16 Steps to Stay Out of Court

16 Steps to Stay Out of Court

1. The importance of memorializing - keep notes and records. Why is it important?

When you are sued by your client three years after the transaction and they have "selective memory", you have documentation on what was discussed (admissible evidence). It also helps you remember what you did and what you said. Pride of authorship is key, e.g., use of confirming letters, telephone/mobile phone logs, etc.

Other key points in writing and do so before escrow closes. Treat your files "as if a later claim is inevitable. Recognize that the statute of limitations for fraud is three years and is four years for breach of fiduciary duty; both from the date of discovery.

2. Learn to be comfortable with your uncertainty. Know what hat you are wearing. If you do not know, say so. Then get the answer from an authority.

3. Do not speak carelessly. As a professional, a real estate licensee must exercise a higher degree of skill and diligence than a non-professional. Negligent misrepresentation is a major cause of lawsuits. Specifically, the broker is charged with more than a layman's knowledge of the real estate business.

4. Recommend expert inspections from reputable and "qualified specialists." Recommending a "licensed" inspector is incorrect. Advise that the inspection company have adequate E&0 insurance. Provide choices for the client. Counsel clients pre-inspection. A home inspection is none of the following: appraisal, pest control certification, certification of any kind, FHA/VA inspection or a warranty. A home inspection is a resource for clients to make decisions of two kinds: immediate and during course of ownership regarding maintenance. Urge the buyers to go on the inspection with the inspector. If the buyers waive inspections, get your recommendation and their waiver in writing!

5. Take advantage of home warranty programs. It's estimated that items covered under home warranty plans and which break down within the first year contribute to 29% of lawsuits filed by buyers against realtors.

6. Don't be greedy. Your fiduciary duty comes before closing the deal. The broker owes his principal the same obligations of diligent and faithful service that a trustee owes to the beneficiary of a trust. Specific fiduciary duties include: account for funds, undivided loyalty, good faith, full disclosure and explain and counsel. Note: once the fiduciary relationship is established and a breach by the fiduciary is alleged, the burden shifts to the defendant broker to prove that the fiduciary duties were not violated.

7. Don't jump the gun. Avoid situations that could lead to two contracts. Exercise the utmost care with multiple offers, backup offers and contingencies.

8. FSBO's raise red flags. Is the seller doing something besides saving a commission? Have you unwittingly become the seller's agent?

9. Don't give legal advice. Consider referring your client to an attorney and/or C.P.A. where appropriate. Answering questions like "what does this mean" carries liability.

10. Stick to your specialty. Even the best agents cannot be all-knowing about all properties. You will be considered to know more about the area that you farm.

11. Stay well informed. Employ determinative risk management and loss prevention from counsel experienced in real estate brokerage .and sales law. Attend board/association seminars and read trade publications.

12. Review preliminary title reports carefully and as soon as possible.

13. Use standard forms and procedures. Have a manager or fellow agent review your contracts to insure that what you have written is clear. Important general rule affecting any contract is that vagueness is construed against the party responsible for the ambiguity. Be mindful of unauthorized practice of law/negligent drafting (e.g., subordination clauses).

14. Disclose agency relationships as soon as possible. The law requires disclosure, but you control the timing. Recognize that dual agency is one of the greatest sources of liability. Note: any circumstance in which the buyer or seller refines to sign an acknowledgment of receipt of the agency disclosure form, the agent must set forth, sign, and date a written declaration of the facts of the refusal.

15. What to do if you become aware of a claim: talk to your broker/attorney; get as much information from the claimant as possible; attempt to resolve/settle early; avoid making admissions; don't write on original documents; don't panic; help your attorney to help you — provide a detailed narrative memorandum and be candid about facts which show you were (or possibly were) at fault; and use mediation. Get advice, but make a prudent business decision.

16. You are required to make a reasonably competent and diligent visual inspection of the "accessible" areas of the property and to disclose to prospective buyers all facts materially affecting the value and desirability of the property [ . .. when the licensee has reason to believe that such facts are not known to, nor readily observable by, a prospective purchaser or lessee]. This lesser known wrinkle to the general rule may be admissible in evidence; note its relevance with unsophisticated, first-time buyers.

Do not volunteer conclusions as to the cause of anything you disclose; do not diagnose or characterize; just cite factual observations.

Mark D. Stavros, Esq. Is an attorney specializing in Real Estate Law with the law form of Stavros & Associates.  He predominately represents real estate brokers and agents in litigation and non-litigation claims, commission disputes, DRE accusations/investigations and other matters. Mark has a reputation for cost-effectively terminating claims, aimed at agents and places special emphasis on providing knowledgeable and pro-active loss prevention. Mr. Stavros is available at (858) 454-7997 or on-line at stavroslaw@san.rr.com.


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