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A California appellate court has considered whether sellers had misrepresented and concealed material facts because they had failed to disclose to buyers the entire history of flooding on the property.
Frances and David Adams ("Sellers") owned a home which had a history of flooding that was caused by a sewer drain which backed up during heavy storms. Frances had first experienced flooding on the property in 1983, when she was married to another individual. In 1987, Frances joined a lawsuit with her neighbors against the developer of the subdivision, the county, and others over the flooding problems. 1992, the Sellers videotaped a flooding incident. In 1995, the Sellers installed a culvert on one side of the house in order to divert water past the house.
The Sellers listed the property for sale in May 1998 with Betty Enyart ("Salesperson") of the Security Pacific Financial Group, Inc. d/b/a Security Pacific Real Estate ("Brokerage"). When the Sellers met with the Salesperson, they discussed the property's flooding with her. The Sellers completed a property condition disclosure form for the property, which the Salesperson testified was completed by the Owners with the intention of fully disclosing the flooding so there would be no question in a potential buyer's mind about the potential for flooding. On the disclosure form, the Sellers checked the box stating that they were aware of flooding on the property and then wrote an explanation how the property experienced flooding problems in "extreme" weather conditions because a county sewer drain backed up. The form described how water had previously entered the garage and also underneath the home’s baseboards.
Regina Morgan ("Buyer") entered into an agreement to purchase the Sellers' home in 1998. The Buyer received a copy of the Sellers' disclosure statement and also met with the Sellers to discuss the flooding problems on the property. The Buyer was shown where the property would flood and was given tips on how to avoid damage, such as leaving the garage door closed to prevent water from entering it. The Sellers also told her about the 1987 lawsuit related to the flooding but did not show her the 1992 videotape of the flooding.
The transaction closed. In 2000, the Buyer obtained the videotape of the flooding. In 2001, the Buyer filed a lawsuit against the Sellers and the Brokerage, claiming that they had misrepresented and concealed material facts about the flooding problem on the property. The case went to a jury, and the jury returned a verdict in favor of the Sellers and the Brokerage. The Buyer appealed.
The California Court of Appeal, Third District, affirmed the ruling of the trial court. The Buyer raised a number of challenges to the evidence considered by the jury and also the instructions given to the jury. One of the instructions the Buyer challenged was over the disclosure duty that a real estate professional owed to the Buyer. The jury instruction stated that a seller or a "seller[']s agent" has an obligation to disclose all facts of which the seller is aware, "materially affecting the value or desirability of the property, and once those "essential" facts are disclosed, there is no further obligation to elaborate on those facts. The Buyer argued that the instruction improperly stated the disclosure requirements by using the word "essential facts" instead of "all facts materially affecting the value of the property".
A California statute states that a real estate professional who has entered into a contract with a seller to locate a buyer has a duty to disclose all facts "materially affecting the value or desirability" of the property to the buyer that an investigation of the property would reveal. The statutory language is drawn from a California court case involving disclosure issues where the court ruled that the real estate professional had a duty to disclose "essential facts" in its decision. The court found that the instruction properly stated California law, especially when the jury instruction was read in its entirety as the first part of the instruction set forth the exact statutory language. Thus, the court rejected the challenge to the jury instruction.
The Buyer also challenged the sufficiency of the evidence. The Buyer argued that the Sellers and the Brokerage had failed to disclose all instances of flooding on the property. In particular, the Buyer cited the failure to identify the existence of the videotape. The court found no authority that required the Sellers and the Brokerage to disclose every instance of flooding which occurred on the property. Instead, the Sellers and Brokerage were required to disclose facts which materially affected the value or desirability of the property. Since the jury had found that the Sellers and Brokerage had fulfilled this obligation, the court affirmed the verdict in favor of the Sellers and the Brokerage.
Morgan v. Adams, No. C044371, 2005 WL 1766398 (Cal. Ct. App. July 27, 2005). [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]