What do you think are some of the leading causes of errors and omissions claims?
Insurance company professionals frequently cite a lack of documentation. As I probe further, it becomes apparent that a lack of documentation is not an actual cause of E&O claims but rather a factor that makes defending claims more challenging. Keeping documentation is a means of reducing your liability and alleged negligence with non-disclosure, misrepresentation, and other claims.
If you were asked to produce documents for a claim based on a transaction you closed last week, that information would hopefully be readily available. The issue, though, is most claims surface six months to a year after closing—sometimes two to three years after closing. Would you have voicemails, emails, or documents for a transaction you closed in 2019?
When you receive a phone call, it’s important to follow up that conversation with an email or documented summary. Mr. and Mr. Buyer call and say they would like to offer $50,000 over asking price and waive the appraisal option. A follow-up email should state, per our conversation, we will increase your offer from X to Y and waive the appraisal option. I also recommend you get into the habit of answering the “next question.” In this case, I would answer what waiving the appraisal option means: If the house appraises for an amount lower than your offer, you will need to come up with more money for the down payment.
We see frequently where agents have stated that they advised the client but have no proof of it. For example, an agent may advise a client to take certain steps, such as getting a home inspection or paying for a home warranty. Texas REALTORS® offers forms to ensure clients receive information about these aspects of the transaction. These forms, if provided and signed by the receiving party, can serve as acknowledged notice on such issues. A good example is the General Information and Notice to Buyers and Sellers (TXR 1506), which provides parties with information regarding home inspections, home warranties, and other aspects of the homebuying process and provides the agent with helpful documentation.
If voicemail, email, and text weren’t enough, you now have to consider Zoom, Microsoft Teams, WhatsApp, and Facebook Messenger. It’s very important to have a central holding spot to house your key communications. Unfamiliar with how to email yourself a voicemail? The instructions are fairly easy to follow if you research online. Screenshots of texts and social media messages can be sent to a central location as well.
Consider investing in a backup system for your data. I recommend online or cloud-based backups. If your hard drive ever crashes or your computer gets infected with ransomware, it may well be the best money you ever spent.
Finally, it is important to keep your documentation for seven years. The statute of limitations can vary by the type of claim. TREC requires license holders to keep eight types of records in an accessible format for four years from the closing or contract termination date. The statute of limitations for a breach of contract is four years, but an injury claim is two years. Either is possible when dealing with real estate transactions. The question surfaces, though, as to the start date for determining the statute of limitations. This is why it is important to keep documents beyond the statute of limitations.