Real estate agents possess a greater likelihood of being sued than doctors. Why? We like doctors. Oh, and doctors, unlike real estate agents, are protected by a number of statutes that make it almost impossible to succeed. For real estate agents, the best protection in a lawsuit is the terms of their contracts.
Should a real estate agent representing a seller verify that the seller actually owns the property? What happens when the seller does not? More importantly, what happens when the seller cannot close on the sale of property because he does not own the property? The answer is guaranteed – no commission and a lawsuit.
So, does a real estate agent possess a legal obligation to perform a title search? What steps does the real estate agent need to take to verify that the seller actually owns the property?
The answer is – none provided that the contract with the buyer includes the following disclaimer:
Disclaimer. It is understood and agreed that the real estate firms and real estate licensee(s) representing or assisting the Seller or the Buyer are not parties to their Agreement and do not have or assume liability for the performance or nonperformance of Seller or Buyer. Buyer and Seller agree that the Brokers shall not be responsible for any of the following, but not limited to, those matters which could have been revealed through a survey, flood certification, title search or inspection of the Property; for the necessity or cost of any repairs to the Property, any portion thereof, or any item therein; for the necessity or cost of any repairs to the Property; for hazardous or toxic materials; for the tax or legal consequences of this transaction; for the availability, capability, and/or cost of utilities, sewer, septic, or community amenities; for applicable boundaries of school districts or other school information. . .if any of these matters or any matters are of concern to them, they shall seek independent expert advice relative thereon.
Of course, if the real estate agent actually knows that the seller does not own the property, the disclaimer does not work. And, if the real estate agent does a title search and fails to find the “cloud on the title,” the agent could be guilty of negligent misrepresentation. So, it would appear that for now ignorance of the state of title is blissful ignorance.
THE MORAL OF THIS STORY – ALWAYS TELL THE TRUTH, AND ALWAYS READ YOUR CONTRACTS CAREFULLY.
For the whole story, see Morgan Development, LLC v. Raymond W. Morrow, E2010-00610-COA-R3-CV (Tenn. Ct. App. Feb. 23, 2011).
Monday, February 28, 2011
Tuesday, February 22, 2011
INSURANCE AGENTS BEWARE!
It is common for insurance agents to complete applications for their clients. In fact, most clients prefer that the agent handle “the paperwork.” The client then reviews the application in order to verify the accuracy and signs the application normally under a “lengthy” series of acknowledgments that says that the information is accurate and the insurance company will rely upon the answers.
What happens when the customer signs the application completed by the agent and the application contains an error? What happens when the insurance agent completes the application and does not know that the answer is false? IN TENNESSEE, THE INSURANCE AGENT PAYS THE CUSTOMER $1.0 MILLION.
The facts of the case were not very unusual. The insurance agents become friends with husband and wife. Husband had a $300,000 life insurance policy. The agents convince him that he should increase the policy to $1.0 million. The agents obtain some information, complete the application, and send the application to Husband. Husband signs the application without even reading it. The insurance company then issues the policy. Husband allows the $300,000 policy to lapse.
Two months later, Husband dies in a single car accident. Insurance Company declines coverage because of a false statement on the application. The application states that Husband has not been charged or convicted of driving under the influence. In fact, Husband was convicted of DWI.
Wife sues the insurance company for breach of contract, negligence and violation of the Tennessee Consumer Protection Act. The insurance company – settles the case by paying $900,000.
BUT THE STORY DOES NOT END –
Wife also sues the insurance agents. Common sense says that since the insurance company paid $900,000, then the maximum amount the insurance agent could be liable for would be $100,000.
Nice try, but the Tennessee Supreme Court says that the settlement was a general settlement of all claims. It did not specify that it was limited to the breach of contract claim.
In fact, the Court says that the insurance agents are guilty of wrongful failure to procure life insurance. Essentially, the insurance agents are guilty of professional malpractice. “Insurance that is obtained but later voided because of acts or omissions by an agent is just as worthless as no insurance or inadequate insurance.” That wrong is separate and distinct from the wrong done by the insurance company.
The Moral of this story: Is a Judgment against the Insurance Agents for $1.0 million worth a few minutes spent reviewing the insurance application with the client?
Morrison v. Allen, No. M2007-01244-SC-R11-CV (Tenn. Feb. 16, 2011).
What happens when the customer signs the application completed by the agent and the application contains an error? What happens when the insurance agent completes the application and does not know that the answer is false? IN TENNESSEE, THE INSURANCE AGENT PAYS THE CUSTOMER $1.0 MILLION.
The facts of the case were not very unusual. The insurance agents become friends with husband and wife. Husband had a $300,000 life insurance policy. The agents convince him that he should increase the policy to $1.0 million. The agents obtain some information, complete the application, and send the application to Husband. Husband signs the application without even reading it. The insurance company then issues the policy. Husband allows the $300,000 policy to lapse.
Two months later, Husband dies in a single car accident. Insurance Company declines coverage because of a false statement on the application. The application states that Husband has not been charged or convicted of driving under the influence. In fact, Husband was convicted of DWI.
Wife sues the insurance company for breach of contract, negligence and violation of the Tennessee Consumer Protection Act. The insurance company – settles the case by paying $900,000.
BUT THE STORY DOES NOT END –
Wife also sues the insurance agents. Common sense says that since the insurance company paid $900,000, then the maximum amount the insurance agent could be liable for would be $100,000.
Nice try, but the Tennessee Supreme Court says that the settlement was a general settlement of all claims. It did not specify that it was limited to the breach of contract claim.
In fact, the Court says that the insurance agents are guilty of wrongful failure to procure life insurance. Essentially, the insurance agents are guilty of professional malpractice. “Insurance that is obtained but later voided because of acts or omissions by an agent is just as worthless as no insurance or inadequate insurance.” That wrong is separate and distinct from the wrong done by the insurance company.
The Moral of this story: Is a Judgment against the Insurance Agents for $1.0 million worth a few minutes spent reviewing the insurance application with the client?
Morrison v. Allen, No. M2007-01244-SC-R11-CV (Tenn. Feb. 16, 2011).
WHERE DO I FILE MY THRA COMPLAINT?
In law school, I discovered that Tennessee actually has two court systems, the Chancery Court and the Circuit Court. Why, I wondered. What's the difference?
Well now I know -- it is so that lawyers may waste money and time arguing over which court has jurisdiction. And then appeal to the court of appeals so that they can waste more time. And, it really doesn't matter, since if one doesn't have jurisdiction, we simply transfer the case to the other. And in some counties, it does not really matter since the chancellor and the circuit court judges share cases any way. But, I digress.
The Tennessee Human Rights Act states that Chancery Court and Circuit Court have concurrent jurisdiction. So, if you bring a THRA complaint you can file in Chancery Court. WRONG!
According to the Court of Appeals, if the lawsuit is solely for unliquidated damages, you still must bring the case in Circuit Court. But that makes no sense, you might say. Well, it makes as much sense as have two separate offices essentially serving the same function.
Now, have I told you how I feel about having two courts of appeals?
See Keri Williams v. The City of Milan, Tennessee, et al.
Well now I know -- it is so that lawyers may waste money and time arguing over which court has jurisdiction. And then appeal to the court of appeals so that they can waste more time. And, it really doesn't matter, since if one doesn't have jurisdiction, we simply transfer the case to the other. And in some counties, it does not really matter since the chancellor and the circuit court judges share cases any way. But, I digress.
The Tennessee Human Rights Act states that Chancery Court and Circuit Court have concurrent jurisdiction. So, if you bring a THRA complaint you can file in Chancery Court. WRONG!
According to the Court of Appeals, if the lawsuit is solely for unliquidated damages, you still must bring the case in Circuit Court. But that makes no sense, you might say. Well, it makes as much sense as have two separate offices essentially serving the same function.
Now, have I told you how I feel about having two courts of appeals?
See Keri Williams v. The City of Milan, Tennessee, et al.
Tuesday, February 8, 2011
FORECLOSURE AND CLEARING TITLE
Around the country, many borrowers who lose their house in foreclosure are arguing that the foreclosure was defective. This results in delay as the courts examine the specifics of the foreclosure. For lenders, the issue is how to avoid the inherent delay.
The answer, at least in Tennessee, is to file an unlawful detainer warrant in General Sessions Court. If the homeowner does not raise the defective foreclosure in the General Sessions Court, then the decision is "res judicata" on any subsequent action. If the borrower does raise that issue, it is resolved quickly by the General Sessions Court.
A quick and cheap way to clear title on property. Also, you serve the detainer warrant by nailing it to the door of the property -- no chasing the elusive occupants around the world trying to get service.
See Davis, et al. v. Williams, et al.
The answer, at least in Tennessee, is to file an unlawful detainer warrant in General Sessions Court. If the homeowner does not raise the defective foreclosure in the General Sessions Court, then the decision is "res judicata" on any subsequent action. If the borrower does raise that issue, it is resolved quickly by the General Sessions Court.
A quick and cheap way to clear title on property. Also, you serve the detainer warrant by nailing it to the door of the property -- no chasing the elusive occupants around the world trying to get service.
See Davis, et al. v. Williams, et al.
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