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Something Smells Fishy About That Disclosure

Attorney: Anna Greenstin Kudla | Published 2.27.18

Fong v. Sheridan, which was unpublished/uncitable at the time of the drafting this article, calls into question the agent’s use of fluff to sell a home. In this case, prior to purchasing a seaside home, the buyers/plaintiffs noticed a moldy aroma, which the dual real estate agent dismissed as “sea air.” For two years, the buyers noticed the smell—until finally a contractor discovered a buried septic and oil tank. During remediation, there was a spill, making the matter worse. The buyers sued the agent and the seller.

The broker settled, making it difficult to predict the outcome that would have incurred. However, the buyers continued to proceed with trial against the seller. The court awarded the buyers over $90,000 for remediation; yet, the buyers had already settled with the broker for $275,000. Since the settlement amount exceeded the damage award, the court gave the buyers nothing and ruled that the seller was the prevailing party, awarding him compensation for fees and costs. The buyers appealed to get the judgment reversed, in part.

What This Means for Agents

Both the common law and statute demand that a transferor of a residential property deliver a written statement, called a Transfer Disclosure Statement (TDS), set forth in CC § 1102.6. Failure to provide a TDS results in damages actually suffered, identified in CC § 1102.13, and possibly damages discussed in CC § 3343, and may excuse performance by the buyer. Incomplete or unsigned disclosures lead to liability. If subsequent information is learned prior to COE, a subsequent disclosure should follow. If an agent has trepidation about disclosing certain information, immediately consult with your broker and, if necessary, consult with a real estate attorney on verbiage.

An agent typically has no duty to question the seller’s written representations to the buyer. However, inconsistencies, mistakes, and obvious conditions will require the agent to act. Each case is different and can turn on a simple misrepresentation, as seen above. A broker’s duty to inspect is limited in scope to a reasonably competent and diligent visual inspection required by statute CC § 2079. A broker is not required to inspect areas that are not accessible. However, that is not a hard-line rule and depends heavily on the facts.

In some instances, if an inspector did not discover a latent defect, an argument is often asserted that a broker should not be expected to know better. However, if the agent expressly states, “there is nothing buried here,” and reliance is placed on such a statement, then liability may ensue.

Real estate professionals are often immersed with an express objective of getting the deal done, while not recognizing that a dismissive statement such as “it’s just sea air” can lead to legal grief. As a rule of thumb, agents may want to refrain from giving a subjective opinion and stick to the information provided by their clients or third-party vendors.

This article is for general information purposes and is not intended to be and should not be taken as legal advice, for each specific situation needs to be evaluated based upon the specific facts.