Protecting Yourself Against Litigation from a Failure to Communicate
Communication is key. If something is not documented, no matter how seemingly small, it could come back to haunt you. As you will read in the real-life scenario below, even if written communication is provided, it is best practice to verify the information has been received. This could make all the difference if a claim is filed.
SITUATION
An agent was hired by a seller to market a vacant lot. Before it was put up for sale, the seller told the agent he was going to execute an easement on the lot. However, the seller sold a portion of the lot to a city and called that an easement. When the buyers purchased this lot, they were unaware of the fee simple transfer to the city, which created a loss of acreage, making the lot too small to build a residence.
PROBLEM
The only communication disclosing the easement transaction was a text message between the seller's agent and the buyer's agent. The buyer's agent denied they ever received this message.
MISTAKE
The seller's agent neglected to communicate his knowledge of the easement transaction in writing. If this information was confirmed, it would have placed the buyer's agent in the position of inquiry notice of the other transaction.
RESULT
The resulting lawsuit was filed against multiple parties including the title company, sellers, and both agents involved in the transaction. The buyers refused to attempt any curative action to make the lot buildable. In mediation, the defense parties relied on the agent's expertise that the lot could be marketed for sale again but with lengthy and specific disclosures. This conclusion resulted in the buyers recovering more money than they originally paid for the lot. The defense party's monetary settlement amounts were a fraction of the cost if the lot had not been resold.
PREVENTION
How to prevent this sort of issue is well-known: communicate. Documentation has saved many potential claims. However, when the claim does occur, having a claims professional who is willing to encourage a creative approach to resolution has many benefits. In this situation, the expertise of the agents steered the marketing of the lot to an agent who was knowledgeable about the area, assisted in developing, through counsel, disclosures relevant to a resale, and eventually predicted an outcome which benefitted all parties to the case. If a claim does occur, the agents involved are the very best people to assist counsel in creative ways to handle the real estate involved in the case. Collaboration between all defendants goes a long way to resolve the matter reasonably, fairly, and creatively.
For more information about E&O coverage and other risk management topics, visit pearlinsurance.com.
The purpose of this article is to inform and insulate real estate professionals from potential monetary claims and professional grievances. The fact patterns are from actual claims against real estate agents. While the author is an experienced claims representative, the opinions expressed herein are general in nature, not fact nor state specific; and therefore, should not be taken as a substitute for legal advice from an attorney licensed in your state. This article was produced in conjunction with AXA XL and is not to be taken as legal advice.