Posted on 18 Jul 2012 by Annie George
We recently spoke with Eric Myers, Vice President of Victor O. Schinnerer & Company, one of the largest and most experienced underwriting managers of professional liability and specialty insurance programs in the world, and a ProgramBusiness.com storefront. We were interested in finding out what trends, if any, were occurring regarding errors and omissions claims in the real estate sector. Schinnerer offers Real Estate E&O coverage through independent insurance agents and brokers throughout the United States, Puerto Rico, and the U.S. Virgin Islands. In addition to insuring real estate agents and brokers, the insurance program also serves real estate appraisers, auctioneers, leasing agents, and property managers.
What’s more, Schinnerer is a benefits partner of the National Association of Realtors® (NAR), an organization with 1.1 million members. Schinnerer provides Real Estate Errors & Omissions insurance to NAR members at a 5% premium discount, along with key risk management resources.
Annie George (AG): There’s been more discussion of late about increased errors and omissions claims in a variety of professions, including in the real estate industry. What have you been seeing, especially in light of the significant number of foreclosed properties that exist?
Eric Myers (EM): “There has been an uptick in claims, but the uptick is coming from a new source. Historically, claims are as a result of a buyer or seller alleging wrongdoing during a real estate transaction. And, while these still make up the majority of claims, the change we’re seeing more recently involves claims from banks that own all these foreclosed properties as a result of the housing fallout in the last several years.
“Banks are hiring realtors to sell properties and claims are beginning to rise for their services. Claims against realtors range from allegations that the banks didn’t receive the full amount or not as much money as they thought they should get, to properties that weren’t sold as quickly as the bank expected, costing it money. The allegation is that the realtor did not do his/her job in aggressively marketing the house to get more money. A bank, for example, alleges that it didn’t make the money it wanted because the property was sold too quickly or the transaction took too long, or the realtor rejected an offer and all other subsequent bids ended up being lower.”
Eric explained that they’re also seeing claims from the banks involving property management services performed by real estate firms on foreclosed properties. “The banks are not just asking realtors to sell these foreclosed homes but also to manage them until they’re sold,” said Eric. “This involves doing routine maintenance, such as cutting the grass, shoveling snow, etc. As a result, when something goes wrong, banks are bringing claims against realtors for faulty management. A typical example, let’s say, involves a bank that hires a real estate firm to sell and manage 200 properties in a town. The realtor will go by the properties once a week and perform maintenance, etc. If someone breaks in and vandalizes or damages the house when the realtor is not there, the bank then sues the realtor for failing to live up to his/her property management services and responsibilities. Even if the realtor is not at fault, at the very least these claims need to be defended.”
AG: To help stem these types of claims, what recommendations would you suggest real estate and property managers undertake?
EM: “First and foremost, realtors should be very careful when taking on property management responsibilities. They need to make sure to photograph or videotape the condition of the house when they take it over. If they’re managing a house and the previous tenant ripped out all the copper piping, for example, they need to make the bank aware of this. Documentation is key when it comes to everything that transpires with the property. The more one has documented in notes, with videotapes and photos, the better off he or she is if a claim arises. Realtors must understand what they’re getting into.
“Right now, about 25-35% of all properties in the market are in foreclosures or short-sell situations. Once the bank is involved they have a lot of power so there isn’t much room for a realtor to negotiate the terms of a contract, especially when it comes to the national banks. It’s wise to have a real estate attorney read through the contract and make the realtor aware of all that he/she is agreeing to.”
Schinnerer’s Real Estate E&O product, Realty Choice, was established more than 28 years ago. It provides coverage for the services of a real estate owner – as an agent, broker, property manager, consultant or counselor, auctioneers, and mortgage brokers. The policy can be written for a one-person real estate firm to very large practices with multi-billion-dollar revenues. Minimum premium begins at $500.00. Optional EPLI coverage is available through an endorsement and additional premium.
AG: What distinguishes Schinnerer when it comes to your E&O policy and the services you offer to real estate professionals?
EM: “What differentiates us is our claims handling. In addition to being very proactive in investigating and defending claims, we also focus on claims resolution – finding a solution to the claim as quickly as possible. A claim at minimum is going to cost a realtor time and the policy’s deductible. Therefore, responsive and proper investigation is key in getting the claim resolved. What’s more, any time you can avoid trial, it’s better for both sides of the claim. Negotiation and mediation work to obtaining a fair outcome.”
Schinnerer also provides key risk management resources to clients. “We produce a monthly War Story,” explained Eric. “These are real life claims story from our files [the names are changed to protect privacy]. We describe the claim, examine what happen, and what should have been done differently to avoid the claim. A library of these stories exists on-line that is available to our policyholders, with the most recent story available to the public.
“Additionally, twice a year, we run in-depth articles in our Risk Management Reporter. These are articles written by outside attorneys that address topics in greater detail. For example, we recently featured an updated article on the MARS rule (Mortgage Assistance Relief Services), explaining the FTC ruling and what a realtor or anyone for that matter can and cannot do when negotiating a mortgage with a lender.”
Schinnerer also conducts two webinars every year. Most recently, they held a webinar on the exposures of real estate agents involved with property management preservation properties.
NAR members have access to Schinnerer’s risk management resources through a special portal on the NAR website and through a separate landing page on the Schinnerer site as well. In May at the NAR’s MidYear Meetings and Events Expo, Schinnerer hosted a seminar on property management.
The Real Estate E&O program is available nationally and on an open-brokerage basis. For more information about the program, you can contact Brian Cropp at (301) 961-9897, or via email at Brian.E.Cropp@Schinnerer.com.