Are Florida Real Estate Brokers Liable For The Harm Caused by Their Agents?

Posted By on January 19, 2016

Florida residential real estate brokers operate businesses that are heavily regulated. It makes no difference if they are affiliated with a large national chain like Coldwell Banker, Century 21, or RE/MAX, or they run a local operation.   Every single real estate broker operating in the State of Florida has to comply with our real estate laws.

Florida Real Estate Brokers And Agents Operate Under Legal Oversight

Some of the legal requirements for brokers and agents may be found in Chapter 475 of the Florida Statutes.  There, the law mandates that all brokers and agents obtain a license to operate as a real estate professional here and to take the necessary steps each year to keep their license active and current.  This includes taking classes to make sure they are current with the real estate industry, as well as paying dues.

Florida real estate professionals also have to adhere to all of the regulations established by the Florida Department of Business and Professional Regulation (”DBPR”). If they fail to do so, they can lose their business, their license to sell real estate and, in some instances, face criminal charges.

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Why are there specific laws for Florida real estate professionals?

These laws and regulations are needed to protect Florida home sellers and buyers. That’s because of past bad acts by real estate professionals. Florida case law is filled with court cases involving buyers and sellers who were hurt by unscrupulous real estate agents and brokers.  For more on bad acts by Florida real estate professionals check out some of our past posts, including:

It’s understandable.  Particularly in tough economic times, where the real estate agent is working on commissions to make a living.

Real estate commissions can be in the thousands of dollars, or even tens of thousands of dollars. With those big sums of cash comes a great temptation for real estate brokers and their agents to do unethical or illegal things in order to grab those dollars.

Do Brokers Have Insurance To Cover Harm Done To Buyers And Sellers?

Surprisingly, there is no state law here in Florida that protects sellers and/or buyers by requiring that a real estate broker or agent have sufficient funds to cover a damage claim in the event of a loss.

Florida law has no legal requirement that real estate brokerages have insurance in place to cover the risk that the broker or one of his or her real estate agents financially injures someone. However, it’s considered a smart business practice for a real estate professional to have this type of insurance coverage. Most do.

What is covered under this insurance? These insurance policies cover both the acts of the broker as well as their agents on staff. The insurance is called “error and omission” coverage and claims are made against these insurance policies when someone has been financially or physically harmed by the actions of the broker or agent. E&O insurance coverage covers mistakes – not intentional acts. And, the amount of coverage purchased is a business decision left to the individual broker and/or agent.

Who Pays for the Harm Caused By A Real Estate Agent?

The Florida real estate industry is notorious for bad acts against buyers and sellers. The Foreclosure Fraud crisis exacerbated this problem. Many home buyers and sellers have been financially targeted by desperate or greedy real estate professionals, despite the laws and regulations in place to try and prevent this from happening.

However, to be fair, it’s usually a rogue real estate agent who is more likely to fall prey to temptation and do the wrong thing, not their broker (and not all agents). So, what happens if the Florida real estate broker wasn’t in on the scheme? If a real estate agent does the wrong thing, can their broker escape responsibility by claiming ignorance?

Under Florida law, brokers are liable for the actions (or inaction) of the agents who work for them. That’s seen as part of their duty in overseeing agents who are out there hustling on the streets to bring in deals for their company.

The Case of the Florida Real Estate Agent, the Oral Listing, and the Hidden Tax Cloud

In the case of Fraioli v. Bobby Byrd Real Estate, Inc., 630 So. 2d 1131 (Fla. Dist. Ct. App. 1993), the brokerage involved was Bobby Byrd Real Estate, Inc. (Byrd), and a man named Harjit Singh working for Byrd as a real estate agent.

Agent Singh went into business with a man named Dominic Fraioli to run a restaurant together. Mr. Singh and Mr. Fraioli went out and found a property they liked which they considered to be a great spot for a seaside bar and grill — and they signed a 10 year lease on the place, with a right of first refusal to buy the property when the lease expired.

The listing for this property was with Byrd Real Estate. So, while he was employed by the broker representing the seller, Mr. Singh used his real estate skills to negotiate the deal with the seller for he and his buddy to buy the place. The contract was signed. Singh got $60,000 in commission.

The two new restaurateurs went to work to get their new seafood place ready for business. However, things were not to be — it wasn’t too long after their Grand Opening that the State of Florida Taxing Authorities came on the scene, demanding payment for delinquent back taxes. When no one wrote them a check, the state authorities levied upon the new restaurant and seized the property. Which means the real estate was taken to pay the back taxes (and all of the improvements made to the new oceanfront restaurant).

Understandably, Dominic Fraioli was upset. So upset that he sued both Byrd and Singh for damages.

Mr. Fraioli argued that he was a victim of fraud. First, Byrd had fraudulently induced him to sign that lease/option to buy agreement. Byrd, he argued, had done this by puffing up its fair market value as well as misrepresenting what the title search revealed.

It seems that the Title Search showed all those pending taxes and tax liens on the land, and no one bothered to share that with Mr. Fraioli.

Of course, Mr. Singh had seen the title search. Byrd tried to avoid responsibility for its real estate agent by arguing that he was acting as part of a private venture between the two men. Byrd wasn’t involved in the restaurant business.

Officially, Byrd filed a defense that Singh “had no authority, express, implied, apparent, or otherwise, in his capacity as an agent of Bobby Byrd Real Estate” to hide the information from his business partner.

So what did the Florida court decide?

The broker had to take responsibility for its agent’s actions. It did not matter that Byrd wasn’t involved in the seafood business, Byrd WAS involved in the real estate brokerage business. And Byrd got a hefty commission — all because Singh closed the deal.

In its decision, the Florida court pointed out this “principle of long standing” in Florida:

[w]hen an agent acts for his principal, and the principal accepts the fruits of the agent’s efforts, the principal must be deemed to have adopted the methods employed, and he may not, even though innocent, receive the benefits and at the same time disclaim responsibility for the means by which they were acquired. Fredrick v. Squillante, 144 So.2d 848, 849 (Fla. 2d DCA 1962) (quoting Chase v. Sullivan, 99 Fla. 202, 126 So. 359 (1930)).

What Should You Do?

If you or a loved one have been victimized by a Florida Real Estate Agent or their Real Estate Broker in the purchase of a home or in the sale of your house or condo, then you may have legal remedies available to you to recover your damages.

Of course, you can file a complaint with the Florida Department of Professional Regulation  for what has happened to you.  That complaint can result in discipline (even loss of license) of the broker or agent.  You  can learn more about this at www.MyFloridaLicense.com or call the DBPR at 1-850-487-1395.

However, what if you have been financially harmed?  A good piece of advice is to at least speak with an experienced Florida real estate attorney who can review your case before you file a complaint or file a claim. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions, including how insurance companies usually respond to these claims.

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Picture of Larry Tolchinsky

Do you have questions or comments? Then please feel free to send Larry an email or call him now at (954) 458-8655.

 

 

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