The facts
Ms. Jones, a Vermont resident, inherited a vast amount of land from her uncle in New Hampshire. She decided to sell it, and contacted a local realtor, who referred her to Mary Smith from Smith Realty. Ms. Jones had never seen the property and needed assistance in determining its current value and listing it for sale. She provided Ms. Smith with a 20-year-old survey and the property address. Ms. Smith indicated she would visit the property and try to locate the lot to advise her on the value and prepare the listing.
Ms. Smith located the property and tried to find the lot boundaries and pins. This was somewhat difficult as the property was heavily wooded and snow covered. She located some pins and placed her sale sign in the lot. The survey indicated that the lot was wooded with approximately 12 acres. Most of the surrounding lots were recently logged. The property was listed for $15,000 and soon thereafter, Smith Realty received a call from an interested buyer. A $13,000 offer was made and the property sold for this amount. Shortly after the sale the buyer began cutting down trees to clear the lot.
The buyer’s intention was to log the property and profit from the timber. Smith Realty knew of this as they had sold other lots in the neighborhood to this buyer for the same purpose. The buyer was half way done clearing the lot when the sheriff visited the property and advised the buyer that he was trespassing. It turns out that Mary Smith had missed a few pins in between the lots and placed her sign on the wrong lot!
The result
The buyer was arrested for trespassing and cutting down trees that did not belong to him. The owner of this lot sued the buyer and Smith Realty. The buyer in turn made a cross-claim against the real estate agent.
The case went to trial and the jury found both Smith Realty and the buyer liable for the claimed damages. The verdict against Smith Realty was appealed by the plaintiffs, who felt that the court made an error in the jury instructions and that they were entitled to treble damages against Smith Realty based on consumer fraud claims. The matter was appealed to the state Supreme Court, which found the verdict appropriate and concluded there was no error on the part of the court. The judgment was paid, which totaled $35,000 with accumulated interest. Over $55,000 in legal fees were incurred. Smith Realty also paid the buyer’s portion of the verdict in exchange for a release of their cross claims. It took seven years to bring this case to conclusion.
Risk factors
Risk factor #1
In this case, the real estate agent should not have assumed the duties of a surveyor in identifying the property boundaries. The agent should have recommended that the seller obtain an updated survey prior to listing the property. The listing agreement may then need to specifically note the recommendations given prior to the agreement, such as the survey in this case. Additionally, prior to closing, she also should have advised the buyer of the need to consult a current survey regarding the lot boundaries prior to clearing the lot. These recommendations should have been made in writing with the involved party signing off, regardless of whether or not they chose to heed the advice.
Risk factor #2
While it was not a factor in this case, real estate agents are obliged to advise their clients to the extent they are aware of the existence of valuable surface or mineral rights on properties they have been engaged to sell. Had the client in this case not been informed of the fact that valuable standing timber existed on the property, the agent also could have faced claims from her client alleging that she conspired with the buyer to withhold this information to allow the buyer to purchase the property at a reduced price.
*The claim scenario is strictly documented for illustrative purposes only and provides an example of what a policy could cover. It is intended to provide a general overview of the program described. Please remember only the insurance policy can give actual terms, coverage, amounts, conditions and exclusions. Program availability and coverage are subject to individual underwriting criteria.
