Powered by Google

Search form

Member Alert! : The Liability of warnings

June 1, 2005

By F.P. Maxson

A member calls to report that a prospective buyer is behaving suspiciously during a property showing; do you warn the membership? You hear of a toxic spill near properties listed in the MLS; should you alert the listing brokers?

Many associations have become early warning systems for members, alerting them to anything from suspicious characters posing as homebuyers to con artists burglarizing homes during showings to hazards potentially affecting properties. Yet there's a legal risk to trying to do the right thing, as some associations have learned firsthand.

Over the past few months, NAR Legal Affairs has received calls from associations that have been threatened with lawsuits and others that have gone through litigation because of warnings they issued to their members.

There are many groups that could bring lawsuits against associations for the warnings they issue. Individuals who feel warnings defamed their character and property developers who feel warnings interfered with a sale are just two examples.

So what's an association to do?

Create a policy

The first step an association should take is to create a clear written policy for issuing warnings and notices to the members. Such a policy will help ensure that an association's efforts to safeguard its members won't leave them open to legal risk. The policy should detail the circumstances under which an association will provide a warning to the members, specify the required content and tone of the warning, and outline the process for issuing the warning.

In addition, the policy should address whether the association will place restrictions on the scope of its warnings. For instance, will it limit warnings to purely MLS- and association-related issues or cover broader community issues that may impact the members. Policy makers should keep in mind that the broader the policy, the greater the potential for litigation.

Proper warning format

The next step is to create a warning template. The warning should be neutral in tone (never judgmental) and should never offer specific legal advice to members. The warning should be based entirely on facts and cite outside resources where members can learn more about the issue (such as the local police Web site or the local newspaper). Any policy that poses a liability threat to the association should always be approved first by the association's board of directors. Finally, AEs should always have the association's attorney review any warning statement before it's published.

According to Jerry Panz, cae, rce, of the Wilmington Regional Association of Realtors®, N.C., its warning policy is very simple: Refer directly to the police all member complaints about individuals acting suspiciously. If and when the police open a file on the complaint, the association will send a warning to all members with basic information about the complaint and the investigating detective's phone number.

Issuing a warning

Below are four potential warning scenarios and an analysis of the issues raised by each.

* Suspicious behavior

Three members report having a "bad feeling" about an individual who's interested in visiting only high-end properties.

How should you provide a warning? The association should contact the police first. If authorities open a case, the association can then provide members with factual information about the police investigation. Provide the individual's name only if the police report also lists the name. A description may be given but should be drawn directly from a police source if possible. Finally, the association should direct all further inquiries to the police.

* Con artist on the loose

A fellow AE calls to warn about someone scamming his members and believes the individual is now targeting your members.

Do you warn members to be careful when doing business with the individual?

First, ask the other AE the source of the information and determine whether a complaint has been filed with the police in the other AE's jurisdiction. If a complaint has been filed, you could provide members a notice about that complaint and direct them to the investigating detective. If no complaint has been filed, you would be wise to obtain some type of evidence of the scam before reporting it to your members, such as court records (but not pending lawsuits), local police reports, or newspaper reports. The bottom line here is that you can't rely solely on the word of another AE or member, that is, unless you want to open the association to litigation.

*Hazardous waste spill

The local paper reports a large toxic spill near properties for sale. How can you warn members about the toxic spill and the possible dangers it may pose to properties in the area?

Think of the notice to members as an educational tool. It should be drafted carefully, containing only factual information from cited outside sources so that members can direct their clients' inquiries to a third-party source.

*Deadbeat tenant

A member who had an unpleasant experience with a former tenant wants to warn fellow members about the individual.

Should you provide such a warning?

This type of warning is risky, since your source may not be unbiased. Work closely with your attorney before making such a warning.

If the member has obtained a judgment against the former tenant, you could issue a warning based on those facts. However, the association should not disclose if the former tenant has filed for bankruptcy, as there are penalties related to stigmatizing a debtor.

Ultimately, issuing notices and warnings can be a valuable service to members and the community despite the risk. Follow the tips above to minimize your exposure while keeping your members safe and profitable.

A warning to members . . .that could get you sued

Attention members!

A suspicious man in his mid-30s going by the name Jack Smith has been attending local open houses with the intent to burglarize them. He's been lurking around several open houses on Saturdays. This man could be dangerous. He is Caucasian, with a dark mustache, and has been seen wearing blue jeans with a tan suit coat over a white shirt. If you see him, call the police.