Insurance agents and brokers place a wide range of real estate related professional liability insurance, including agents, mortgage brokers, appraisers and property managers, and may be wondering how the downturn in the residential real estate market may be impacting these professionals’ E&O insurance.
Market volatility can create situations where a buyer or seller suffer a real or perceived financial loss, and may attempt to hold a professional responsible. Today’s real estate market is characterized by volatility: higher inventories, falling prices and uncertainty. This has lead to real or perceived loss in value by recent purchasers and current sellers, and may not able to realize the value in their real estate holdings that they expected. This causes professional liability claims.
The most obvious targets are real estate agents, and one of our underwriter commented:
Claim situations may arise as they blame their real estate agent for their perceived loss compared to market pricing a few years ago. Conversely, it prices rise after a sale, sellers may blame their brokers for negligence in misinterpreting the market.
Mortgage brokers are also a target, and may be exposed from two directions. The rise in mortgage rates resulted in more real estate owners and buyers utilizing adjustable rate mortgages (ARMs), and declining values may make it more difficult for owners to get out of difficult financial situations caused by ARM adjustments. The mortgage broker will be exposed to negligence and predatory lending claims when losses occur. Our underwriter offered the following example:
The year is 2003 and a potential home buyer, Mr. Joe Smith, asks a mortgage broker advice on how to finance his dream home. The broker responds that Joe could indeed purchase that fine house by taking advantage of a wonderful product called an adjustable rate mortgage. The interest rate would be very low. The only caveat is that in 4 years the interest rate would increase to market levels. But so would Joe Smith’s income! Four years later arrives and sadly Mr. Smith’s salary has not increased. His monthly mortgage payment has now skyrocketed along with gasoline prices and credit card debt. Foreclosure looms. The once happy buyer blames the mortgage broker for negligent advice and threatens a lawsuit.
eSpecialty Insurance is your specialty insurance expert. We have developed a streamlined marketplace to provide multiple proposals from a range of competitive insurers, along with expertise to help you evaluate your exposures and choose the best combination of comprehensive coverage and price. We look forward to working with you.
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