Buyer's Lawsuit Fails

Read the full decision: Spies v. Deloach Brokerage, Inc., No. CV 214-053, 2016 WL 901300

A Georgia federal court has considered whether a brokerage could be liable to a buyer for failing to advise the buyer about erosion problems that the buyer discovered on the property following her purchase.

In 2012, Darlene Spies (“Buyer”) became interested in purchasing a retirement home and she decided to look for a property on St. Simons Island, Georgia.  As a hobby, the Buyer had previously purchased homes and renovated them, including two homes located on the water.

The Buyer travelled to the island and contacted a real estate broker (“Broker”) to help her locate potential properties.  The Broker worked as an independent contractor for a real estate brokerage firm (“Firm”).   The Broker showed the Buyer a number of properties on the island, and the Buyer was interested in a property that was bordered by a salt marsh and a river.  Due to the weather, the Buyer did not inspect the property’s borders and spent no more than an hour visiting the property.

Upon returning to her home in Florida, the Buyer submitted an offer to buy the property.  The Buyer did not return to the island until the final walk-through, and so she relied upon the Broker to handle the purchase for her. The Broker told the Buyer that a survey was not required for the purchase, and so a survey was never ordered.  The Broker arranged for an inspection of the property and the Buyer reviewed the inspection report.  The Buyer and the Broker never entered into a representation agreement.     

During the final walk-through, the Buyer noticed mold in the basement and rust stains on the front of the house.  The Buyer also observed rusted outlets on the outside of the house, but she testified that believed that the Broker was her “eyes” for the property and she was relying on him to identify problems with the property.  The Buyer did not read the purchase agreement and “mostly read” the property condition disclosures, where the sellers had indicated that the property was located in a flood plain and there were water leaks in the basement.

Approximately six months after the closing, the Buyer hired a contractor to build a spa on the property.  The contractor told her that she had a “serious” problem with soil erosion and the spa could not be built.  The Buyer hired two surveyors, who both concluded that there had been significant water erosion on the property.

The Buyer filed a lawsuit against the Firm for the Broker’s alleged failure to disclose the erosion on the property, alleging fraud and seeking punitive damages for the Broker’s conduct.  The Firm filed a motion seeking judgment in its favor.

The United States District Court for the Southern District of Georgia entered judgment in favor of the Firm.  The court first examined the duties owed by the Broker to the Buyer under the state’s license law.  In Georgia, if the parties do not have a written agreement, then the real estate professional is presumed to be acting as a transaction broker and does not owe the client a fiduciary duty; instead, the transaction broker only owes the client a duty of reasonable care while representing the client. 

Since there was no written agreement between the parties, the Broker served as a transaction broker.  The duties that the Buyer had sought the Broker to perform included hiring a home inspector and arranging the transaction, both of which the Broker had successfully performed.  While the Buyer had also expected the Broker to evaluate the inspection report and the property’s condition, those are not duties that a transaction broker owes to his/her client.  Therefore, the court ruled that the Broker had met the statutory obligations of a transaction broker.

The court also found that the Buyer’s fraud claims failed because the Buyer had failed to conduct her own due diligence.  The Buyer claimed that the Broker had concealed the erosion problems, but the Broker had done nothing to conceal the erosion problems; instead, the Buyer had failed to assess the erosion problems on her own. The Buyer had chosen to not order a survey of the property, and admitted she had failed to read the contract.  Thus, the court also ruled in favor of the Firm on the Buyer’s fraud claims.

Finally, the court determined that the Firm could not be liable for the alleged tortious acts of the Broker because the Broker was an independent contractor.  The court found that the Firm was not controlling the day-to-day activities of the Broker and so therefore could not be liable for any alleged tortious behavior of the independent contractor licensee.  While the Buyer alleged that the Broker had used the Firm’s stationary and form contracts, the court found that was insufficient evidence to demonstrate control over the independent contractor by the Firm.  Therefore, the court entered judgment in favor of the Firm and dismissed the Buyer’s lawsuit.

Spies v. Deloach Brokerage, Inc., No. CV 214-053, 2016 WL 901300 (S.D. Ga. Mar. 3, 2016).  [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].

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