I don’t know who you are, but we’re not falling for it!

At Berlin Patten Ebling, we do many closings. Like, a lot. One of the benefits of being so plugged into the real estate market is that it allows us to see trends as they are developing – both good and bad. One of the disturbing new trends that we have seen is an increase in fraudsters posing as property owners and attempting to sell property that they do not own. A previous blog we’ve authored provided some excellent advice on what real estate professionals can look out for to prevent this type of fraud. Since then, several agents have reached out to ask whether they may potentially be liable if this type of fraud does occur.   

Is a Broker Potentially Liable if Fraud Does Occur?

In short: yes. A buyer who experiences damage by the action of a fraudulent seller will be looking to be made whole by whomever they can find. Unfortunately, the fraudulent seller is not a good target – they have likely covered their tracks well enough to escape detection, and the funds they received are probably long gone. That leaves the buyer looking to the Broker, and the Broker’s errors and omissions insurance policy, to recover.  

What type of claim may a buyer bring against a broker? 

Most likely, if the Broker was acting as a transactional broker, the buyer will point to the statutory duties owed in that type of relationship; specifically, the responsibility set out in Florida Statute 475.278(2)(c) to “[use] skill, care, and diligence in the transaction.” A negligence claim is also a possibility. 

However, buyers are not the only parties who may pursue a claim against a broker. One of the risks that title insurance policies protect against is that title is defective due to fraud or a forgery. If a buyer claims a title policy that pays out, the title insurance company can pursue any persons they feel share responsibility for the loss.    

How can a Broker Protect Themselves?

  1. Talk to your insurance agent to ensure that your E&O policy would cover this type of claim. 
  2. Actively vet your sellers. If you have no existing relationship with them, spend some additional effort to confirm that they are whom they say. Ask for multiple forms of identification, and spend some time reviewing what they provide. Make sure that you speak with them on the phone to discuss the property and its history.   
  3. Pay special attention to deals for the sale of vacant land. Fraudsters target that type of property because it is less likely that someone living there will catch on to fraud. 
  4. Pay special attention to foreign sellers who are hard to communicate with (“just email me, I’ll be in meetings” or “don’t call me, I’ll call you when I’m available”). 
  5. If you get a “weird” feeling about a seller, listen to it! This type of fraud is varied, and there is no single way to catch it. If something feels off to you, it probably is. 

If fraud does occur, remember that a speedy reaction is essential. Reporting the scam to the proper authorities can distinguish between stopping the transfer of ill-gotten funds and having a buyer’s money go poof. If you have any questions regarding this blog, reach out to your trusted real estate attorney for legal advice. 

 

Sincerely,

Daniel Guarnieri, Esq. dguarnieri@berlinpatten.com

Daniel has broad-ranging civil experience including complex commercial litigation, real property disputes, contract disputes, commercial collections, commercial foreclosures, local government representation, construction litigation, and maritime litigation. He also has considerable experience in assisting clients with business entity formation, business transactions, regulatory and compliance counseling, and other business representation with an eye towards avoiding litigation.

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