Real Estate Nondisclosure of Material Facts
California places a heavy burden on the seller in a real estate transaction to provide disclosures about the property they are attempting to sell. The failure to disclose known defects or issues that materially affect the “value or desirability” of the property can result in substantial liability to seller and their agent(s), and often result in damages being awarded to the buyer.
When any aspect or fact about the property may have influence the buyer’s decision to purchase the property, or the price they are willing to pay for the property, it needs to be disclosed ASAP — once negotiations toward entering into a purchase agreement commence, ideally before the purchase agreement is signed. The seller and their agent(s) are duty-bound to provide a fairly transparent picture into not only the physical structure and underlying property itself, but the neighborhood and other factors surrounding the enjoyment and use of that property. Any attempted waiver, such as the use of a blanket “as-is” clause in the purchase agreement, is unenforceable as against public policy. The words “as is” are often misunderstood and misused in the context of real estate transactions. The seller is never excused or excluded from disclosing known material facts, nor are any of the agents involved in the transaction excused from performing their due diligence and visual inspections.
To make all legally-required disclosures, the seller of a one-to-four unit residential property completes and delivers to a prospective buyer a statutory form called a Condition of Property Transfer Disclosure Statement, commonly known as a Transfer Disclosure Statement or “TDS”. [Calif. Civil Code §§1102(a)] When preparing the TDS, the seller sets forth any property defects they know or suspect to exist. Defects to be disclosed in the TDS include any conditions known to the seller which might negatively affect the value and desirability of the property for a prospective buyer, even though they may not be an item listed on the TDS. Thus, disclosures to the buyer are not limited to the types of disclosures preprinted on the form. [CC §1102.8] The seller is required to prepare a TDS with honesty and in good faith, whether or not the seller retains an agent to review its content before handing it to prospective buyers. [CC §1102.7]
A seller’s exemption from providing a buyer with a statutory TDS does not exempt the seller from disclosing material facts known to them. Transactions which exempt the seller from preparing and delivering the statutory TDS form to a buyer as the means for disclosing property defects include transfers:
- by court order, such as probate, eminent domain or bankruptcy;
- by judicial foreclosure or trustee’s sale;
- on the resale of real estate owned (REO) property acquired by a lender on a deed-in-lieu of foreclosure, or by foreclosure;
- from co-owner to co-owner;
- from parent to child;
- from spouse to spouse, including property settlements resulting from a dissolution of marriage;
- by tax sale;
- by reversion of unclaimed property to the state; and
- from or to any government agency. [CC §1102.2]
However, whether or not the seller is exempt from using the TDS, the seller’s broker and their agents are never exempt from:
- conducting a visual inspection of a one-to-four unit residential property, sold or acquired on behalf of any seller or buyer [CC §2079]; and
- disclosing their observations and knowledge about the property on a TDS form or other separate document. [CC §1102.1]
The seller is never excused or excluded from disclosing known material facts, nor are any of the agents involved in the transaction excused from performing their due diligence and visual inspections. Real estate agents and brokers are held to the same standards as the seller.
A seller’s failure to disclose hidden defects within the property is a breach of the seller’s implied covenant of good faith and fair dealing, and it may be a breach of the purchase agreement or worse, fraud. Damages are usually a financial award based upon the actual costs to the buyer to repair the hidden defect or issue, or the difference in value to the property as it relates to the seller’s failure to disclose. When you confer with one of our real estate litigation lawyers, we will provide insight and advice on the viability and value of your case. If you can establish that the seller knowingly concealed a defect or information that affects the value or desirability of your property there is probably a case for damages, which may include both compensatory and punitive damages. In a small fraction of cases, the buyer may have the opportunity to actually rescind the purchase agreement and the seller will be forced to take the property back and return the buyer’s money, in effect restoring the buyer’s financial position to before signing the contract, as if the buyer had never entered into the transaction.
If you believe there is has been a material failure to disclose an important detail about the property you have purchased, or if there is a hidden defect in its construction, you may be able to hold the seller and their agent(s) accountable and recover the financial damages available under California law. You should immediately contact the experienced real estate counsel of Lowenthal APC. There are statutes of limitation that may limit the timeframe to bring these types of lawsuits, and it is important to take action in a timely manner.
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