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Ethics

Opening the floodgates of Realtor liability

The Hutchinson News in Hutchinson, Kansas, recently posted an article about a couple who bought a home for $300,000 and found themselves with a $900,000 bill (let me just grab my checkbook…) due to a dam on their property that needs major repairs.  The buyers thought that repair and maintenance was the responsibility of the government because it’s construction facilitated the growth and development of the city they live in.

What they didn’t know (a title search apparently missed the document) was that a 1979 agreement between former owners and the city placed sole responsibility for repair and maintenance on the owner of the property, not the local government.

They also didn’t know that the dam had been inspected in 1993, 1997, and 1999 and each time issues were raised by the division of water resources regarding the improper maintenance of the dam, and the need for immediate repairs.  The city had the power to make the repairs and bill the owners back in the 90’s, but they chose not to do so.

Now the new owners are faced with a huge repair bill they can’t pay, a title insurance insurance policy that will likely only cover up to the value of the home ($330,000), and they uncovered the problem just 3 months after purchasing the property.  It’s a bum situation, and I expect we could end up seeing several lawsuits come out of this.

But what about the agents that were involved in the transaction?  Although the article does not mention them specifically, the reader comments are particularly harsh in their assessment of the Realtor’s role (or lack thereof).

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Let’s assume for a moment that there WAS a Realtor involved in the transaction.  I’d be willing to bet that they probably had little experience in selling homes with a dam on the property (It’s not a typical feature, right?), but inexperience does not give us a pass on responsibility.  Whether working as a buyer or seller agent, we need to be able to ask those questions and protect both our clients and ourselves from a situation such as this.  Just because the title company missed the city agreement doesn’t mean that they’re the only ones responsible.  You could create a laundry list of culpable parties on this one!

The bottom line here is that we as Realtors need to be able to insulate our clients (and ourselves) from situations such as this.  If necessary, don’t be afraid to spend some time at the local courthouse or health department researching property documents.  If you’ve ever dealt with land transactions then you’ve probably already done this, but it’s a crucial step with any property that you think might have unusual or odd variances.  Look at it this way:  Is it worth you license or life savings to have missed something like this?  I think not.

photo courtesy of Alan Light via flickr cc

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Written By

I'm a Realtor in Southern Maryland. I grew up surrounded by the RE business, spent time as an actor, worked as a theatrical designer and technician, and took the road less traveled before settling down in real estate. I run my own local market website at https://www.somdexpert.com and when I'm not at the office or meeting clients, I can usually be found doing volunteer work, playing with my 3 rescued shelter dogs (Help your local Humane Society!), or in the garage restoring antique cars.

22 Comments

22 Comments

  1. Scott

    August 18, 2010 at 9:37 pm

    Great article, so much to consider here. Ultimately, it has to be buyer beware though.

  2. Matthew Rathbun

    August 19, 2010 at 12:11 am

    Caveat Emptier only goes so far. There have been cases in the past where Buyer Beware was limited because the agent held themselves out as an “expert” or made statements of assurance, such as “the title search will tell us…” and the courts levied the Realtor.

    It’s easy to play Arm-Chair Quarterback knowing the end result here, but I think it’s always wise to be the source-of-the-source and hook the buyers up with someone who can answer their questions about anything out of the ordinary – especially a dam.

    Great find for this post, I’ll be sure to reference this story in the future!

  3. Denise Hamlin

    August 19, 2010 at 1:44 am

    That is a scary story. I’m big on research and background checking. This is a great reminder to keep that up.

  4. Missy Caulk

    August 19, 2010 at 9:24 am

    Why was this not recorded on the Title Work? If it was recorded it should have shown up. We recommend or demand our buyers hire an attorney to review all Title Work on all Short Sales and Foreclosures.

    An Attorney will go pull the actual Libor and page number and read it.

    But even in this case if it was not recorded it would not have been found.

    • Jonathan Benya

      August 19, 2010 at 2:54 pm

      You would have thought that title work would have caught this, but apparently there was no lien recorded, so it’s likely they either passed over it because it wasn’t listed as a debt or they missed it completely.

  5. Jim Gatos

    August 19, 2010 at 7:06 pm

    Get a lawyer as a buyer before you buy!

  6. Joe Loomer

    August 20, 2010 at 5:31 am

    Seems E&O insurance should cover this one – the “known or should have known” only goes so far. As for doing the research yourself – I’m with Missy here – what if you do what you think is due diligence on your part by checking those records yourself but you miss it too? After all, I don’t have a law degree or any certification for checking titles and deeds. If I took the initiative to do it myself, am I not then opening up that can of worms of having gone to the very place where the actual deed or agreement WAS filed and I missed it? This is why there are the industries we use in real estate transactions, this is why there are inspectors, attorneys, mortgage lenders, pest control companies, structural engineers, roofers, painters, etc…. Refer to experts you trust.

    Navy Chief, Navy Pride

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