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.
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.