It's about risk management. If you aren't logging your calls, FAX confirmation sheets, and e-mails into a communications file on a regular basis, you could be at a disadvantage if a claim is filed against you or you are called before an arbitration panel, says Florida attorney Hank Sorenson.

As the former in-house attorney for Arvida Realty now in private practice, Sorenson has plenty of experience in helping brokers and agents avoid claims, and representing buyers and sellers and real estate professionals in lawsuits and at arbitration hearings on both the plaintiff's and defendant's side of the table.

"In my experience, the buyer most often thinks of the broker as a guarantor of the condition of the house, regardless of what the signed documents say," says Sorenson. "The buyer then attempts to play on the sympathies of the broker to get a later concession. This also results in claims being made after closing (sometimes several months afterward) for big ticket items such as air compressor units, roofing, etc."

Lawsuits are trickier in Florida because it is a large absentee-owner state, which means that often owners don't know much about their own properties. If they don't know anything, buyers expect brokers to know, and if no one knows, then buyers can assume that someone deliberately failed to disclose property faults.

A typical case-in-point is one Sorenson litigated over the course of several years. "Buyers believe that brokers should know the specifics of a property," he says. "I litigated a flooding nondisclosure and the sole basis of the suit was that because the agent lived one-fourth of a mile away, she should have known that the buyer's property had a propensity to flood."

The buyer may have a home inspection, but inspections don't reveal a propensity to flood.

"It is a condition of the property, and the state says that latent defects have to be disclosed," explains Sorenson. "The family closed in November and the first rain in April, they are standing in ankle-deep water in their living room. If the seller lives in Michigan, and it didn't rain in the two years they owned the property, then the seller doesn't know the property might flood. But you're looking at a photo of the family, with the parents holding their kid's hand while they are standing in water, and the insurance company will pay the claim. It is economic blackmail, but if you are a carrier, you don't want to risk those pictures being shown to a jury."

So what can a broker and agent do?

"Paper the file is the only thing you can do," says Sorenson.

But that isn't as simple as it sounds.

You have to keep communication logs that are accurate enough, detailed enough, and habitual enough that you will look strong in front of a judge, jury, or panel. And the more holes in the chronology, the worse your case looks, even if you are innocent because you don't have the business practice of keeping good records.

"The first thing a competent attorney will do is try to establish chronology," advises Sorenson. "Who knew what and when did they know it? Then they will use the chronology they have to piece together a case."

Unfortunately, most brokerages keep lousy records, and it comes back to haunt them. Most brokers only keep the mandated documents such as the listing agreement, surveys and inspection reports. The agent may keep some communication records, but may destroy them after closing. What's needed, says Sorenson, is a complete communications file.

"I just had a $25,000 escrow dispute that I was able to settle out favorably to my client," says Sorenson, "based on the broker's communications log. The broker was meticulous about writing down the substance of communications. He was able to show that the financing contingency had been complied with, and there were two entries in the communications log to that effect."

Keep detailed, timely communications log

Can you prove someone called you and told you something? Not necessarily, but you can prove credibility through consistent work habits.

Sorenson explains, "In Florida, there is a hearsay rule that prevents documents like communications logs from being introduced in court, but the exception is the business record. If it can be proven that a communications log was prepared by a person with knowledge of the file or subject matter, that it is prepared contemporaneously with a phone call, (same day or morning after,) and that keeping a communications log is the regular practice of the broker to make such a business record, then the communications log will be allowed."

Keep FAX communications

Another way to establish the routine of a brokerage is to use FAX confirmation sheets to corroborate other evidence. But if you're going up against Sorenson, you'd better be certain the date and time stamps are correct on all your documents.

"I introduce a FAX confirmation sheet as an exception to the hearsay rule," says Sorenson. "I'll attack it. 'Isn't it true that you have never checked whether your FAXes have the correct date and time stamps?'"

"I do it every Monday morning."

"'How many times has it been incorrect?'"

"Three times in the last two years."

"The jury's perception is reality," rests Sorenson. "This is a credible witness. If the broker has implemented procedures and in two years they have three wrong FAX reports, it can't get better than that. If the broker has a maverick agent who runs renegade and doesn't keep FAX confirmations, the broker is going to get punished."

Keep copies of e-mail communications

A common misconception is that e-mails float in cyberspace forever and that they will be there to retrieve if you need them. But the reality is that servers break down and get replaced, e-mails get deleted, or never delivered, and agents move to new companies without taking e-mail records with them.

Without some technological forensics, it is sometimes difficult to prove that an e-mail communication ever took place.

Make print copies of e-mails for the communications file.

Communications logs, FAX communication copies, and e-mail copies can all be used to determine and support a timeline of events because each can help fill in the blanks of who knew what and when. Many times, if presented with detailed evidence, the other side will fold its case.

But starting a communications record can be harder than keeping a teenager's room clean.

"It has to come from the top down," says Sorenson. "that this is the way you want records kept, and that's it."

One idea is to keep a permanent file and a working file. That way an agent can have access to the records she needs while in the field, but those records she produces always go into the permanent file.

"The broker file will be less complete than the agent file, and the agent will keep unimportant documents in their file instead of transferring them to the broker's file," says Sorenson, "but you don't know until later which documents are going to be important. If you got a call from the seller about a small dry rot repair, and it never makes into the brokers' file, and a termite issue comes up, then the only evidence that the seller might have been thrown away by the agent. The broker has to mandate one file on a transaction."

"There should be a shift of emphasis from the broker's file and agent's file to a permanent file and working file," says Sorenson. "Then the broker will have all the documentation necessary to defend any claim."

Published: December 3, 2003

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