Real estate errors and omissions (“E & O”) insurers track the kinds of claims and lawsuits filed against brokers and agents. Recently, C.A.R. obtained information about the most common types of claims, which are listed below. Brokers should review this information to educate their agents and to develop risk management procedures that will help avoid future claims.
Failure to Disclose Known Defects – Year after year, insurers see lawsuits from buyers alleging that a property defect wasn’t disclosed by the seller or agent. Everything from moisture in the basement to foundation issues and even a barking dog in the neighborhood should be disclosed if it is a material fact. Remember: “When in doubt, disclose.”
ADA Business Website Accessibility Lawsuits— Recently, insurers have seen a spate of lawsuits against brokers claiming that RE websites are not compliant under the Americans with Disabilities Act (“ADA”), Unruh, or fair housing laws. In practical terms, this will often mean that the website is not compatible with dictation software for the visually impaired. C.A.R. has two Quick Guides on this topic: “Website Accessibility — Practical steps you can take right now to make your website more accessible” and “Website Accessibility and ADA Compliance.”
Copyright Infringement — Copyright infringement lawsuits are filed when RE licensees use photos or other images without authorization from the copyright owner. Even posting a photo taken from a newspaper can be enough to trigger a lawsuit from a copyright troll. See the case of Design Basics, LLC v Lexington Homes, Inc., where the judge describes just exactly what a copyright troll is.
Fraudulently Induced Funds Transfer – Unfortunately, wire fraud remains a huge problem and will often involve the loss of hundreds of thousands of dollars. Stolen in the blink of an eye. The importance of using the wire fraud advisory (Form WFA) and explaining it to the client in advance of the transaction cannot be overstated. To prevent wire fraud, the client should always pick up the phone and confirm the email instructions with an actual person such as the escrow agent whose telephone number was previously provided. Mind you wire fraud does not only affect home sales but property management as well. A property manager’s hacked email can be used to intercept funds paid to a contractor who had performed repairs. Or a property manager may be duped into wiring funds to a hacker who was posing as the property owner and requested a monthly draw.
Condominium and townhouse sales—Lawsuits are arising from the failure to disclose common charges and assessments, buyer’s responsibilities, maintenance issues and a host of HOA related claims. What people don’t realize is that common interest sales can be complicated. To assist agents, C.A.R. has created the Buyer Homeowners’ Association Advisory (Form BHAA). This form breaks down the most typical problems that arise in common interest sales. It will serve as both as a refresher for agents, and more importantly, document the discussion of these issues with the client.
Discrimination claims related to property management – Claims are often based on failure to rent. Listing language should be reviewed carefully for discriminatory terms (e.g., no statements such as, “persons on public assistance need not apply” which since 2020 is an illegal policy). Property managers should obtain and review completed rental applications. They should not screen someone out via a telephone conversation or advertisement.
Wrongful Eviction – Evictions are another area where the law has over the last three years become staggeringly complex. RE licensees should consult with a local attorney with landlord-tenant expertise, and evictions should be conducted with the advice of counsel. Or perhaps better yet, the owner themselves should be the person consulting with their own local landlord-tenant attorney.
Habitability Claims — The most common claims based on habitability involve, bedbugs, vermin and pest infestation; and water infiltration resulting in mold (water and mold can result in a bodily injury claim as well). In addition to addressing any habitability concerns, it is important to include the property manager as an additional insured on the premises liability policy, and require the tenant to carry a minimum amount of renter’s insurance.