E&O Risk Manager: “Fraudulent Or Negligent Conveyance” Allegation Over Property Disclosure

A Real-Life Situation On The Importance Of Providing Full Disclosure

Situation:

pearl-insurance-logoA real estate agent listed a stately, 4,000 square foot brick colonial on several acres of land for a couple who were relocating to another part of the country. The 35-year-old home had numerous features, including fireplaces in the kitchen, living room, and master bedroom. It wasn’t long before the property went under contract, eventually leading to an otherwise uneventful closing.

Problem:

The fireplaces were in very poor condition, a subject the sellers brought to the attention of the agent while sitting down to complete the requisite documents in preparation of the property’s listing.

Mistake:

In an effort to expedite the process, the agent filled out the property condition disclosure statement and had the sellers sign it.

Result:

Hours after closing escrow, the new owner made arrangements to have satellite television installed. But when the technician was on the roof searching for the ideal location to place the dish he noticed that the bricks in all three chimneys were loose and crumbling. The owner immediately called the agent to ask why it wasn’t noted on the property condition disclosure statement. During the conversation the agent admitted that he was aware of the problem and that he was sure it was properly disclosed. But a few days later the agent received a letter from the owner’s attorney alleging “fraudulent or negligent conveyance,” as well as a board complaint filed with the local regulatory authority. At that time the agent reviewed the disclosure statement and realized his error. The sellers, who were copied on the attorney’s letter, came to the same conclusion. The matter was quickly settled, with the sellers also contributing because they too shared culpability for signing the disclosure without properly reviewing it. And, despite the settlement, the regulatory body briefly suspended the agent from practicing real estate.

Prevention:

Properly completing all documents will always help protect you and your clients, while assuring that the transaction will proceed in a straightforward and legally-binding fashion. In this case the agent created a disclosure obligation by completing the property disclosure instead of the sellers, resulting in a probable jury finding that he was making first-hand representations. Many real estate errors & omissions claims can be avoided by simply exercising ordinary care and judgment, warding off costly attorney fees and settlements.

The recommendations in this article may differ from state and local practices. Greenwich Insurance Company and Indian Harbor Insurance Company Coverage is not available in all jurisdictions.

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