A Lawsuit For Not Disclosing A Lawsuit

Calemine v. Samuelson: a disclosures case

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Agents and sellers face decisions everyday on what needs to be disclosed. On the surface it sounds like a no-brainer on what should be disclosed, however, it turns out that that it is not always clear. Therefore, sellers and agents need to understand some of the fine points of disclosures. Calemine v. Samuelson can help in better understanding disclosures requirements.

Facts Of The Case

Samuelson and his wife were owners of a condo, which had a lower level garage and bonus room. The development, Jared Court, had experienced water intrusion issues, including water intrusion into the garages and some flooding, including in the Samuelson’s condo.

Samuelson and the homeowners association sued the developer for design and construction defects. The homeowners association hired Westar Flooring to repair and waterproof areas that had suffered moisture intrusion, and later the homeowners association sued Westar for negligent repairs. Samuelson was president of the HOA, and/or treasure, for 8 years.

Seller fully disclosed the water issues, the flooding and the repairs

Samuelson, the seller, signed and completed a real estate transfer disclosure statement, stating that he was aware of flooding, drainage or grading problems. The listing agent, noted water damage in the garage and urged the buyer to have a physical inspection by a licensed contractor. The buyer had the home inspected by a contractor and a termite company. Each of these companies noted water damage.

Samuelson told the buyer, that since the repairs had been made, that he had not had a problem. Problem solved

What Samuelson did not disclose

Samuelson, did not disclose the fact that there had been two separate lawsuits involving moisture, water and drainage issues.

Samuelson indicated that he did not disclose that there had been past lawsuits and litigation in the transfer disclosure statement because he thought that he only needed to disclose pending or present litigation, not past litigation. When reading TDS, some might understand why he felt this way.

TDS Question Was Not Clear ???

Are there “Any lawsuits by or against the Seller threatening to or affecting this real property, including any lawsuits alleging a defect or deficiency in this real property or “common areas“ (facilities such as pools, tennis courts, walkways, or other areas co-owned in undivided interest with others).”

The Court Ruled

In this case, the justices held, that had the seller disclosed the lawsuits, that the buyer could’ve examined the case details and better evaluated the property, including moisture intrusion. Possibly discovering that the repairs were poorly done or ineffective.

It is important to note that the buyer stated that had he known the facts in the lawsuit, that he would not have purchased the home

Common Law and Statutory Law Requirements

Sellers and agents should remember that the seller of a residence has both a common law and statutory duty of disclosure to the buyer, and even full compliance with the statutory duty does not excuse the common law duty.

Under the Common Law, “where the seller knows of facts materially affecting the value or desirability of the property which are known or accessible only to him and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer.” Lingsch v. Savage

If there has been a past lawsuit. It should be disclosed.

The Civil Code in a number of states, requires disclosure of “Any lawsuits by or against the seller threatening to or affecting the property, including any lawsuits alleging a defect or deficiency.” In this case the buyer interpretation did not include past litigation. Also, any condominium and town-home development, as well as, common area litigation should be disclosed.

Details of the lawsuit may need not be disclosed ( as indicated in a number of cases), however, the lawsuit itself should be disclosed. Generally, it will be up to the buyer to learn the details of the lawsuit. As an agent or seller, it would be wise to recommend that an attorney be consulted regarding the lawsuit.

In Ca. Civil code section  1102.6 required disclosure of lawsuits.

If there has been a lawsuit, do you furnish a copy of the court case itself to the buyer?

There is a line of reasoning that indicates that it is not required to furnish a printed copy of the court case itself or interpret it ( Assilzadeh case). As an agent don’t risk any legal interpretation of any case, past or present, on the property you’re selling.  Recommend to the buyer that they consult with an attorney and to review the lawsuit.

If you find yourself in a satiation where there was or is litigation, discuss it with your broker and with legal counsel.

Partial disclosure risk – half truth

Partial disclosures may be viewed by a court or judge as intentionally  misleading a client or withholding of information. This is very dangerous legally.

Where do you stop in your disclosures? In some instances, an agent doesn’t know when he should stop in furnishing disclosure information.

Hard To Know Where to Stop Disclosing

If the toilet overflowed on the second floor and caused drywall damage on the first floor ceiling; do you need to provide the date, why the toilet overflowed, was it fixed that day or a week later, who fixed it, their name / phone number and a copy of the invoice, was an insurance claim filed and for how much, was a mold and mildew test taken, was the sub-floor damaged or repaired, etc, etc.

In this case the seller and agent may disclose much of the information and check to see if there are any concerns or questions that buyer might have. Providing dates, description of the issue and repairs, who made the repairs and receipts might be wise. Also, if any insurance claims were made, then copies of the insurance paper work would be advisable. The more information provided, the easier it is for a buyer to evaluate event and the harder for the buyer to say he was not advised of the issue.

Basic disclosure legal requirement is to disclose all material facts that affect value or desirability

Insurance Claims

If there has been insurance claims, i.e., fire, water or storm damage, then this should be disclosed. Insurance claims made but not disclosed can lead to litigation. If an owner had storm damage to a roof and it leaked, but the owner took the money, but failed to repair the roof. Then, after the buyer moves in and the next rain causes damage, then the buyer may sue if this was not disclosed.

Insurance companies may refuse to insure some properties or require a higher premium once they discover past issues in the CLUE report.

Bottom line

The duty to disclose is required in both Common law and statutory law

Even when the Civil Code is complied with, it does not necessarily relieve the seller (or agent) of their common law duty to disclose anything that might adversely affect the value or desirability of the property.

Check to see if there have been any lawsuits and disclose. (The 3P’s )

• Past
• Present
• Pending

Insurance

Check for past, present or pending insurance claims. Provide full documentation to the buyer about the claims, including a CLUE Report.

Permits

Often when repair and corrective action work is preformed, there arises a requirement for permits to be obtained. In the rush to do remediation or repairs this requirement may be overlooked. Litigation on defective work often involves work done without a permit. Therefore, a wise agent should advise a buyer about permits and that further investigation ought to be done.

(Note that different courts, judges or juries may find or rule differently, although the facts presented appear basically the same)

Caution – Disclaimer – legal notice

Note that this article is not legal advice, nor intended to be legal advice: its’ intent is to bring up “Risk Management” issues and concerns. The article is only for informational purposes. No agent, broker, buyer or seller should make any decisions based on this article. Different states and courts may rule on the same set of facts differently. Seek advice on all matters involving the law or interpretation of the law from an attorney.

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David Jones - General Contractor, Home Inspector, Consultant

David has over 45 years’ experience as a general contractor, inspector and professional instructor. He writes articles for homeowners, new home buyers and Real Estate Agents. Read more