Almost 55 percent of survey respondents indicated that short sales were the basis of a significant number of current disputes. Moreover, 76 percent of those who ranked this issue placed it among the top three of their expected future issues. This was just one of the significant findings reported in the recently-released 2011 Legal Scan: Legal Issues Facing Real-Estate Professional, published by the National Association of Realtors® (NAR)

The Legal Scan was initiated by the Legal Affairs Department of NAR in 1996 and first came out in 1997. Since then it has been updated every two years. "For the 2011 Scan, a survey was e-mailed to 2055 selected individuals in the real estate industry ... ." Recipients of the survey included selected (not random) agents, brokers, real estate attorneys, real estate educators, and members of NAR's Risk Management Committee. There was a 19 percent response rate to the survey.

Agency retained the top ranking among the groups of issues that caused disputes. Within that general category, fully 83 percent of respondents placed dual agency among their top three current issues. Typical of respondents' comments was this: "Licensees are not well-enough schooled on what they can and cannot do as dual agents! They don't know well enough what they can say, or must not say between the parties." Breach of Fiduciary Duty also ranked high within the Agency category, with 71 percent indicating it was among their top three issues. A typical respondent comment was "Too many agents forget who they work for and the full bundle of responsibility we owe to the client."

Another traditionally high-ranking category of problem areas is Property Condition Disclosure. This includes both physical and non-physical conditions, so short sales were included here. Of the 55 percent of respondents who indicated that short sales were the basis of a significant number of disputes, 76 percent placed them as among their top three. With respect to the "traditional" problem of failing to disclose physical defects, it was noted that short sale sellers tended to see no benefit in disclosing problems. Moreover, the typical insistence on as-is sales in these situations "has resulted in a decline of quality of seller disclosures."

Disclosure problems also arise from the failure to disclose that a property is, or is soon likely to be, in a short sale situation. Additionally, problems arise in the short sale arena because, as one respondent put it: “Too many agents are dabbling in short sales without training and are not properly advising sellers of options and recommending legal counsel.” There seems to be broad consensus that future lawsuits will be the result of such situations.

REO sales are also leading to problems. Nearly 60 percent of respondents indicated that they believe that REO-related disputes will increase over the next two years, and 76 percent said they believe it will be among the top three issues they will face. Again, lack of disclosure is the big problem; although with REOs that is more likely to be related to physical than transactional issues. Survey respondents blame not just the banks, but also REO listing brokers for frequently failing to disclose material defects of which they had knowledge.

An interesting aspect of the survey results is that many participants indicated a strong need for training in various areas, even though these may not have among the most frequent causes of disputes. Primary among these were RESPA, Fair Housing, and Anti-trust.

The survey also queried about cases leading to damages. New York was the winner here, reporting 11.39 percent of the total. Pennsylvania and California followed with 8.86 percent and 8.23 percent respectively.

What categories of suits cost the most? The leading damages award was a Breach of Fiduciary Duty and Fraud case. The award was $2,709,587. A Fair Housing (Race Discrimination) case came in second with an award amount of $2,416,000.

Be careful out there.

Published: July 26, 2011

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .