Subpoenas are on the rise, presenting a serious challenge for real estate brokers. These legal inquiries scrutinize every transaction, email, contract, and note under significant pressure. They pull you away from your core business, whether or not a claim ultimately follows.
Being subpoenaed is a major headache. You may be subpoenaed because of a lawsuit you are involved in, but more likely, you could be served for a lawsuit going on between two other parties. In the second situation, the attorney is primarily looking for details to support their client’s case. However, that attorney is also going to look for any possible way to bring you into the lawsuit, and you definitely want to try to stay out of the litigation.
So never think you can handle a subpoena (even a request for documents) alone. You need legal counsel.
You can take steps to manage the process with confidence and efficiency. In this blog, we look at how subpoenas are being used as investigative tools, what the impact is on real estate brokers and licensees, and how you can better protect your business from these unexpected legal entanglements.
Subpoenas as Investigative Tools
When a claim is filed, subpoenas come into play to uncover the full story behind your records. They are a legal instrument that forces you to either testify as a witness or turn over emails, contracts, and all relevant correspondence to determine whether a claim holds merit. Whether you’re an innocent third party or potentially part of the claim, subpoenas serve as fact-finding missions and may have serious consequences for you and others.
Once you have provided your information (with your legal counsel’s supervision), investigators will sift through your records, building a clear timeline while flagging issues or any missed details. This is why it’s critical to consult with an attorney before handing over any documents.
When Subpoenas Can Be Used in Real Estate
Real estate transactions are complex, and subpoenas can come into play in a variety of scenarios, such as:
Seller’s Non-Disclosure Cases
The real estate licensee may not directly be part of the claim, but a buyer’s claim arises because the seller failed to disclose important information. A subpoena is issued to review the transaction records and correspondence to clarify the chain of responsibility.
Direct Involvement in a Claim
In situations where the licensee is directly named in a claim, perhaps due to alleged misrepresentations or negligence, investigators use a subpoena to gather all communications, contracts, and related documents. They will use this information to determine the real estate broker or licensee’s role and the extent of his or her liability.
How Subpoenas Can Derail Your Day (and Business)
Subpoenas can wreak havoc on your everyday workflow. The effort required to locate and compile necessary documents or to provide testimony diverts valuable time away from dealing with your clients and selling property. The extra administrative burden and potential need for legal counsel can strain your resources and add additional pressure.
Preparation Pays Off
Proactive preparation is your best defense when facing subpoenas. For real estate brokers and licensees, digging through piles of documents can be a real headache, especially if your records aren’t well-organized.
Keep Your Records In Order
Start by developing a habit of detailed recordkeeping. Every email, contract, and client meeting note should be organized and easily accessible. Keeping your files in order can save you time and reduce the stress when you’re served with a subpoena. Documenting client communications, including instructions and decisions, is especially important.
Note that very often, you and your licensees may have documents in your files that are not technically yours (like a home inspection report), and you aren’t legally able to provide them. This is just one example of a situation where your legal counsel needs to be involved whenever a subpoena includes a request for documents.
Establish Subpoena Protocols
Establish protocols for rapid document retrieval and ensure everyone knows their role in the event of a legal inquiry. A structured procedure minimizes the frantic scramble that often follows service, allowing you to respond calmly and efficiently, even under legal pressure. And of course, be sure every licensee understands they are not to produce any documents or appear in any legal proceeding without advising you, and without legal counsel.
Team Training
Regular training is key. Even if subpoenas aren’t common in your real estate brokerage, periodic sessions to reinforce the importance of accurate recordkeeping and proper response procedures are essential. Ensuring your team is prepared can help avoid mistakes when the pressure is on.
Be Proactive
Another powerful strategy is proactive communication with your clients. Address concerns before they escalate into legal matters, reducing the likelihood of a subpoena arising in the first place.
Consult with Your Attorney
When confronted with a subpoena, there are 3 immediate actions to take:
- Advise your broker if you are a licensee.
- Advise your real estate E&O insurance carrier.
- Advise your legal counsel. (For CRES real estate E&O members, your E&O includes access to an expert real estate attorney for advice. You will still need your own legal counsel to respond to the subpoena.)
Whether you’re named in a claim or not, real estate brokers and licensees should obtain professional legal advice from a qualified attorney if served with a subpoena. There have been cases where real estate professionals have handed over information only to be added to the claim. A qualified attorney will help you navigate the process, ensuring your interests are protected while you comply with legal requirements.
For more extensive information on handling subpoenas, watch our webinar (or review the transcript.)
Protect Your Real Estate Business
Insurance is another way real estate professionals can ensure their businesses remain protected. Real Estate Errors and Omissions (E&O) insurance is not optional — it’s essential. A well-tailored policy protects you from the financial fallout of extensive legal fees and damages that can arise if you do end up facing a lawsuit. Ideally, your real estate E&O plan should include specific coverage for subpoenas.
See our Ultimate Guide to Real Estate Errors and Omissions Insurance
CRES offers extensive coverage E&O policies designed specifically for real estate professionals at an exceptional price, with pre-claim legal advice. As part of one of the largest insurance brokers in the world, we have unparalleled access to more E&O options, including options most other insurance brokers (especially smaller brokers) can’t offer.
Depending on your coverage, your CRES E&O may include Subpoena coverage or it may be an affordable option.
Should you be served with a subpoena and you have CRES subpoena coverage, you’ll be reimbursed up to $30,000 (per subpoena) to cover your costs of responding to the subpoena. Including subpoena coverage in your real estate E&O (where available) can help you avoid having to pay these costs yourself.
Contact the CRES team today. Let us help you customize an insurance policy that meets your unique needs.
