New York Realtors Investigated by FAA

Recent reports cite several New York real estate brokerages such as Brown Harris Stevens and Halstead Property receiving subpoenas from the FAA (Federal Aviation Administration) over the use of drone photography for real estate listings. The inquiry shows the risks of being the first adopters of new technology. Even though the firms subcontracted the photography work out they are still facing significant legal bills.

Any use of drones should be discussed with a lawyer familiar with local, state and federal statutes. Many laws are still evolving and the guidance available is patchy at best.

From an insurance and risk management prospective any subcontractors used should be properly insured, verifying insurance on a continuous basis is of the utmost importance. If property damage or bodily injury occurred, a brokerage could be brought in. Placing hold harmless and indemnification agreements in the contracts will also assist in protecting the firm any vicarious legal costs.

Most Real Estate Professional Liability insurance policies cover regulatory investigations from the state licensing board, a firm would likely need a full Director’s and Officer’s insurance policy to cover the legal costs associated with a Federal Aviation Administration inquiry.

Regulations and exposure to their associated costs are quickly escalating, contact an expert E&O broker today to discuss cost effective ways to protect your organization.

Broker Sued for Selling her own House

A Gretna, Louisiana Realtor is being sued after pulling out of a sales contract for her own property.  Kimberly Wright Burbank offered her property for sale and entered into an agreement to sell to an interested party.  She later pulled out of this first contract and entered a second contract that was more lucrative.  The lawsuit is based around the understanding of whether the contract was in force or if was still an “offer” when Ms. Burbank pulled out.

The plaintiff, Jason Shackelford, alleged that the contract was executed and they were negotiating a few minor points.  The Realtor explains that it was simply an offer at that point and she decided to refuse the offer when another offer came in.  The plaintiff has also sued the real estate firm claiming that the Realtor relied on the firm’s incorrect opinion that the contract was not executed.  Commissions, attorney’s fees and 10% of the sales price is being sought as damages.

While this case has yet to be determined, it raises an important aspect of Realtor’s professional liability insurance that each firm and broker should be aware of.  Specifically, this issue is whether coverage is afforded for real estate agents selling their own properties.

Since no professional liability insurance policy is the same, many policies exclude coverage when agents sell their own property.  In the facts noted above, the agent may be without defense or indemnity if such a policy was purchased by the firm.  It is important for firms to be proactive in understanding exactly what their policies cover and do not cover.

A firm can protect itself one of two ways.  The first is to have a company policy that disallows agents to act as the listing agent for their own properties.  Another agent within the office can act as the listing agent – even if there is an understanding in-house that a commission will not be paid to that in-house broker.  This will avoid the transaction being without insurance coverage.  The second option is to purchase an insurance policy from a carrier that does NOT exclude agents from selling their own property.  This is beginning to be more readily available, but not every insurance company offers it.

It is important to engage with an insurance broker that is knowledgeable about the differences between insurance policies.  Buying on price alone may leave your firm with large gaps in coverage.  Contact us today to discuss what may be best for your firm.

Trademark Infringement, Walk-Through Theft

Online Back Officer Provider Dotloop Sued for Trademark Infringement

Cincinnati based Dotloop, an online real estate transaction software provider, has been used for trademark infringement by San Francisco based LoopNet. LoopNet provides an online marketplace for commercial real estate. Dotloop says that trademarks and names incorporating the term “Loop” are not the exclusive of LoopNet.

This suit follows one by the California Association of Realtors over the use of their proprietary forms in Dotloop’s software suite. Over 50 Realtor associations have licensed their forms to be used in the software.

The cases highlight the growing risk of intellectual property infringement on real estate agents and brokers. While most focus on their real estate errors and omissions insurance, many are overlooking their IP risk. Standard “package” or general liability can cover some intellectual property risk if structured correctly. Real estate brokers should ensure that they have full limits for “personal and advertising injury”, which offers basic coverage for allegations of trademark, trade dress and copyright infringement. The coverage can also provide coverage for libel, slander, invasion of privacy and certain misappropriation of likeness claims. Most policies only cover claims resulting from your advertising, which is fairly broad for the real estate profession.

Contact BrokerLiability.com today to discuss better protecting your brokerage from errors and omissions, intellectual property and other emerging risks.

Agent Blamed for Theft During Walk-Through

A Jacksonville Beach, Florida real estate agent is being sued for allegedly allowing his clients to steal from a home they toured.  The sellers were out to dinner, and an agent took his clients through the house to consider a purchase.  According to the police report, when the owners of the home returned, they found that items had been stolen and their bedroom drawers rifled through.  The agent and the real estate agency is denying direct responsibility and working with the police.

It is important to note that while a real estate agent may not be required to walk with their client through a home, the agent may be liable for stolen property or damage while their clients are there.  It is a best practice to keep in close proximity to all clients and to protect the homes agents walk through.  If damage is noticed, it is best to notify the seller’s agent to alert them – lest your firm be blamed for the damage.

Another item to pay close attention to is how your insurance handles lockbox damage claims.  Insurance companies general limit the coverage they will provide for lockbox claims.  It is important to note how your policy will respond in a claim.  Contact us for a complimentary review of your current coverage and additional tips on protecting your firm.

Cyber Liability Becoming More Common

Although not a new issue for real estate professionals, computer related losses are starting hit main street with increasing storage of customer data. Lawmakers have taken note and the requirements (i.e. costs) of properly responding to a breach of privacy have greatly escalated in the past several years. With increased expensess and burdens placed on business, insurance companies have responded by offering cyber insurance. The coverage is new, not standardized and the terms are evolving quickly.

Historically there was some coverage under standard insurance policies. Damage to your computer system or destruction of your data could be covered under a well crafted property policy. Also, lawsuits for damages to third parties from the exposure of their data could possibly be covered under a standard liability policy. However, as cyber insurance has become recognized as a separate coverage policy forms and court rulings have evolved to exclude coverage for network intrusions and loss of personally identifiable information from standard insurance policies – making the need for cyber insurance all the greater.

We are seeing society push towards tighter enforcement of breaches and we are seeing a greater frequency in breaches. This will lead to more costs with each breach due to the lawyers, forensic accountants, IT investigations and PR professionals that come along with them. A typical real estate brokerage has hundreds – or thousands – of clients that have passed through their system and many brokerages store sensitive client data for each of these clients electronically. All this can make a data breach extremely expensive to respond to.

The biggest value in buying the insurance is access to response services. Most agents would not know where to begin if they suspected an incident, but all the major insurers issue policies with a toll free number staffed around the clock who will help a firm discover an attack, repair the damage and comply with any state or federal laws if information was stolen.

Although cyber insurance is not yet widely purchased by general industry it’s a quickly growing segment. The coverage is starting to work it’s way into standard contractual insurance requirements and the SEC has published a pretty extensive framework for public companies to disclose costs from uninsured cyber risks
Determining whether to purchase coverage should involve a look at the companies risk appetite and exposures. Do they want to self insure the cost of responding to an unexpected event? Do they have the resources internally to dedicate to the effort? If not, then they should consider a network security policy.

Buying an actual cyber insurance policy, especially for a real estate broker, is more complicated than other lines of insurance. Using a specialized broker is important as unlike other coverages the terms and policy wording vary greatly between carriers. A buyer should ask about any sublimits of coverage, coverage extensions available, whether the policy is for first party losses, third party losses or both, and about resources available if a breach is suspected. Because of this spectrum of coverage options and good broker can present a first time buyer with a continuum of coverage and pricing options.

Contact BrokerLiability.com today to discuss better protecting your real estate firm from computer hacking or accidental loss of client information.

Discrimination Takes Subtle Forms, New HUD Study Shows

In the fourth study of its kind, The Department of Housing and Urban Development and the Urban Institute has discovered that discrimination is changing form. The days of blatant discrimination by real estate and leasing agents against their clients are waning, but a more subtle form is appearing, the study reveals.

The study was conducted in 28 metropolitan areas throughout the country, used 8,000 testers and cost $9M to complete. The study used a “pair-testing” approach first utilized in 1977 by HUD to obtain the findings. In this approach, two testers – one Caucasian and one Asian, African-American or Hispanic – would approach the same agency and inquire about the same house for sale or unit for rent. Each pair would give identical descriptions of their age, financial situation, gender and familial status. The tester would then see if the houses they were shown would differ based on the ethnic make-up of the tester.

Compared to their Caucasian counterpart, African-American testers were told about 17% fewer units for sale, and Asians were told about 15% fewer units for sale. These findings also held true when the testers inquired about units for rent. Hispanics testers were shown a similar number of units as the Caucasian tester without a statistically significant difference.

This study highlights one of the biggest risks to real estate firms today, discrimination claims continue to be one of the leading causes of lawsuits against real estate professionals. While overt discrimination may be on the decline, many claims have risen from subtle instances such as agents locking car doors in some neighborhoods and not others, assuming certain clients would only want to live in certain areas, or not showing certain homes to buyers who do not fit that street’s current composition.

A real estate firm can take a number of practical steps to prevent this type of discrimination.

(1) Spend extra time with each client — Rather than deluge each client with hundred of potential homes to avoid discrimination, it may be better to spend a few extra minutes discussing your client’s desires with them. Find out exact areas they want to live in, or more specifics on the house they are looking for. This will allow a firm to not only treat each client equally, but may also provide a higher quality of homes to the applicant.

(2) Remove assumptions about what a client wants — A real estate agent may be trying to help in narrowing a client’s search by removing certain geographic areas, styles of homes or price ranges. In reality, this could be construed as discrimination. Only the client should have the right to remove certain cities or neighborhoods or characteristics from the list. An agent should instead bring these attributes to the attention of the client and let them decide if they would like to remove them or not.

(3) Detach Client Name from Housing Search – While not feasible in each situation, assigning a number rather than a name to a file may prevent misconceptions or prejudices from clouding a house search. When it comes time to search for a home, the agent or agent’s assistant will only that the client’s desired housing characteristics to consider – not the client’s gender, race, age, familial status or disabilities.

Avoiding professional liability lawsuits takes care, effort and attention. Contact BrokerLiability.com to discuss more ways to prevent lawsuits and how to correctly structure your insurance program to protect your firm when they do come.

Loss Prevention: Limit the Titles Agents can use, Watch Out for Undisclosed Information

New York Warns Against Lofty Titles for Agents

The New York Department of State issued an opinion letter in late April explaining that real estate firms must be careful when allowing their agents to use lofty titles.  Across the United States, real estate agents are almost exclusively independent contractors, but often use various titles as a means to differentiate themselves.  What New York took issue with was independent contractors using titles that give the appearance of being a corporate title.  Examples they gave were “president”, “senior broker”, “managing agent” and the like.  According to the Department of State, this can be construed as “dishonest or misleading advertising” and should be avoided when possible.

While not strictly illegal at this point, it is important for firms to be clear that the relationship between the firm and an agent is as a contractor.  Titles alluding to an employment status should be reserved for employees and members of the managing staff.  This delineation has ramifications for tax liabilities, workers compensation requirements and also for employment practices lawsuits – all three of which are typically avoided when an agent is clearly an independent contractor.  En employment lawyer or your state’s labor department can point to the definition of “employee” and “contractor” in order to help your firm avoid any dangerous cross-over.

Undisclosed Insider Knowledge Leads to Lawsuit

In the Washington DC area, a claim has been brought against a seller and his real estate agent for failure to disclose material information prior to the sale.  A restaurateur had his condo up for sale for $1.26M and enlisted the help of Sotheby’s to market it.  After the sale, it was discovered that an adjacent building was to undergo construction and that new construction would block the condo’s views, reduce the natural light and may even render the condo unusable during the time of the construction.  The lawsuit arose from the fact that the seller put his condo on the market immediately after he was at a condo board meeting where the construction plans were privately disclosed.  The seller is claiming a market value loss in excess of $300,000.

The real estate agent is being named in the suit due to his failure to discover and disclose this information to potential buyers.  The buyer’s attorney is quoted as saying “[the seller] and [the agent] knew that the truth would either prevent a sale or cut into their profits, so these two prominent Washington figures chose to conceal what they knew instead.”  Through the DC Consumer Protection Procedures Act treble damages can be awarded.

It is important for an agent to be fully aware of material facts on each property and to fully disclose each material fact to the buyer.  It is also worth noting that not all real estate agent’s errors and omission insurance policies will cover treble damages.  If you operate in a jurisdiction that allows punitive and treble damages, seek a policy that will provide protection to you and your firm.  Contact BrokerLiability.com for a complimentary review of your insurance program.

 

IDX Feed Leads to Lawsuit and Subsequent Dismissal

A story circulated among real estate blogs, video news sites and even the National Association of Realtor’s (NAR) Facebook page brings some interesting risk management thoughts to light.  The lawsuit stemmed from a Fair Housing Tester browsing Jeff Launiere’s website and noticed that on an IDX feed, one of the houses said “No children under 16 allowed” – clearly violating Fair Housing laws regarding age discrimination.

The tester reported the finding and Mr. Launiere was among those sued.  The only problem was – it wasn’t his listing.  The IDX feed pulled from the local MLS service and the agent who did write the listing was not sued as part of the lawsuit.  After the matter came to light, the lawsuit against Jeff Launiere was dropped.

As MLS feeds can contain language that is incorrect as well as discriminatory, reminds BrokerLiability.com, and it is important to take steps to protect yourself and your firm.  Insurance that will defend against discrimination allegations, deductibles that are adequate and internal risk management policies are all things to consider.  It is also worth considering deleting comments on an IDX feed, or screening for certain key words.  Contact us to discuss ways to protect your firm.

 

 

 

Property Manager Sued for Embezelement

Evelyn Collazo, an ex-employee for Sterling Bays Cos., was sued for allegedly stealing $150,000 from the property management company.  The suit explains that while Ms. Collazo was overseeing the the property of 300 W. Adams Street in Chicago, she falsified invoices for company purchases.  The allegations continue to assert that personal expenses were charged by Collazo, which she kept hidden through altering the  invoices and removing various documents from the records.

This set of facts – while not proven in this case, yet – do outline a very common tactic of embezzlers, explains BrokerLiability.com.  Theft of company funds by employees or contractors can be very hard to detect, but can consume large amounts of a firm’s working capital.  Contact us to discuss best practices and insurance options for employee theft insurance and fidelity bonds.

 

 

 

 

 

Real Estate Agents charged with Fraud

A Florida couple has filed a lawsuit against their real estate agent and mortgage originator for the couple losing earnest money and for fraud.  The couple alleges that the agent urged the couple to use a certain originator when buying a house that the agent work with “almost exclusively” with this originator.  The couple agreed and they were verbally pre-approved for a $600,000 loan.

After the couple deposited $13,350 of earnest money on a house, the originator explained that the underwriter needed the couple to show that they intended to lease the home for additional income.  The couple was allegedly encouraged by the originator to create a false lease with a friend, obtain a check and then “tear it up” after the house was purchased.  The couple refused, explaining that they did own two homes, but did not want to lease one.  As a result the couple lost the loan approval and the earnest money.

While fraud is not covered under insurance policies, defense costs might be, explains BrokerLiability.com.  It is important to not only monitor each real estate agent a firm contracts with to assure upright and proper actions, but also to maintain the insurance necessary to respond to such allegations.  Contact us to learn more about how to protect your firm.

 

 

Homeowners Policy Excludes Client Data Lost

The Seventh Circuit Court of Appeals has ruled on a coverage dispute between a CPA and her home insurer over client data that went missing in her possession.

The staff accountant had a CD with 30k individual names and social security numbers of a fund she was auditing stored in her automobile. When the disc went missing the fund paid over $200,000 to provide credit monitoring to the persons involved and came after her to reimburse them.

The auditor filed a claim under her home insurance policy, which the court of appeals ruled did not have to provide coverage.

BrokerLiability.com reminds it’s clients that with the growing costs of losing confidential data virtually all insurers have excluded coverage for these claims under standard policies policies. Work with an expert broker to ensure the coverage you need is place.