ShareA. Cases
This quarter we review two cases in which a verdict was entered against the licensee and damages were awarded to the plaintiff. In an update to a case examined earlier this year, the appellate court affirmed that a seller or real estate professional does not need to disclose adverse off-site conditions, such as an unruly neighbor. Furthermore, two state supreme courts issued decisions this year (both discussed below) which held that real estate professionals must only disclose adverse conditions known to them and do not owe a duty to inspect a property.
1. Zodiac Constr. v. Stewart Title Guar. Co., No. 2013-CV-030701, 2015 WL 4768757 (Colo. Dist. Ct. Apr. 24, 2015)
The seller’s representative was found liable for failing to disclose that the property was subject to a lawsuit.
The buyer discovered the property was subject to a lawsuit after closing on the transaction. The buyer filed suit against the seller’s representative for failure to disclose the existence of the lawsuit, that the property was located in a FEMA floodway area, that the property was originally built as a mobile trailer rather than a wood frame structure, and that the property was subject to zoning restrictions. The buyer also asserted a claim against the title company for failing to tell him title was encumbered. At a bench trial, the seller’s real estate professional was found liable for $3,323 in damages for failing to disclose the pending lawsuit, but the court entered a verdict for the seller’s rep and the title company on the other claims.
2. Graybill v. Big Bear Municipal Water Dist., No. CIVDS-10-13074, 2015 WL 6446299 (Cal. Super. Ct. Mar. 24, 2015)
The real estate professional was liable for failing to disclose that property was subject to an agreement transferring a portion of the property to another entity.
Purchasers allege that sellers and the real estate broker failed to disclose the property was subject to an agreement under which a portion of the property was transferred to a municipal water district, that a levee was to remain on the property, and that the property was subject to flooding. A jury found the sellers and the broker liable for negligent misrepresentation and fraud, and the broker was also liable for breach of fiduciary duty. Damages of $330,000 were awarded to the purchasers.
3. Martin v. Steve Delia & Assocs., Ltd., No. 15-721, 2015 WL 8331468 (La. Ct. App. Dec. 9, 2015)
A licensee disclosed information regarding previous water damage on the property.
The purchaser alleged that the seller and the sellers’ representative failed to disclose the history of flooding on the property. The evidence showed that the sellers and their real estate representative disclosed prior sewer problems on the property and the existence of a concrete structure in the backyard built to prevent water intrusion. The trial court granted summary judgment for the sellers and sellers’ representative, and the judgment was affirmed on appeal.
4. Watterud v. Gilbraith, 381 Mont. 218 (2015)
Real estate licensee owed duty to disclose facts of which she was aware, but did not have a duty to inspect the property.
Purchasers sued the seller’s real estate licensee for negligence for failure to disclose mold in the home. The property disclosure statement indicated that the basement had previously flooded and the basement had been re-done. The disclosure also stated that no mold test had been performed and made no representations or warranties regarding mold. The Montana Supreme Court concluded that the real estate licensee owed only statutory duties to disclose adverse material facts of which she was aware and had no duty to inspect the property. The seller’s representative did not know of any mold problem on the property, and thus summary judgment for seller’s representative was affirmed.
5. Phoenix v. U.S. Homes Corp., No. 14-4463, 2015 WL 6152896 (3d Cir. Oct. 20, 2015)
There is no duty to disclose off-site, transient social conditions near a property.
The appellate court recently issued a decision in a case we examined in an earlier Pulse. While viewing a home for purchase, the purchaser inquired to the real estate licensee regarding a neighbor who confronted them during the showing. The real estate licensee told the purchaser that the neighbor would not be a problem. Several months after purchasing the home, the purchaser filed a criminal complaint for harassment against the neighbor. The purchaser brought claims for fraud and nondisclosure, alleging that the seller fraudulently concealed the neighbor’s harassing behavior. The fraud claim was dismissed because the purchaser did not allege any statement that was false. The nondisclosure claims also failed because the seller has no duty to disclose off-site, transient social conditions. The court affirmed dismissal of the claims.
B. Statutes and Regulations
Washington
Washington amended its real estate disclosure form to include disclosures of structural defects regarding elevators, stairway chair lifts, and wheelchair lifts.[1]
Indiana
Indiana passed a new statute stating that the mere transportation of a real estate transaction-related document does not impose liability for its content.[2] A licensee is not responsible for a report or statement by a person who made a report concerning real estate, including an inspection report or survey, unless the report or statement was made by someone employed by the licensee or a broker with whom the licensee is associated, the report or statement was made by a person selected and hired by the licensee, or the licensee knew before closing that the statement was false.
Colorado
The Colorado Real Estate Commission issued a position statement on broker disclosure of adverse material facts. The Commission provides guidance on the types of items that are considered “material facts,” such as “facts affecting title, facts affecting the physical condition of the property and environmental hazards affecting the property.”[3] The statement also provides that if material information is “contrary (i.e. “adverse”) to the interest of one of the parties,” that information must be disclosed to all parties. A broker must only disclose the information of which he or she has actual knowledge, but a broker is required not to disclose information that may “psychologically impact or stigmatize real property,” absent informed consent of the client.
C. Volume of Materials Retrieved
Property Condition Disclosure Issues were identified 49 times in 34 cases collected during 2015 (see Table 1). Mold and Water Intrusion was addressed most frequently, followed by Boundaries and Insects/Vermin (see Table 2). Several other issues were addressed as well. Ten statutes and eleven regulations also were retrieved. The volume of cases decreased from 2014, while the number of statutes and regulations increased from 2014 (see Tables 4 and 6.)