The facts
Mr. and Mrs. Brown decided to downsize after their children moved out of their west coast, ocean view home. To market their home, they enlisted the help of their good friend, Jane Smith, who was also a licensed real estate agent.
Because of the home’s desirable location and move-in-ready appeal, it sold quickly to new owners, Mr. and Mrs. Williams. The new owners were initially leery of purchasing a home so close to the waterfront, but the Brown’s signed disclosure statement, which noted they were not aware of any problems with the property, drainage or flood problems, or any condition that would adversely affect the quality, safety, soil or physical structures, gave them peace of mind they had made a solid investment.
Shortly after the new owners settled into their new home a series of strong storms pummeled the area. The Williams’ awoke one morning to find their backyard gone. The property had experienced a catastrophic landslide that destroyed their backyard, including a patio area and retaining wall. The Williams’ immediately contacted their local municipality for help. The municipality advised they had record of a previous landslide at the property’s address. Further investigation revealed the previous owners, Mr. and Mrs. Brown, had an engineering firm access the property following the first landslide. The engineering report on file stated the land was unstable and that future movements could occur at any time.
At no point during the sale of the home did the Browns or their real estate agent disclose to the Williams that the property had previously suffered a landslide.
The result
The Williams filed suit against the Browns and Jane Smith. The Williams sought $2 million to properly remediate the backyard to prevent future landslides and cover the cost to reconstruct the patio and retaining wall that were destroyed in the landslide.
The suit eventually settled out of court for an undisclosed sum.
Risk factors
Risk factor #1
When selling properties a real estate professional should be aware of site conditions that may impact a property. Waterfront, ocean view homes are susceptible to flooding and soil issues. Jane Smith should have reviewed the disclosure statement with the sellers to make sure any issues with the home or property were disclosed.
Risk factor #2
Having a client sign a disclosure statement does not absolve a real estate professional from disclosing any knowledge he or she may have about a property or locality. A real estate professional is held to a high standard of care and can be found negligent for not disclosing anything that a reasonably prudent real estate professional practicing in the same locality should have disclosed.
*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.
