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Hand reviewing housing contract.Today’s “Ask the Expert” column features Michael Ryder, the National Program Director of Specialty Programs with Norman-Spencer Agency, Inc.

Q: As a real estate professional, what steps can I take to ensure I’m not exposing myself to non-covered liabilities?

A: Brokers and agents often enter into contracts that contain an indemnity clause, assuming that these clauses are inconsequential and/or boilerplate at best. Nothing could be further from the truth. While nearly every contract typically contains an indemnity clause, some, such as REO Listing Agreements assigned by a bank (or the bank’s asset manager), often require the broker or agent to assume any and all liability…not just for the liability associated with negligent acts, errors or omissions attributable to the services that the broker or agent actually preformed in the transaction. In essence, the agent or broker is agreeing to assume liability that may not otherwise have attached to them and for which they would not typically be assigned responsibility.

Most Real Estate (Professional Liability) Errors and Omissions policies contain a Contractual Liability exclusion, which excludes “liability assumed by the ‘Insured’ under any contract or agreement, unless such liability would have attached to the ‘Insured’ even in the absence of such agreements.”

For example, if the terms and conditions of the REO Listing Agreement require the broker or agent to hire and oversee any repairs the property needs to bring it up to code and/or into good condition prior to marketing it for resale, the broker or agent may be assuming the role (and liability) of a Construction Manager; such services are not typically roles (and liabilities) associated with the definition of professional services of a broker or agent in Real Estate (Professional Liability) Errors and Omissions policies.

Therefore, before entering into an REO Listing Agreement with a bank (or the bank’s asset manager), the broker or agent should carefully review its Errors and Omissions policy with a qualified real estate attorney, paying special attention to the indemnity clause, to satisfy themselves that they’re not assuming liability that would not otherwise attach (to them) in the absence of entering into such contract or agreement.

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