Misrepresentations happen.

The Mistake. 

The real estate agent/broker misrepresented the property being sold. After closing, the claimant discovered that the property was not a multi-family dwelling as allegedly represented, but rather a single-family home. The buyer had intended to rent the second unit as a source of income. Without this rental income, the buyer would be unable to make her mortgage payments. She alleged that she suffered damages in excess of $105,000, including her down payment for the property, mortgage payments, other associated costs, attorney’s fees and interest. She also made other allegations of fraud, misrepresentation, breach of contract, breach of fiduciary duty and violations of the Unlawful Trade Practices Act.

The Consequences

Defense costs: $15,000
Indemnity: $50,000
Insured’s Deductible: $5,000
Total cost to carrier: $60,000 (after insured’s deductible)

The Avoidance

  • Properly document facts about the property.
  • Document the file about any such representations to the client.
  • Eliminate any speculation about the property and potential sources of revenue.
  • Use standard contracts.