Case Study: Tenant Sues Agent and Broker for Unsafe Conditions

By Lisa Scoble posted 15 days ago


The Situation
A bank hired an agent to list and sell a real-estate owned (REO) residential property after the homeowners defaulted on their mortgage and lost it through foreclosure. The agreement required the agent to ensure the property was habitable and properly maintained.

The bank decided to lease the property for a year with the hope that the real estate market would improve. The agent was successful in finding a suitable tenant shortly thereafter.

The Problem
The agent was inexperienced in handling REO listings.

The Mistake
The agent was unaware of his property management responsibilities when renting the home to tenants per the contract.

The Result
The agent and the broker were named as defendants in a lawsuit after a guest tenant fell down the stairs and fractured his leg. The complaint alleged that the real estate defendants failed to install a handrail prior to leasing the property, resulting in an unsafe condition.

At that point, the agent carefully read the agreement and learned that he did, in fact, have property management obligations. Compounding the problem, the broker had long prohibited agents from providing these types of services in order to avoid the risks associated with managing properties.

The broker may have prevented the lawsuit if he or a designee reviewed the agreement beforehand to make sure the agent wasn’t unknowingly taking on responsibilities that contradicted the business philosophy of the brokerage.

On the other hand, if a decision is made to pursue revenue by providing property management services, training is highly recommended either through formal education or working with another experienced agent.

There are numerous obligations imposed upon property managers that can lead to claims ranging from bodily injury and improper handling of security deposits, to violations of the Americans with Disabilities Act and fair housing laws.

Additionally, an agent may be responsible for acquiring liability insurance for an REO property in order to protect the bank. If a brokerage is not equipped or insured to meet these challenges, it will jeopardize its reputation and its very existence.

This article was produced in conjunction with XL Catlin and is not to be taken as legal advice.