PROView - May 2008 - (Page 16) (Are You Protected? continued from page 5) one protective measure is to add disclaimers to all submitted information. By adding a statement along the lines of “accurate to the best of my knowledge based on information provided by Client X” will definitely help. Will it completely cover you in case such a case ever reaches a court? According to Powell it has not been tested in front of a judge yet, but your chances of being protected certainly increase by the simple addition of a carefully worded disclaimer. Powell also recommended the addition of another kind of disclaimer – one used when a contract is signed. Powell gave an example of what probably is quite common in any marketplace today: contracts signed when prices were higher and now due for closing. “If a contract was signed for a pre-construction condo a couple of years ago and now due for closing, chances are the value of the property has declined,” he said. “A REALTOR® needs to provide updated comparables and make sure the contract price indeed is backed by a current appraisal. “Relying on a previously made appraisal and failing to make an updated assessment of fair market value may in fact be negligence,” he added. What to do? Add a disclaimer that states that the price level is based on your best estimate and show proof of what you have done to ensure that a price indeed is fair market value. Requesting a new appraisal will certainly be a good start. Potential Liability Taking on Property Leasing Another reality in our inventory-rich marketplace is that of homes once offered for sale turning into rental properties. It is a viable option for those unable to sell their properties. They may ask their REALTOR® for assistance and during our conversation Abraham brought yet another potential issue to light. “Unbeknownst to REALTORS®, landlords may be behind on mortgage payments.” He said that when renters are notified to vacate the premises due to a pending foreclosure, they may come back to the REALTOR® who represented the lease to seek compensation for any losses. So what can REALTORS® do to limit risk? Have the landlord sign a verification of being current on all payments. According to Abraham it releases liability from the REALTOR® to the landlord when a renter seeks restitution for a broken contract or fees associated with finding and moving to a new home. Putting Your Mind at Ease Another avenue of protection is to take out an errors and omissions insurance policy, also known as E&O insurance. “Claims against E&O insurance policies resulting from 16 PINELLAS REALTOR® ORGANIZATION May 2008 just the sub-prime mortgage debacle alone will likely result in losses above $3 Billion.” These daunting words are those of Kevin Madden, CPCU, ARM, Managing Director, National Real Estate Practice of AON Risk Services in New York. “Claims against REALTORS® definitely make up a significant portion of those claims,” he added. Madden mentioned that in light of the overwhelming amount of losses expected from the sub-prime mortgage fallout, now is the time for REALTORS® to carefully review any existing E&O policy, and those currently not protected should consider purchasing one. Bob DeGrilla, Regional Director for Pearl Insurance, agrees. “Owning an E&O policy will cover you in the event you receive a claim against your business, both for any action you may have taken as well as any omission of steps you should have taken.” For example, an E&O insurance policy would have protected the Broward county REALTOR® mentioned earlier. “Whether you’re new to the real estate industry or have been in the business for years, you are a prime target for lawsuits. E&O Insurance helps ease the burden by responding to, defending and sharing the monetary risks for whatever claims are brought against you,” said DeGrilla. He pointed out the importance for both REALTORS® and brokers to hold an E&O policy. “E&O policies can provide protection for the named insured, past or present employees, independent contractors, and personal assistants named in a claim.” Asked about any advice he would give to REALTORS with existing policies, Madden had the following to share: “Every policy is different,” he said, pointing out that REALTORS® should take a close look at claim limits as well as any retentions and/or deductions. If a policy is carried by a broker, individual agents should request detailed information as to their coverage and any deductibles they may be responsible for in case of a claim. Added Powell: “Many policies were probably put in place years ago and may not include short sale transactions.” He suggested that REALTORS® and brokers carefully screen their policy statements to make sure they indeed are covered for any actions and omissions that may occur while handling a short sale. “Insurance companies will look for ways not to pay a claim. REALTORS® and brokers would be best advised to consult their insurance agent and maybe even an attorney just to make sure they are protected in the event of a claim.”
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