Two Ways to Reduce Your Firm’s Liability Risk

You know those classic unsolicited emails from scammers posing as a Nigerian prince or a long-lost cousin? The ones with dreadful grammar, five different fonts, and three type colors? In some ways, we can consider those the good ol’ days of phishing scams, because they were quite easy to identify as false.

Today, email scams are much more sophisticated, explained Katie Johnson, NAR’s general counsel and senior vice president of legal affairs and member experience, at the REALTOR® Broker Summit in Nashville last week. Johnson herself recently received a very convincing email from a Kristina Richey with Lewis County Title, with instructions to download documents. The email even explained that the files are encrypted with a “Cintrix ShareFile” system. There is no such company as Lewis County Title, and the file sharing system is also fake. “It was a dangerous phishing scam, which was cleverly disguised,” said Johnson, who now has a keen eye for identifying malicious emails.

If someone does click on a download link like the one Johnson received, one possibility is that it could open malware that could encrypt all files on their network, and the person would receive a notification asking for payment in bitcoin to get files back.

Small and mid-sized real estate companies are increasingly being targeted, Johnson said, because the perpetrators know many of these firms don’t have systems in place protecting their networks and computers. “If and when it happens to you, you can lose money, especially through wire transfer fraud,” Johnson said. This could also result in lawsuits from clients and a damaged reputation.

The first way real estate firms can reduce their risk of legal liability is to create a cyber security plan. The National Association of REALTORS® has a data security and privacy toolkit and a checklist for implementing a data security program at your brokerage. “Analyze how and where you’re collecting and storing clients’ personal identifiable information,” Johnson said. “Don’t collect things you don’t need. If you need it, lock it up and pitch it when you’re done with it. Then train, train, and retrain your agents.” Knowing these scams are happening is your first line of defense.

Keep three copies of the files you need to retain in two types of backup—the cloud and an external hard drive. When your operating system says it’s time to update, do it because it offers improved defense against malware. Then, create better email security passwords—long phrases you can remember.

If malware does take over your system, have a written response plan for your offices that includes disconnecting, contacting IT, and reaching out to a lawyer. Look into cyber insurance and ask companies specifically what they will cover.

Another significant legal risk for brokerages today is copyright infringement issues associated with listing photos. Do you know if you own the photos of your listings? “When you’re distributing your photos in MLS and other sites, you’re telling those portals that you have the rights to those photos,” Johnson said.

In the case of Boatman v. Coldwell Banker Honig-Bell, Michael Boatman, a photographer in Peoria, Ill., was hired as a listing photographer. He says his photos are limited license for when the listing is active, but when a property sells or when a listing agreement expires, the rights are terminated. Also, if the agent or brokerage shared with third parties, they needed written agreement. The MLS distributed the images and they were also posted on Zillow, which Boatman says violated the terms. Boatman is also suing Kepple Premier Real Estate, the Kepple Team, who received the photos from Coldwell Banker. Now there are cross suits in the nearly two-year-old case, which is currently ongoing.

Improper use of photos can be a significant and costly legal liability for a brokerage. To protect yourself and your company when hiring a photographer and using their professional photos, get an agreement in writing, Johnson said. Understand everything that’s involved with the agreement—ensure that you indeed have the rights to the photos that you think you have. Regularly audit where and how you’re using listing photos, especially when you’re in a limited use agreement. NAR has sample agreements to use with photographers as well.