E&O Risk Manager: Owner Sues Seller and Agent

A Real-Life Situation on the Importance of  Taking Thorough Notes

Situation:

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A real estate agent listed a 60-year-old home for sale that had been recently converted to gas heat by the city-owned gas and electric department. A few weeks later, she received a phone call from a relocation broker working on behalf of an employer and its employee on a job transfer from another state. The agent spoke with the transferee and learned one of the “must haves” for his new home included a sunroom off the kitchen or living room.

Problem:

An undisturbed 550-gallon underground oil tank remained behind the house.

Mistake:

Because this particular listing didn’t have a sunroom, the agent showed the transferee several other properties that did. However, none of them satisfied all of his other requirements, so he decided to view additional properties with an eye toward adding a sunroom. The agent then showed him the 60-year-old home, forgetting about the underground storage tank. The property went under contract and closed two months later.

Result:

After the closing, the new owner hired a contractor who quickly found the tank with a backhoe. The owner then filed a lawsuit against the agent and the sellers, alleging negligence in failing to disclose the tank, while claiming damages for its removal and environmental remediation. The lawsuit also included a claim for punitive damages against the agent, alleging she intentionally withheld this material information. The seller said he did, in fact, disclose the storage tank, but it was the agent who failed to notify the buyer. Without a valid defense for the agent, the case was settled.

Prevention:

Agents frequently learn of latent property defects from sellers or other sources, most of which a buyer can’t access. Many states require agents to disclose it to prospective buyers or their agents. In this example, the agent could have taken the opportunity to write down what the sellers told her about the property when it was first listed. She could have referred to her notes while showing the property to the buyer later on. In a jurisdiction where a seller’s property condition disclosure statement isn’t required, this simple technique may have helped avoid an unhappy buyer and the accompanying lawsuit.

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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