Real Estate Malpractice Claims on the Rise

Three valuable lessons you can learn from others’ mistakes.

I was recently reading an article by Meredith Hobbs in the Atlanta Daily Report entitled, “Failed Real Estate Deals Driving Malpractice Claims.” I’ve included a link below. While the article focused on professional liability suits due to the commercial real estate bust, there are some good general lessons that may help you avoid the same perils in your own business.

Although Confucius said that we should “be not ashamed of mistakes and thus make them crimes,” in our line of work that is not necessarily the case. In addition to the typical claims that are probably covered under your E&O insurance, the article mentioned plaintiffs also claiming fraud and racketeering to intimidate the attorneys.

Here are three things you can do to avoid these types of claims:

• Will the real client please stand up? In a situation where you are involved with several parties, “The attorney wasn’t looking out for my best interests” is an often quoted line when the business deal goes bad. Get it in writing. Keep it current. These are good mantras for everything we do, especially when working with multiple parties in a dynamic environment.
• The devil is in the details. The article discussed how the “trash loans” that were selling so fast during the housing boom became malpractice targets when the bubble burst. Even in today’s boom markets like internet and technology, assume the worst – everything you do will be scrutinized at some point by a party with malicious intent. Don’t let a client pressure you into rushing a deal today that could cost you later.
• Avoid failure at all costs. Well, at least be very careful when dealing with failing businesses. The article compares them to drowning people who lose all sense of rationality in their quest to stay alive. If the business fails, you may become a prime target for any creditors trying to recover money from “anyone in the neighborhood.” Special care is required.

While the real estate bust seems to be bottoming out, it’s time to make sure your oversight, attention to detail, and client documentation are all in peak shape.

Douglas V. Chandler

If you have a subscription to the Daily Report, you can find the article by clicking here.