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California Real Estate Litigation – The "Bad House" Case

April 3rd, 2007 · 1 Comment · Construction Defect, Real Estate Brokers

Sometimes when lawyers talk amongst themselves, they will refer to certain real estate cases as "bad house" cases.  What they are talking about is a dispute between buyer and seller over the FAILURE TO DISCLOSE material defects in the home.

These are perhaps the most common disputes in residential real estate.  The Transfer Disclosure Statement is mandated by California Civil Code Section 1102, and listing agent will have their seller clients complete the TDS form along with a Supplemental TDS.  The Supplemental disclosure form is not required by law, but considered a "catch all" for things not covered in the TDS. 

The Realtor should be walking through the TDS with the seller.  When in doubt, the general guideline is is to disclose anything the seller thinks is material.  Unfortunately, some agents are not meeting their highest standard of care and practicing a type of "drive by" listing where they simply drop off the forms, and then instruct their clients to fill them out and fax them back.

We once had bad house case where the seller had left many boxes blank on both the TDS and the Supplemental (seller should have checked off yes or no)–all of the blank boxes related to problems with the home.  Her agent obviously did not review the TDS for completion and passed it on to all prospective buyers.

The buyers’ agent also missed the fact that the TDS had many blanks.  What happened?  The buyers ended up with a house that had standing water (we’re talking ponds and lakes here!) under the house in the summer time, when the heat came on, it blew in mildew smells throughout the home and all kinds of water and mold related problems.  The purchasers of this "lakehouse" ended up spending over $100k to drain, ventilate and remediate the home. 

As you can imagine, this matter went to litigation.  Were the Realtors involved? You betcha.  Did the Realtors point fingers? Yes.  At each other, at their own clients and at the home inspector.  What did the home inspector say?  Well, this guy was paid $300 to walk around the house for an hour–he could hardly remember the house. 

In a similar case we had with standing water under the house, the inspector was told by the seller’s agent that the sprinklers had been on earlier (also a summer sale) so that was why there was water under the house.

Lessons to take away?  Sellers–disclose, disclose, disclose.  Buyers–get a good referral to a Realtor who will exercise a high degree of professionalism and skill because they know their business is built on repeat referrals.  I’ve already blogged about home inspectors, and an established local Realtor will have good contacts and should be able to find a qualified professional for you to work with.  Buyers–you can’t abdicate your own duty to visually inspect the property either so don’t be afraid to get your clothes dirty and ask questions during the inspection.

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