Failure to Disclose in California Real Estate Transactions


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California places heavy legal responsibilities on the seller in a real estate transaction to provide “meaningful disclosures” about the property they are attempting to sell. The failure to disclose known defects or issues that affect the “value or desirability” of the property can result in substantial liability to seller and their agent(s), and often result in litigation. It is not appropriate for a seller to simply list a property “as-is.”

The seller and their agent(s) must provide a fairly transparent picture into not only the physical structure and underlying real estate itself, but the neighborhood and other factors surrounding the enjoyment and use of that property.

In California, the seller is required to provide the buyer with a comprehensive document known as the Real Estate “Transfer Disclosure Statement” or
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“TDS.” This document must be provided in a timely manner and as soon as possible before the closing of the transaction. Usually the seller and their agents will complete the TDS as well as certified home inspections and home warranty offers prior to entering into an agreement for the purchase of the property. If the TDS is not provided prior to authorization of the purchase contract, the buyer has the right to cancel the contract. Once the TDS has been provided, they buyer has three days to cancel the contract if the TDS is provided in person, and five days if it is delivered by mail.

Sellers and their real estate agents must make a full disclosure in the TDS to avoid allegations of “fraud, misrepresentation or deceit.” The TDS covers a broad range of subjects from issues with the plumbing to cracks in the foundation and a host of other typical property issues. It should include information about appliances to be included as part of the transaction and their operational status. The disclosure should also include information about previous damage to the property, issues with mold or mildew, additions and improvements, neighborhood noises and odors, and even details such as a death on the property within the past 3 years.

Multi-Unit and Commercial transactions have differing guidelines and more sophisticated standards of compliance.

What Action Should You Take if You Discover an Issue or if there is a Failure to Disclose on the Part of a Seller or their Agents?

A seller can only be held liable for a failure to disclose if the buyer took specific actions to inspect the property prior to purchase. However, the existence of a home inspection or other type of warranty does not release the seller and their agents from liabilities arising out of a failure to disclose or a hidden defect within the property.

If you believe there is has been a material failure to disclose an important detail about the property you have purchased, or if there is a hidden defect in its construction you should immediately contact an experienced real estate litigation attorney. There are statutes of limitations that may limit the timeframe to bring these types of lawsuits, and it is important to take action in a timely manner.

A seller’s failure to disclose or hidden defects within the property they can be held liable for “damages” borne by the buyer. The failure to disclose is a breach of the seller’s duties of acting in good faith and fair dealing. Real estate agents and brokers can be held to the same standards as the seller. They owe the buyer a duty of care according to California statutes.

Damages are usually a financial award based upon the actual costs to the buyer to repair the hidden defect or issue, or the difference in value to the property as it relates to the seller’s failure to disclose. Your real estate litigation lawyer will provide insight and advice on the viability and value of your case. If you can prove that the seller knowingly concealed a defect or information that affects the value of your property there is probably a case for fraudulent misrepresentation.

Damages are usually broken into three primary categories:

Compensatory Damages: Compensatory damages relate to the out-of-pocket expense to the buyer to repair the defect or issue, as well as the decrease in value to the property itself based upon the undisclosed issue or defect.

Punitive Damages: If your attorney is able to prove that the seller or their agent(s) acted with malice to conceal the defect you may be able to recover “punitive damages” in addition to compensatory damages. These are intended to punish the violators for their actions, and to deter others from doing so in the future.

Rescission – In a small portion of cases, the buyer may have the opportunity to rescind the contract and the seller must take the property back and return your money, in effect returning you to a financial position as if you had never entered into the transaction.

If you believe that you purchased a commercial or residential property and the seller or their agent(s) knew of hidden defects or are guilty of a failure to disclose information about the property, you should contact an experienced real estate litigation attorney. If the seller and/or their agents are found to have concealed defects or information you will be able to hold them liable and accountable, and recover the maximum financial damages available under California law.

ABOUT THE AUTHOR: Daniel Watkins
Mr. Watkins is an experienced litigator and true trial attorney with over 50 Jury and Bench trials to his credit in 25 years of practice. He has successfully represented both large companies and individuals, and achieved substantial victories in well-publicized trials throughout California and Wisconsin.

Mr. Watkins has successfully tried and litigated cases in the areas of Real Estate, Healthcare Compliance, Commercial Litigation, Unfair Business Practices, Fraud, Breach of Contract, Discrimination, Sexual Harassment, Construction Defect, as well as Unfair Competition, Defamation, and Trade Secret. In December 2003, Mr. Watkins commenced litigation against Health South Surgery Centers-West, Inc and its’ subsidiaries, exposing the company’s extensive mismanagement and misconduct of its’ surgery centers.

Mr. Watkins is experienced in business and corporate formation, as well as all forms of alternative dispute resolution, including binding arbitration and mediation.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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