Realtors getting hammered by barrage of lawsuits; number of suits filed by upset home buyers doubles.

Residential real estate agents and brokers in Los Angeles are up in arms over what they call a flood of spurious lawsuits against them. The problem has escalated so much since the real estate downturn that L.A. agents said they now have to wade through complicated documents, consult attorneys frequently and pay outrageous insurance premiums to protect themselves.

"The system is breaking down," said Jon Douglas of Beverly Hills-based real estate brokerage Jon Douglas Co. "People are just sue-crazy."

Agents and brokers said the number of lawsuits being filed by home buyers - for alleged infractions ranging from construction defects, such as leaky roofs, to soil contamination around the home - has doubled in the past three years.

In some cases, the suits are frivolous, agents said, and end up being settled out of court by insurance companies that would rather pay off the plaintiffs than incur expensive court costs.

Agents blamed the high number of lawsuits on plummeting home values, the devastating state of the real estate market in the 1990s and tough economic times in general.

"It's been wearing on people," Douglas said. "People have become more litigious. You don't have the money; you don't have the value that you did. Times are hard; things are tough at the office. And they become more argumentative and more litigious."

Real estate disputes have become so prevalent that the California Association of Realtors, the industry trade organization, is pushing for legislation that would require parties in a residential real estate-related suit to enter mediation as a prerequisite to pursuing either binding arbitration of litigation. That legislation, Assembly Bill 3272, was introduced by Julie Bornstein, D-Palm Desert. The Assembly Judiciary Committee's hearing on the bill is scheduled for this week, April 27.

"We think that mediation is going to help everybody," said Steve Sokol, associate general counsel at the association. "It simply means being forced to sit down and resolve things with a neutral mediator who is going to help them reach a consensus."

Parties who reach an agreement through mediation could petition the court to confirm that agreement, the legislation proposes. If unable to reach an agreement, the parties could opt for litigation.

"Forgetting the time and emotion that you have to spend defending the suit, the hundreds of hours of waking up and worrying if the lawsuit is going to affect your family, the out-of-pocket costs are staggering," Sokol said.

An estimated 85 to 90 percent of the lawsuits filed against residential real estate agents allege problems with the condition of the property, attorneys said. Less-common suits deal with misrepresentation of zoning, property lines or square footage. Most suits are filed within one month after the close of escrow. Only about 5 to 10 percent go to trial, attorneys estimated.

Even a simple suit can cost an agent $2,500 to $5,000 in attorneys fees, which is why brokerage firms are finding ways to fight back.

Bob Todd, owner of RE/MAX Beach Cities Realty in Manhattan Beach, said he became so concerned with the number of lawsuits being filed, he provided his employees with an on-site attorney. Doing so decreased the number of lawsuits against the company by 30 percent, he said.

Todd is not the only residential broker taking precautions, either. "We hardly ever lose any suit," said Douglas, who oversees 38 offices with about 2,000 sales representatives. "That's because we spend a lot of time on how we present these properties and how to avoid these lawsuits. We should be spending more time on how to polish up our skills that will benefit our customers."

Agent Jim Olsen of The Buyer's Agent of Orange County, a company that represents buyers exclusively, said many lawsuits can be avoided by conducting a thorough inspection of the home before moving in.

"Most problems occur regarding the physical condition of the property and come up after the buyer has closed the transaction and moves in," Olsen said. "They discover undisclosed pre-existing problems. As a contractual matter, we insist on a physical inspection by a licensed home inspection company."

But even an inspection can become over-whelming, as was the case with a Mission Viejo home where a buyer Olsen represented found termite problems. The seller agreed to clean it up. In the process of that cleanup, workers found that the problem extended into the home's interior, and they began tearing up the carpet. With the carpet torn up, the buyer more dry rot in the floorboards.

"It comes down to, where do you draw the line?" Olsen said. "You can't tear up the carpet in the house before you buy it. You could go on ad nauseam."

Olsen said he insists on an extended-coverage home warranty, which requires the seller to provide homeowner's insurance for one year after the close of escrow.

Douglas said his company gives out videotapes that explain to potential buyers what their rights are before buying a home.

Besides being ethical, these preventative measures may help avoid a lawsuit down the line, agents said.

Dale Eleniak, an attorney representing about 300 real estate agents, most of whom work for RE/MAX Beach Cities Realty, said he fields about 6,000 inquires a year from agents concerned about current transactions. Many lawsuits arise when sellers fail to disclose material information about their property to either the agent or the buyer.

"The first person they (the buyer) are going to look at (to use) is the selling agent," Eleniak said. "They say, |If you didn't know, you should have' or |Why didn't you know?' People are grabbing onto the first person who will write the check."

In a recent case against RE/MAX Beach Cities, a buyer moved into a home in Redondo Beach and decided he didn't like the wood paneling on the wall. He removed it and found dry rot in the plaster, so he sued.

"There was no way the agent could have known that," Todd said.

Most real estate agents interviewed said they no longer quote square footage figures for home sizes because too often Los Angeles County Tax Assessor's records are inaccurate, and the buyer will sue the agent for misrepresentation.

"Nothing has happened both from a practice point of view or a legislative point of view of limit the area or liability for the real estate professional," Eleniak said. "I think (lawsuits) will increase."

Some blame complicated real estate documents that have increased from one page in 1971 to four pages in 1984 to six pages of small, single-spaced type today.

"Today, it's very complex," Eleniak said. "Agents still, for the most part, have the feeling that it's still business as usual, and it's not. I would like to see an increase in knowledge for Realtors to continue to practice real estate.

"If a contract is properly drafted properly explained to the buyer, the sellers know what they're doing, full disclosure has been made in every instance, the result should be no problems," he said.

Some real estate agents compare their situation to that of doctors who have long complained that they have to pay high medical malpractice insurance premiums because of the vast number of lawsuits.

An estimated 60 percent of real estate agents carry errors-and-omissions insurance to protect against lawsuits, said Jim Allison, vice president and general counsel for La Jolla-based Independent Broker Services Co., a provider of insurance services to real estate brokers.

But premiums for such insurance have gone up as much as 50 percent in the past three years, he said, or deductibles have been increased by a comparable amount. And the number of providers of errors-and-omissions insurance in Southern California has dwindled from about 12 in the late 1980s to about three.

Insurance companies often settle cases out of court, rather than risk a costly, protracted court battle, Allison said.

"You have to look at it as a business decision and settle the case up," he said. "It's straight economics. In a lot of cases, the only people who make money are attorneys."