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Risk management from Pearl Insurance

 August 04, 2017

After being laid off by his employer, a homeowner was no longer able to make mortgage payments. Because he was seeking employment in an industry lacking comparable job opportunities, the homeowner was facing the certainty of foreclosure. He sought out a real estate agent to discuss whether it would be better to rent or sell the property. The agent advised the homeowner to sell the house and temporarily move in with relatives until he found a new job.

Problem: The principal balance of the mortgage was more than the market value of the property.

Mistake: While working with this struggling homeowner, the agent recommended a short sale without consideration of all other alternatives.

Result: Several months passed before the seller entered into a purchase and sale agreement with a buyer, but during the escrow period, the seller learned there were other available options besides selling or leasing the property, including foreclosure, deed in lieu of foreclosure, bankruptcy and loan modification. The seller tried to rescind the contract, leading to a lawsuit by the buyer seeking specific performance. The seller then filed a third-party lawsuit against the agent, alleging negligent advice.

Prevention: To protect himself and the seller, the agent should have recommended his client see an attorney and an accountant before making any decisions. Furthermore, the agent should have documented in writing that these recommendations were made before a listing agreement with the seller was executed.

A decision should be made early on, with the understanding that experts like attorneys and accountants can provide worthwhile advice to clients and help facilitate the process.

Pearl Insurance can help! Contact a Pearl Insurance specialist at 800-289-8170 or visit www.pearlinsurance.com/eo to learn more about how Pearl can help you practice real estate risk-free.

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