Listing Agent’s Duty to Buyer and Buyer’s Duty of Investigation Clarified by California Court of Appeal

The California court of appeal in Peake v. Underwood, June 25, 2014, Fourth District, Div. One, D061267 – upheld sanctions against the buyer and buyer’s attorney for maintaining baseless complaint against the licensee “utterly lacking in legal merit.”

In a strongly worded unanimous decision, a California Court of Appeal upheld sanctions against a buyer and buyer’s attorney for continuing to prosecute a claim against a listing agent in which “the record supports that no reasonable attorney would have concluded [that the] statutory and common law claims . . . were factual and legally supportable.” Peake v. Underwood, filed June 25, 2014, Fourth District, Div. One, D061267.

As with most real estate cases, the underlying claim here was one of nondisclosure. There had been prior drainage, water intrusion and water damage issues with the house. The sellers had purchased the property with the idea of making needed repairs but had run out of money and, after owning the property for about a year, resold the house to Peake. The same agent who had represented the sellers when they purchased the property represented them in the resale.

The buyer was aware of the house’s prior drainage problems having been provided copies of reports of the previous owner’s steps to address the water issues in two separate drainage upgrades. However, when the buyer’s son’s foot went through a bathroom floor, the buyer filed suit against the seller and the listing agent alleging numerous causes of action, notwithstanding that the buyer admitted that the listing agent had provided her with photographs and reports disclosing subflooring problems. In the long procedural history of this case, the buyer dropped her claims against the seller understanding the seller to be insolvent and stipulated to drop all claims against the listing agent except statutory claims (Civil Code sections 2079 and 1102 et seq.).

During this time, the listing agent’s attorney encouraged the buyer’s attorney to dismiss the case, reminded him that the listing agent had provided all information in the listing agent’s possession, and repeatedly informed him that the defendant would seek sanctions if the case were not dismissed. The case was not dismissed and the trial court awarded sanctions finding that the buyer’s claims were “utterly lacking in legal merit.”

The appellate court affirmed both the listing agent’s duties to the buyer as well as the buyer’s duty to investigate for themselves by focusing on three things: the Real Estate Transfer Disclosure Statement (“TDS”) is a seller disclosure document; a listing agent’s inspection duty under Civil Code sections 2079 and 1102 et seq. is to, in good faith, conduct a visual inspection of accessible areas; and a listing agent has no duty to disclose latent defects to a buyer unless the agent also knows that such facts are not known to or within the reach of the diligent attention and observations of the buyer.

The buyer alleged that since the listing agent had signed the last page of the TDS, the listing agent was responsible for the sellers’ answers on the first two pages of the TDS. The sellers had answered “no” to the question asking if they were aware of any flooding, drainage or grading problems. Buyer claimed that when the listing agent signed the last page of the TDS he knew the sellers were wrong. Although the buyer in answering the motion for sanctions conceded that this claim was in error, the court reports the underlying facts and provides a clear statement for the record that such claim was indeed in error. The TDS, where the seller signs, clearly states “these representations . . . are representations made by the seller(s) and are not representation s of the agent(s), if any.”

In this case, the record is clear that the buyer was on notice of the prior problems with the house. The court found that, not only were the facts within the diligent attention of the buyer, they were actually known to her.

Although sanctions can be difficult to get, listing agents can take some comfort that, when they fully disclose and document facts, there may be a remedy for claims that are not dismissed once plaintiff’s counsel is aware of the full facts. Using the C.A.R. Agent Visual Inspection Disclosure to record a diligent visual inspection and providing all information that the listing agent has in their possession offer protection from nondisclosure claims. Buyer’s agents may also want to remind buyers that they have a duty to protect themselves and do their own due diligence as to any disclosure provided to them.

Coldwell Banker residential brokerage

By Harrison K. Long. Source of information is CALIFORNIA ASSOCIATION OF REALTORS®. This is for information only and is not the providing of legal services.

About Harrison K. Long

Real estate and business attorney. CA State Bar Association attorney member #69137. Professional real estate representative, REALTOR®, GRI, Real estate broker, CALBRE #01410855. Broker associate, HomeSmart Evergreen Realty, Irvine, CA. Providing real estate legal information and services for property owners, estate trustees, executors and administrators, fiduciaries, bankers, investor group managers, with their best decisions about homes and real estate. Orange County REALTORs® (member and prior service on its board of directors). "Realtor of the Year 2016" award by the Orange County REALTORs®. California Association of REALTORs® (now serving on its board of directors). National Association of REALTORs® member. Contact by cell or or text at 949-701-2515.
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