The facts
As a newly married couple, the Davis’ decided to buy a townhouse together. They decided to purchase a home that was being constructed and developed by Watson Townhomes, LLC and listed through Lock & Holmes Realty, Inc. Ms. Harris, the listing agent for the townhouse, as well as the developer for Watson Townhomes, LLC, assisted the Davis’ with customizing their townhouse options before the construction and development of their new home began.
About six months later, the Davis’ closed on their finished townhouse and paid up-front, three months of dues for the Townhouse Owners Association. A month after settling into their new home, the Davis’ were notified by the county that their property, as well as their community, had defects. They were told a site development activity permit or an occupancy permit had not been issued for their townhouse as well as many of the other neighboring townhouses. At closing, the Davis’ received a one year warranty from the seller that was supposed to take care of any defects that arose. When they tried to contact Ms. Harris about the defects and the permits, she was nowhere to be found. They were informed that she left her job at Lock & Holmes Realty, declared personal bankruptcy and fled the state. Since Ms. Harris was unable to be located, she and Watson Townhomes were not able to honor the warranty.
The Davis’ also discovered the Townhouse Owners Association they paid dues to, was never created and in fact, did not exist. The Davis’ filed suit against Ms. Harris, Watson Townhomes, Lock and Holmes Realty, and the title company. The Davis’ were seeking rescission, attorney’s fees, and compensation for their damages. They claimed fraud and intentional misrepresentation and alleged Ms. Harris violated their rights under the Consumer Protection Act.
The result
As a result of Lock & Holmes Realty having the Construction/Development Endorsement with a $100,000 sublimit on their E&O policy, a defense was provided for Lock and Holmes Realty and for Ms. Harris, but only for her acts and omissions in providing professional real estate services, and not for her acts or omissions as a contractor or developer. The matter was resolved at mediation with a settlement of $50,000. The cost to defend the matter was $20,000.
Risk factors
Risk factor #1
Having an agent who is assuming multiple roles in a transaction is opening the firm up to a greater risk and higher liability.
Risk factor #2
The listing agent should have known that the permits were not issued. With supervision and a separation of roles, the lack of the permits would have been brought to everyone’s attention.
Risk Factor #3
In states where the Consumer Protection Act is in place, the consumer can receive triple the damages.
*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.
