential property, a Real Estate broker and his agent were sued by the buyers for allegedly failing to provide the required Seller’s Property Disclosure Statement. The broker and his agent were adamant that they were in compliance and would have been able to demonstrate from documentary evidence that it was provided to the buyers’ agent. The evidence included a facsimile transmission of a cover letter addressing the “attached” property disclosure, along with electronic mail exchanges with the buyers’ agent discussing the property’s condition.

Problem:
Believing that the lawsuit was frivolous, the broker and agent simply ignored it. They also ignored the ensuing Motion for Default brought by the buyers’ attorney for failing to file an answer to the complaint.

Mistake:
By ignoring both the lawsuit and default motion, the court entered a five-figure judgment against the Real Estate brokerage. And to make matters worse, the Default Judgment was not tendered to the Real Estate Errors & Omissions insurance carrier until one month later.

Result:
Despite an all-out effort on the part of the defense attorney assigned by the Errors & Omissions insurance carrier, the Default Judgment could not be overturned due to the delayed responses on the part of the brokerage. Furthermore, the insurance carrier was under no obligation to pay the judgment since the Real Estate brokerage failed to comply with the terms and conditions of its Errors & Omissions policy by not providing timely notice of the claim.

Prevention:
Many jurisdictions have very strict deadlines for filing court documents. In this case it’s quite clear that the Real Estate brokerage could have avoided its problems if the lawsuit was reported immediately to the Errors & Omissions insurance carrier. And given the favorable evidence in the transaction file, the claim may have been voluntarily dismissed once the buyers’ attorney was presented the irrefutable evidence. In order to preserve this evidence, it is very important not to destroy your file following a closing so that an effective defense can be asserted on your behalf. The transaction file should include the following:

• the date and time of all meetings or phone conversations and a list of all participants

• e-mails and faxes

• verification that what you say and write is correct—keep a record of all verified information, contracts, agency disclosures, seller disclosures, and closing documents with the appropriate signatures. And never sign anything for your client.

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.

The key to developing a good relationship in any business is to listen to what your customer says and pay attention to their needs. Not to mention, imagine the number of Real Estate E&O claims that in the long run had something to do with poor communication! In the March/April 2011 issue of Selling Power, John H. Melchinger offers 9 tips to become a better listener. Here is an excerpt:

1. Put aside all personal issues. Be attentive and concentrate on hearing what the speaker has to say.
2. Comment on what you hear, and individualize your comments: “Cheryl, that’s obviously very important to you.” If you train yourself to comment meaningfully, the speaker will know you are listening and may offer further information.
3. Show empathy. If you respond to human issues, people will respond to you.
4. Don’t ignore opportunities for humor. When it arises naturally our of a conversation, humor enhances what may otherwise be an overly somber situation. Avoid sarcasm, however, which is rarely humorous.
5. Be aware of nonverbal communication: silence, facial expressions, tone of voice, body gestures. These can be telling symptoms, but don’t allow these messages to be the basis for speedy conclusions.
6. Know the value of silence. A brief period of silence will generally cause the speaker to produce more in-depth responses and allow both of you to reflect on what’s been said, ask additional questions, seek further clarification, or provide more information.
7. Ask questions to clarify information. The best indicators that you hear and understand are your questions and how you ask them.
8. Be sure you are not making inaccurate assumptions. When the speaker leaves a point unfinished, finish it yourself and ask for agreement, or simply ask the speaker to finish it.
9. Be careful. Most people have an almost immediate grasp of the obvious, but few of us can grasp immediately what a speaker means to convey.

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^® 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.

Pearl Insurance Risk Management Expert and Corporate Training Manager Paul Espinosa recently spoke at the Greensboro Regional REALTORS® Association Luncheon on March 1, 2011. In the following video, he offers his top five problem areas for real estate agents:

14. Disclose agency relationships as soon as possible. The law requires disclosure, but you control the timing. Recognize that although dual agency is permitted by statute (Civil Code Section 1090), dual agency is one of the greatest magnets for liability in California courts. As one astute observer aptly put it: “Although the buyer and seller may acknowledge dual agency in writing, mere disclosure of this does not resolve the ‘schizophrenic obligations’ of a broker.”

15. What should you do if you become aware of a claim? Talk to your broker and/or an attorney. Get as much information from the claimant; attempt to resolve/settle early. Avoid making admissions. Do not write on original documents. Do not panic. Provide a detailed and confidential narrative memorandum to your attorney. Be candid about facts which show you were possibly at fault. Use mediation. Get advice. Make a prudent business decision—remember, justice, whatever that means, can be a very expensive commodity.

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10. Do not give legal advice, e.g., telling the buyer or seller that they should or should not initial the arbitration clause. Arbitration is a decision for the principal. Another example—don’t attempt to explain the legal ramifications of the liquidated damages clause. Consider referring your client to an attorney where appropriate. Answering questions like “What does this mean?” carries liability.

11. Stick to your specialty. Even the best agents cannot be all-knowing about all properties. You will be considered to know more about the area that you farm and/or your “specialty.” This applies particularly with agents’ services relative to short sales, REO properties, and foreclosures.

12. Review preliminary title reports carefully and as soon as possible.

13. Use standard forms and procedures. The supervising broker should be monitoring your contracts to ensure that what you have written is clear. An important general rule affecting any contract is that vagueness is construed against the party responsible for the ambiguity.

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6.  In California, you are required to make a reasonable, competent, and diligent visual inspection of accessible areas of the property and disclose to prospective buyers all facts materially affecting the value and desirability of the property [… when the licensee has reason to believe such facts are not known to, nor readily observable by a prospective purchaser]. In the Transfer Disclosure Statement (TDS), do not volunteer conclusions as to the cause of anything you disclose; do not diagnose or characterize, only cite factual observations.

7.  Stay well informed. Employ determinative risk management and loss prevention tools from counsel experienced in real estate brokerage and sales law. Attend board/association seminars, and read trade publications (e.g., C.A.R.’s Legal Briefs and Q&As, the DRE Bulletin, etc.).

8.  Do not jump the gun. Avoid situations that could lead to two contracts. Exercise the utmost care with multiple offers, backup offers, and contingencies.

9.  FSBOs raise red flags. Is the seller doing something other than simply saving a commission? Have you unwittingly become the seller’s agent?

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Do not be greedy. Your fiduciary duty comes before closing the deal. The broker owes his principal the same obligations of diligent and faithful service that a trustee owes to the beneficiary of a trust. Specific fiduciary duties include: account for funds, undivided loyalty, good faith, fair dealing, full disclosure, the duty to follow instructions, and the duty to explain and counsel. Note: Once the fiduciary relationship is established and a breach by the fiduciary is alleged, the burden shifts to the defendant broker to prove that the fiduciary duties were not violated.

http://realestateeo.com/extras/lisa-riggins-disclaimer.html