Realtors Sued over Surveys and Flood Plains

In the news this past month came a pair of lawsuits with concerning implications for the real estate industry.  Real estate firms should note of the dynamics of each suit and take stock of their own internal risk management guidelines and insurance.

The first case takes place in Pinellas County, Florida.  A Realtor was sued three years after acting as the buyer’s agent on a large waterfront home.  The home had a first floor that was finished with a number of bonus rooms including a game room and work out room.  However, the county sent a letter – addressed to the prior owners – noting that the first floor was below the flood plain and could not have habitable square footage.  The finished rooms were illegal and could only be used for storage or parking.  The new owners sued the real estate firm alleging that the agent failed to make the buyers aware of this violation prior to purchase.  The Realtor notes that the title company cleared the title and the seller also signed a disclosure that there were no violations.  It was noted that the seller did know about the violation and only fixed a portion of the first floor before selling.

In the second case, a Kentucky man is suing a Tennessee Realtor for failing to advise of the property lines on a lot prior to purchased.  The Realtor brought only the data sheets when walking the lot and did not give accurate description of the corners.  The buyer claims that the lot would not accommodate the house he wanted to build.  It is further alleged that the Realtor did not advise that the lot had a drainage easement that cut the property in half – which is estimated to cost nearly $30,000 to rectify.  The Realtor explains that the survey was recommended, and the buyer was in construction himself and was a sophisticated buyer.

Both of these cases highlight the fact that real estate agents are sued for matters that even seem out of their control.  Many firms do not carry real estate professional liability insurance, explaining that they follow all recommended risk management practices, always require home inspections and home warranties, and use standard contracts.  The matters noted above serve to remind that even when real estate agents take precautions, have clean disclosures, and recommend surveys – they can still be sued.

It is important for all real estate firms to have malpractice insurance as this coverage will defend the firm even from frivolous claims.  While the firm may have to pay a deductible, having attorneys on call and an experienced claims adjuster walking the firm through the process is invaluable.

Contact us to discuss how you might best protect your firm from allegations of wrongdoing.