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Benefit from the Experience of Others

Brokers frequently ask us about which types of claims we regularly encounter in our practice, and how to better protect themselves from exposure in emerging (or reemerging) areas of liability. This article will address common types of claims, and provide information on trends in recent claim activity, as identified by the National Association of Realtors® and Oregon Realtor® Associations.

Common Claims

As part of our practice, we provide representation to real estate brokerages, individual brokers, professional liability carriers, and Realtor® associations. As a result, we defend a significant number of claims on behalf of our clients. Although one might think that the nature of claims had changed over the years, our experience is that the most common types of claims - namely property defect and misrepresentation - remain at the top of the list.

However, some types of claims have increased in years due to heightened awareness of related issues, or enforcement by governmental entities. For instance, claims relating to federal laws such as RESPA and statutes relating to lender fraud have increased over recent years. It is apparent that state and federal governmental entities have stepped up enforcement in these areas, thereby bringing more attention to such claims.

Notwithstanding various trends in enforcement and awareness of types of claims, claims for misrepresentation, defective property conditions, and earnest money disputes have always played a significant role in claims made against buyers, sellers and brokers.

Realtor® Associations

Our experience in representing parties in these types of claims is supported by data collected by a number of local Realtor® associations, including PMAR. On a local level, this Association calculates statistics on an annual basis regarding mediation filings through its Dispute Resolution System. Although the Association’s results relate only to mediations, the information gleaned from both studies serves as a helpful foundation for understanding the climate in which brokers are listing and selling homes.

Perhaps not surprisingly, claims filed with PMAR increased in 2006, as did participation in the Dispute Resolution System. The number of files closed due to lack of response or by one party declining to participate decreased from 24% in 2005 to 8% in 2006. This indicates that parties are becoming more willing to participate in mediation. However, despite the increase in claims filed, the percentage resolved by way of settlement through mediation remained constant - 70% of all closed files were settled through mediation in 2006, whereas 69% were settled in 2005.

PMAR’s statistics relating to common types of claims mirrors our experience. According to statistics provided by the Association, the most common claims in 2006 related to property condition, misrepresentation, and earnest money. Claims relating to property condition increased from 2005 to 2006, whereas claims for misrepresentation and specific performance decreased in quantity from 2005 to 2006. The least common claims related to commission, fiduciary duties and breach of contract. It is important to note that many commission claims occur between brokers, and are handled outside the context of Association mediations, and are therefore not considered to be “claims” in the context of the Dispute Resolution System data.

National Association of Realtors®

On a national level, the National Association of Realtors® tracks claims involving brokers, with results being published in its biannual survey on legal issues and trends in the real estate industry. The most recent survey, succinctly titled “2007 NAR Legal Scan,” resulted from an extensive study of court documents, state statutes and state regulations, and from responses received from survey respondents, a group which included state commissioners.

Many of the most common issues identified by NAR correspond to those we see in our practice and those identified by local Realtor® associations. For instance, agency and fraud issues were high on the list of common issues identified by NAR. Not surprisingly, the NAR survey identifies commission as an issue frequently forming the basis of disputes. In fact, 153 of the 937 issues contained in 655 cases included in the survey were focused on commission disputes. However, as mentioned above, many commission disputes in Oregon are resolved either directly between the parties or through local realtor associations, and therefore are not included in statistics collected through the PMAR Dispute Resolution System or do not correlate to results contained in NAR’s survey. Other common issues identified by NAR include fair housing and RESPA. At the bottom of the list were issues such as disclosure of asbestos and lead-based paint, sign ordinances, and employment issues. Other uncommon issues identified by state real estate commissioners are those involving lockboxes, uninsurable homes, state internet advertising rules, and disclosure of meth labs.

Looking at changes from the previous survey completed by NAR in 2005, trends seem to indicate that fair housing, technology, and disclosure of zoning have become more common bases for claims. Areas in which claims have significantly decreased include disclosure of structural defects, RESPA kickbacks, breach of contract, fraud and flipping. However, survey participants believe that RESPA and agency issues will increase in significance over the next several years.

Although the survey may merely serve to remind brokers of the litigious nature of our society, it is important to point out that brokers were found liable in only 34% of the cases. This statistic certainly bodes well for brokers, particularly if they are entitled to recovery of attorney’s fees when successful in defending a claim.

Conclusion

Maintaining familiarity with common claims and risks associated with licensed professional real estate activities is crucial in the development of practices to minimize exposure to liability. Although analyzing statistics is not likely to be on the top of any broker’s list of priorities, such review reveals important trends that significantly impact how a broker represents clients, and protects him or herself from risk. Protecting oneself from risk will help prevent becoming part of the statistics.

 
This column contains general information only and must not be construed as legal advice. Questions may be submitted directly to Maylie & Grayson by fax at (503) 775-1765, by email at or by mail at 7959 SE Foster Road, Portland, Oregon 97206.

7959 SE Foster Road Portland, Oregon 97206 T. 503.771.7929 F. 503.775.1765 
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