Property Condition Disclosure Highlights: 3Q 2017

The Property Condition Disclosure cases this quarter involve a variety of interesting legal questions. For example, is a licensee liable for incorrect information contained in a property listing if the listing broker relied upon incorrect information found in the assessor’s records? Must a licensee warn purchasers about the dangers of an empty pool on the property? And is a licensee required to disclose that a housing development was named after the founder of a hate group? In all three of those cases, the licensees were found not to be liable. However, in another case, the licensee was liable for failing to disclose the lack of sewer access to the lot and the licensee’s relationship to the seller.

A. Cases

1. Shahbazian Family Trust v. O’Neil, No. C16-5477BHS, 2017 WL 2964821 (W.D. Wash. July 12, 2017)

Dual agent representative did not make false statement about flood zone designation or erosion on the property.

The purchaser bought a vacant oceanfront property. The defendant real estate representative acted as dual agent for both the seller and purchaser in the transaction. The seller’s disclosure form indicated that the seller did not know if the property was in a flood zone and that the property had suffered damage from beach movements. The representative had an aerial photograph showing the changes due to beach erosion and indicating the flood zone designation, but he did not show the photograph to the purchaser. Two years after closing, the purchaser learned of the beach erosion and the property’s flood zone designation, and asserted claims of fraud and negligent misrepresentation against the representative and broker.

The court concluded that the purchaser failed to exercise due diligence. The information was readily available to the purchaser and identified in the disclosure statement. The MLS listing contained accurate information and there was no evidence that the sellers made a false statement. Also, the purchaser’s claim for common law breach of fiduciary duty was abrogated by the Washington statute which prescribes statutory duties that real estate brokers owe to their clients. The court entered summary judgment for the licensee and broker.

2. Orellana v. Homes Plus of Connecticut, CV166015339S, 2017 WL 3000696 (Conn. Super. Ct. June 9, 2017)

Broker did not misrepresent lot size and presence of shed on property in property listing, where listing was based on inaccurate assessor records.

The defendant real estate broker acted as dual agent for both parties in a real estate transaction. The purchaser of the property alleged that the broker misrepresented the size of the property lot and that the property included a shed. The broker stated that he told the purchaser to have the property surveyed, but the purchaser elected not to do so.

The court determined that the listing was incorrect regarding the size of the property. However, the listing information was based on inaccurate assessor records. The purchaser failed to show that the broker knew or should have known the information found in the assessor records was false. Therefore, the court concluded that the broker did not make any misrepresentations regarding the property boundaries or that the shed was included with the parcel. The court entered judgment for the broker.

3. Hall v. Eagle Rock Development, LLC, No. E2015-01487-COA-R3-CV, 2017 WL 3233496 (Tenn. Ct. App. July 31, 2017)

Real estate defendants liable for failure to disclose lack of sewer access to the lot and representative’s failure to disclose relationship to the seller

Purchasers of a lot in a housing development allege that the sellers and sellers’ real estate representatives made misrepresentations regarding the availability of public sewer access to the lot. A representative of the seller indicated to the purchasers that the sewer was in place, and the property listing also indicated that that the lot had sewer access. Although the disclosure form indicated there was no sewer access, the form was not provided to the purchasers until execution of the contract. The purchasers also alleged an unfair trade practices claim against their representative for failure to disclose that the representative was a member of the entity selling the property.

The trial court determined that the seller and sellers’ representatives made misrepresentations regarding sewer access to the property. Accordingly, the court granted rescission of the contract and a refund of $123,000 to purchasers. The court also found that the purchasers’ real estate representative violated the state consumer fraud law in failing to inform the purchasers of his relationship to the seller of the property. The court awarded attorneys’ fees under the consumer fraud law to the purchasers on this claim.

4. Jacobs v. Coldwell Banker Residential Brokerage Co., 14 Cal. App. 5th 438 (July 25, 2017)

Broker not liable for injuries suffered by potential purchaser who fell into empty pool while viewing a property.

The potential purchaser of a bank-owned property sued the seller’s broker for negligence after the purchaser fell into an empty pool while viewing the property. The purchaser stood on the diving board to look over the fence surrounding the property. The diving board collapsed while the purchaser was standing on it, and he fell into the empty pool. Prior to the incident, the listing representative had the pool inspected and had warned potential visitors via the MLS to exercise care around the empty pool. The trial court granted summary judgment for the broker, finding that the broker had no notice of any defect on the diving board.

The appellate court affirmed judgment in favor of the broker. According to the court, there was no duty to warn or protect the purchaser because the danger of an empty pool was open and obvious. Purchasers could avoid the edge of the pool as they viewed the property and it was not reasonably foreseeable that a purchaser would use the diving board in that manner. Because the broker did not invite purchasers to the edge of the pool, the purchaser voluntarily exposed himself to the danger.

5. Valente v. Keller Williams Realty, Inc., No. 1:17-CV-00218-LJO-JLT, 2017 WL 3953953 (E.D. Cal. Sept. 8, 2017)

Real estate defendant did not owe a duty to inform purchaser that home was in a housing development named after the founder of a hate group.

Home purchaser alleged that he purchased a home in a housing development named for the founder of the KKK, and that the home contained obscene artwork in the fireplace mantle. The purchaser asserted claims for civil rights violations, negligent misrepresentation, fraud, negligence, and infliction of emotional distress against the real estate broker who handled the transaction.

The court concluded the purchaser failed to allege any discriminatory conduct by the broker, as the purchaser failed to present evidence that the transaction was affected by his race. Furthermore, the alleged statements that the “home was just right” for the purchaser did not satisfy the high standards required to show fraud. Also, the broker had no duty to inform the purchaser that the subdivision was named after the founder of a hate group. The court dismissed all of the claims asserted by the purchaser.

B. Statutes and Regulations

Oregon

Oregon modified its Seller’s Property Disclosure Statement to include a disclosure regarding seismic risk. Specifically, the amended statement includes the following questions: (1) Was the house constructed before 1974? and (2) Has the house been bolted to the foundation?¹⁰

C. Volume of Materials Retrieved

Property Condition Disclosure issues were identified 7 times in 6 cases (see Tables 1, 2). The cases addressed Structural Defects, Sewer/Septic, Boundaries, Stigmatized Property, Pollution, and Other Issues. One statute regarding Property Condition Disclosure was retrieved this quarter (see Table 1).

¹⁰Or. Rev. Stat. § 105.464 (2017).