What is Failure to Disclose?
For many, buying a residential property in California is one of the biggest investments they make in their lifetime. In California, the law obligates sellers of real estate to disclose any fact materially affecting the value and desirability of the property. This includes, but is not limited to, facts concerning the physical condition of the property, dangerous conditions at the property, and any lawsuits affecting the property. A seller’s failure to disclose known material facts regarding a property will lead to liability exposure for the seller, and potentially also their real estate agent.
A seller’s duty to disclose known material facts about a property stems from California common law principles and statutory law. The common law has for decades imposed duties on sellers of real estate, particularly residential real estate , to disclose to the buyer “any material facts known to the seller affecting the value or desirability of the real estate” being sold. It is important to note that even with full compliance with statutory duty does not excuse common law duties.
The seller’s statutory disclosure requirements are found in California Civil Code § 1102 et seq., which requires seller’s to provide the buyer’s with a Real Estate Transfer Disclosure Statement (“TDS”). The TDS form must be filled out and made in “good faith,” which is statutorily defined to mean “honesty in fact in the conduct of the transaction.” Civ. Code § 1102.7.
What Must Be Disclosed in the TDS?
Many sellers and real estate agents will often provide a completed TDS to the buyer immediately upon mutual execution of a purchase agreement. Depending on how the TDS is delivered to the buyer, a buyer has the right to terminate the transaction within a certain period of days of receiving the completed TDS from a seller.
To avoid allegations of misrepresentation, deceit, or fraud, the sellers must disclose everything in the TDS. This includes, but is not limited to, things such as:
- Cracks in the foundations
- Roof issues
- Plumbing issues
- Appliance issues
- Previous damage to the property and repairs made
- Additions and improvements
- Structural defects
- Mold and mildew
- Noises and odors in the neighborhood
- Deaths on the property in the last three years
Can the Statutory Disclosure Requirements be Waived?
The statutory disclosure requirements of Civil Code § 1102 cannot be waived. Even if a contract has language stating that the disclosure requirement is waived, such waiver is considered waived as against public policy.
What If the Property Was Sold "As Is"?
Even if a property is sold “As Is,” it does NOT act as a waiver. Simply because you purchase a property as is does not alleviate the seller from its duty to disclose material facts about the property. Simply put, a seller cannot contract its way out of its disclosure requirements.
What Types of Damages Are Available?
The type and extent of damages available in a failure to disclose case depends on many factors, including but not limited to the extent of the non-disclosure, the seller or agents knowledge, and whether the non-disclosure was malicious. It is essential that an experienced real estate litigation lawyer is consulted when dealing with a non-disclosure dispute in California.
1. Diminution in Market Value
In a real estate fraud case, Civil Code § 3343(a) allows difference between the price paid and the actual value of the property with the undisclosed defects, which is the amount the buyers overpaid for the property, taking into account the true or “actual value” of the property with the undisclosed defects.
“One defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received . . . .” Civil Code § 3343(a); Saunders v. Taylor (1996) 42 Cal. App. 4th 1538, 1542.
2. Incidental damages
In addition, “pursuant to Civil Code section 3343, amounts paid for escrow fees, moving to and from the property, building permits, telephone connections, fences, yard cleaning, garage materials, door locks, shrubbery, taxes, rent and labor are examples of recoverable damages when reasonably expended in reliance on the fraud.” Cory v. Villa Properties (1986) 180 Cal.App.3d 592, 603.
3. Punitive Damages
Punitive damages are designed to punish offenders for their malicious actions and to deter that kind of behavior in the future. If it can be proven that concealment of a material defect was done with actual malice or their agents, punitive damages may be recoverable.
4 . Attorney's Fees
Often, attorneys fees are also available for the prevailing party. If the parties utilized a California Association of Realtors (CAR) Residential Purchase Agreement and Joint Escrow Instructions (RPA), there are mandatory mediation provisions that must be followed in order to preserve a party’s rights to recover attorney’s fees. Therefore, it is essential that an experienced real estate attorney be consulted with any issues related to a failure to disclose dispute.
Frequently Asked Questions
In real estate transactions, "failure to disclose" refers to the seller's obligation to provide accurate and complete information about the property's condition, known defects, or any material issues that could affect the value or desirability of the property. It becomes a legal issue when a seller intentionally or negligently withholds relevant information that they are legally required to disclose. Legal requirements for disclosure vary by jurisdiction but often include disclosing issues like structural defects, environmental hazards, pest infestations, property boundary disputes, or history of flooding or other damage. Failure to disclose can lead to disputes, lawsuits, and potential financial liability for the seller if the buyer suffers harm as a result of undisclosed issues. It's crucial for both buyers and sellers to understand their disclosure obligations and rights under local laws to ensure a fair and transparent real estate transaction.
Sellers and real estate agents have legal obligations regarding disclosure to ensure a transparent and fair real estate transaction. While these obligations can vary by jurisdiction, there are common principles. Sellers are generally required to disclose any known material defects or issues with the property that could affect its value or safety, such as structural problems, plumbing or electrical issues, environmental hazards, pest infestations, or significant property damage history. Real estate agents, on the other hand, have a duty to facilitate these disclosures and ensure that buyers receive all relevant information. Failure to disclose can result in legal consequences, including lawsuits for misrepresentation or fraud. It's essential for both sellers and agents to adhere to these obligations and work together to provide complete and accurate information to buyers, creating a fair and transparent real estate transaction that protects all parties involved.
Our law firm provides essential assistance to buyers or sellers who believe they have been affected by a failure to disclose material information in a real estate transaction. If you are a buyer and discover undisclosed issues after closing, we can help assess the situation, determine the extent of the nondisclosure, and explore legal remedies such as negotiating with the seller or filing a lawsuit for misrepresentation or fraud. If you are a seller facing allegations of nondisclosure, our attorneys can review the facts of the case, evaluate your disclosure obligations, and provide legal guidance on how to address the situation, whether through negotiation, dispute resolution, or litigation defense. We work diligently to protect the rights and interests of our clients and seek favorable outcomes that align with their goals, whether they are buyers seeking compensation for nondisclosure or sellers defending against unfounded claims.
Common examples of undisclosed issues in real estate transactions include structural defects, water damage, pest infestations, mold or mildew problems, lead-based paint hazards, property boundary disputes, or zoning violations. When such issues are not disclosed, it can lead to disputes, legal claims, and financial repercussions. Our attorneys can assist clients in addressing these issues legally by conducting a thorough review of the case, collecting evidence of nondisclosure, and determining the extent of the harm caused. We then work to negotiate with the opposing party for a resolution, whether through compensation, repairs, or other remedies. If negotiations fail, we are fully prepared to represent our clients in court, pursuing legal action to seek damages, enforce disclosure obligations, or defend against unjust claims. Our legal expertise ensures that clients have a strong legal advocate to protect their interests in cases of undisclosed issues in real estate transactions.
Pursuing a failure to disclose claim typically involves several key steps. First, clients should consult with our attorneys to assess the situation and gather evidence of the nondisclosure. Our legal team then prepares and files a complaint or legal action against the party responsible for the failure to disclose, whether it's the seller, real estate agent, or both. During the legal process, clients can expect negotiations, discovery, and potentially mediation or settlement discussions. The potential remedies and outcomes can vary but often include compensation for damages incurred due to the undisclosed issues, such as repair costs or a reduction in the property's value. In some cases, rescission of the contract or specific performance may be sought. Clients can also seek reimbursement for legal fees and court costs. The specific remedy pursued depends on the circumstances of the case, but our firm works diligently to secure a favorable outcome that aligns with our clients' objectives while protecting their legal rights and interests.
Time limitations for filing a failure to disclose claim can vary by jurisdiction, so it's crucial for clients to act promptly. In many cases, these claims must be filed within a specific statute of limitations, which typically ranges from a few months to a few years after the discovery of the undisclosed issue. Our firm can provide crucial guidance by first assessing whether a client's claim falls within the applicable time frame. Once engaged, we work closely with clients throughout the legal process, from gathering evidence and filing the claim to navigating court procedures, negotiations, and potential mediation or settlement discussions. Our attorneys provide representation tailored to each client's unique situation, advocating for their rights, seeking appropriate remedies, and ensuring that all legal deadlines are met. We aim to alleviate the legal burden on our clients and guide them through the process while pursuing a favorable resolution to their failure to disclose claim.
Failure to Disclose Litigation Attorney
Real Estate Law Corporation™
If you need legal assistance with a failure to disclose case, Real Estate Law Corporation has highly experienced real estate litigation attorneys that are well versed in defending and prosecuting non-disclosure cases.