When a family with a two-year-old boy moved into a house that was more than 100 years old, they had no idea that the house was covered in lead-based paint. The reason they were unaware of this was because the real estate agent never informed them of the contamination when they purchased the house.
Seventeen months after moving in, the child was diagnosed with lead poisoning.
The home’s seller had notified the agent of the presence of lead paint when the house first went on the market. The agent disclosed the information to a previous potential buyer, who later backed out of the sale after reviewing the lead paint inspection results. When the second buyers, the family with the little boy, made an offer on the house, the agent withheld the lead paint report from the new buyers, who bought the home in 2014.
Recently, the 73-year-old Niagara County, New York, real estate agent pled guilty in U.S. District Court to failing to disclose an inspection report, which disclosed the lead paint. She was fined $1,000 and ordered to pay restitution of $53,326.
The buyers have also sued for civil damages, naming the agent and the seller for damages equaling the $132,000 sale price, plus triple damages for violating the law, and general negligence. Thomas J. Prohaska “Lockport couple sues real estate agent, home seller over lead poisoning” www.buffalonews.com (Apr. 13, 2018).
A Hazleton, Pennsylvania realtor could serve up to ten years in prison after pleading guilty to conspiracy to commit wire fraud. The realtor was arrested in Florida after fleeing there to avoid prosecution.
The realtor preyed on mostly Spanish-speaking, first-time homebuyers, telling them he was authorized to sell to them homes that were vacant or were in foreclosure. The victims agreed to buy the homes and paid the realtor, as well as other parties, for what the victims believed to be their new homes. In fact, the realtor was not authorized to sell the homes, and the fraud began to unravel when the victims began receiving eviction notices from the true owners.
Many of the victims have filed a federal lawsuit seeking civil damages against the realtor and many of the realty companies with which he was associated. James Halpin “Real estate agent admits to scam” standardspeaker.com (May 26, 2017).
The realtor-client relationship is that of a fiduciary. The realtor owes the duties of loyalty, honesty, prudence, full disclosure, confidentiality, good faith, reasonable care and diligence, and accounting.
A spotlight on a claim against a real estate agent who acted as a dual agent for both the seller and the buyer of 1000 acres of agricultural land for $10 million dollars ($10,000 per acre).
Prior to the sale, the seller told the agent that the property line was his fence surrounding all 1000 acres. The agent relayed that information to the buyer. The buyer never ordered a survey despite being told to do so by the agent. None of these communications were in writing.
After the sale of the land, the buyer began planting orange trees within the fence lines surrounding the property for his business. Soon after the buyer starting planting, a neighbor to the north complained that the buyer was planting on 100 acres of his property that was within the fence boundary.
The buyer refused to stop planting and continued to develop the disputed property. The neighbor filed a lawsuit against the buyer to quiet title and for trespass. The buyer and the seller filed cross complaints against each other and the agent and his brokerage.
The buyer said he was told that the property line was the fence. The seller said he never told the agent that the property line was the fence. Both the buyer and the seller independently accused the agent of not looking out for their respective interests to help facilitate the sale and earn both commissions for himself.
In addition, the damages for the buyer were not just for the potential loss of 100 acres, they also included the lost revenue for the crop planted on the disputed property line. The buyer claimed that the combination of lost property and revenue was two times the original purchase price per acre. The lack of documentation and the $2 million dollars in damages made the case difficult to settle and very expensive for all parties to defend.
Ultimately, after a bench trial, the court found that the disputed property belonged to the neighbor. The court noted that the neighbor had been paying taxes on the disputed land.
However, the court split the buyer’s damages three ways ($666K each) between the agent, the seller and the buyer. The judge found the seller at fault for not being clear about the property line in light of his fence on his neighbor’s property, the buyer at fault for not purchasing a survey and the agent for not documenting all communications about the property line and survey.
Best Risk Management Practices:
In cases of dual agency, an agent has duties to both the seller and the buyer. It is incumbent upon an agent to thoroughly document all communications. Any doubts as to what was communicated to the parties will be construed against the agent.
*Charlton-Perrin, Gawain, “Real Estate Agent Claim Spotlight: Helping Real Estate Professionals Manage Their Claim Exposures,” Hanover Insurance Group, November 2017.
A recent residential transaction resulted is a substantial claim being paid because of an undisclosed termite infestation. Our insured was both the listing and selling agent, so when things went wrong there was no one else to look to for a defense.
When the agent listed the property, the sellers signed a disclosure indicating no past termite damage or active infestation. That being the case, the sellers ordered and received a termite inspection report. The report indicated active termites and the seller took the least costly steps to eliminate the termites. The agent received a copy of the report and reviewed the details provided. Unfortunately the agent did not understand all of the details in the report, or she would have realized the severity of the termite infestation.
After closing the buyers found extensive termite damage and active infestation. Estimates for repair exceed 50% of the value of the home, which meant that according to local ordinance, the house had to be torn down and rebuilt in compliance with current building code. The buyers claim that they received a copy of the invoice for the termite inspection but not a copy of the report. The buyers allege that the report indicated active infestation and that the agent was aware of this fact.
There are a few reasons why this transaction resulted in a substantial E&O claim. First, the agent did not question the details of the termite inspection. If she had, she would have recognized the severity of the termite problem. Second, the agent failed to provide a copy of the termite inspection report to the buyers and document delivery of the report.
The resulting claim ended up costing in excess of $350,000 in damages and attorneys fees.
A spotlight on a PBI Group and Hanover Insurance claim against two real estate agents involving greedy buyers who wanted to keep staging furniture used by seller to help sell the house.
Fact Scenario: An agent representing the seller of a residential real estate property hired a staging agent to place furniture in the house to help make the property look more marketable during the listing period. A buyer couple agreed to purchase the house without any of the staged furniture included in the sale.The closing was set for 10 a.m. and buyers were to legally gain possession at 2 p.m. the same day. On the day of the closing, the staging agent planned to remove the furniture once the sale closed and prior to buyers taking possession. The buyers’ agent gave the keys to the buyers at the 10 a.m. closing prior to the buyers legally having the right to possession. The staging agent arrived prior to 2 p.m. to remove the property. However, the buyers had already physically taken possession and refused to let the staging agent enter the property to remove the furniture. The staging agent later filed a lawsuit against the buyers and both real estate agents requesting damages for the value of the furniture retained by the buyers, punitive damages, fees and costs.
Can a real estate agent be legally liable for property at a residence not under the agent’s control? Or does a real estate agent have a duty to third parties to a transaction?
Result: First, the buyers did not have a legal right to the furniture. As to the real estate agents, while there were few cases on point, there was a concern that the seller’s agent had contracted with the staging agent and owed a duty to have the property returned to the agent. In addition, the buyers’ agent had a duty not to provide the keys to the residence prior to legal possession. After discovery, the parties went to mediation and settled the matter. The buyer agreed to return the property to the staging agent and pay $10,000. The buyers’ agent agreed to pay $25,000. The seller’s agent agreed to pay $10,000. Both real estate agents also incurred attorney’s fees in their defense of $30-40,000 each.
Best Risk Management Practices to Prevent Claim: Both agents needed to be more careful in the removal of the staged furniture and the taking of possession by the buyers. They were no doubt shocked that the buyers would be so greedy as to try to retain property for which they were not entitled. However, it is crucial for agents to strictly adhere to the right to possession language.
*Charlton-Perrin, Gawain, “Real Estate Agent Claim Spotlight: Helping Real Estate Professionals Manage Their Claim Exposures,” Hanover Insurance Group, June 2017.
When neighbors noticed unusual activity at a recently-sold home, officers were called. They found two people engaged in sexual activity. The woman claimed to be the new owner of the house and said the man was her husband. When asked for identification, police were led by the couple to their car, which smelled of marijuana. A subsequent search turned up a glass pipe and drugs. However, the investigation then took a surprising turn. The woman was, in fact, the real estate agent who had, the day before, sold the house to new owners. She had met the unidentified man at the home for an evening rendezvous. The new homeowners, not impressed with the realtor’s late-night showing, are pressing charges for criminal trespass. Jonathan Martinez “Real estate agent accused of hooking up with a man inside home she sold” www.click2houston.com. (Aug. 22, 2016).
Commentary The real estate agent in the above matter faces criminal trespassing, as well as breaking and entering charges. Having access to a house for professional reasons does not mean you have the right to be in the house for personal reasons. Whether this agent faces jail time will depend on whether the district attorney wants to press charges, but there is definitely a reason to do so, especially in light of the possible drug possession charges.
Even if the home was not sold, her being in the home for personal reasons; bringing a third-party to the home of a seller; or other activities beyond the scope of performing a home sale/purchase transaction can lead to liability, especially if the home is devalued because of the agent’s acts. Agents should never show or be in a home unless the purpose is to facilitate the sale/purchase of the home. Agents representing sellers must make sure they are aware of any showing, not only to keep their clients in the loop, but also to protect themselves against any claims that they did not meet their fiduciary obligations to show the home or that the showings were for some purpose other than selling the home.
Unfortunately, in today’s litigious society, lawsuits and grievances against real estate agents are very common. Real estate agents are frequent Targets for lawsuits. A common lawsuit scenario involves a buyer of property suing the seller and the seller’s agent for failure to disclose defects in the property. In some cases, the buyer also sues his or her own agent to the transaction. The lawsuit alleges not just negligence, but also alleges that the seller and the agent conspired to keep defects hidden to facilitate the sale at a higher price and earn a higher commission. The buyer may also file a disciplinary grievance against the agent. The grievance threatens not just monetary risk for the agent, but the risk of also losing their professional license. The agent may be forced to defend him or herself in two forums simultaneously.
Most times the lawsuit and grievance are highly defensible. Typically, there was absolutely no collusion or conspiracy with the seller to fail to disclose defects existing on the property. The agent likely had no knowledge of any hidden undisclosed defects. At best, the seller may be at fault. Nevertheless, a public lawsuit alleging fraud and conspiracy by the agent is unsettling at best for the accused agent. Reputation is extremely important in a referral business like real estate brokerage. In addition, defending lawsuits is expensive and time consuming for the agent. Every day working with defense counsel, reviewing documents and providing testimony is another day lost from practicing as a real estate agent.