Failure to disclose material defects is a leading cause of real estate litigation in California. Homebuyers, often pressured by a highly competitive market and required to submit contingency-free offers, frequently discover hidden defects only after the transaction is complete. When sellers or real estate agents fail to disclose known material issues that affect a property’s value or desirability, buyers may have legal recourse.
At Vokshori Law Group, we handle failure-to-disclose cases, representing both buyers and sellers in these complex disputes. This blog article provides an in-depth discussion of seller disclosure obligations, legal claims, potential defenses, and strategies for resolving these cases through litigation or mediation.
Seller Disclosure Obligations in California
California law requires sellers of residential property to provide prospective buyers with a Transfer Disclosure Statement (TDS) and a Seller Property Questionnaire (SPQ). These documents detail known defects and issues related to the property. Failure to provide full and accurate disclosures can lead to significant legal liability.
The TDS requires sellers to disclose material defects, prior repairs, and compliance with building codes. The SPQ further addresses insurance claims, legal disputes, and any other relevant property conditions. Buyers often rely on pest, home, and structural inspections as well, making the accuracy of these reports crucial. Sellers should also disclose permits and code compliance issues, as missing permits for renovations or improvements can lead to costly legal disputes.
Under Reed v. King (1983) 145 Cal. App. 3d 261, a seller must disclose any facts that materially affect the property’s value or desirability if they are known to the seller and not accessible to the buyer through reasonable diligence. Courts have repeatedly held that failing to disclose such information is legally equivalent to misrepresentation, as reinforced in Calemine v. Samuelson (2009) 171 Cal.App.4th 153, 161.
Common Legal Claims Brought by Buyers
When a buyer discovers an undisclosed defect, several legal claims may be available. Negligent or intentional misrepresentation is a common basis for litigation. A seller who negligently fails to disclose a known defect may be liable, while intentional misrepresentation (fraud) applies when a seller actively conceals or misrepresents material facts about the property. The court in Lingsch v. Savage (1963) 213 Cal. App. 2d 729 emphasized that failing to disclose known defects constitutes actual fraud.
Buyers often claim breach of contract when sellers violate disclosure provisions in a purchase agreement. Many real estate contracts include provisions allowing the prevailing party to recover attorney’s fees, making these disputes particularly high-stakes. In some cases, buyers sue their own real estate agent for breach of fiduciary duty if the agent failed to identify and disclose defects. Dual representation conflicts, where an agent represents both the buyer and seller, can further complicate liability.
Construction defects frequently lead to litigation, particularly when unlicensed contractors perform shoddy renovations before a sale. Buyers may pursue claims against contractors or prior owners under California Code of Civil Procedure §3379.
Buyers may recover damages for the cost of repairs, diminution in value, lost rental income, and attorney’s fees. Courts typically calculate damages using the “out-of-pocket” rule established in Salahutdin v. Valley of California (1994) 24 Cal. App. 4th 555, where damages are measured as the difference between the actual and represented value of the property. Additional claims may arise under California Civil Code §3343, which governs fraud damages in real estate transactions, and California Civil Code §§1709 & 3333, which provide remedies when intentional deception is involved.
Buyers’ Behavioral Tendencies in Failure-to-Disclose Cases
Many buyers overlook red flags due to emotional pressure and urgency in competitive real estate markets. Family members often contribute financially to purchases, increasing stress and expectations. Buyers may also fail to carefully review disclosure documents, assuming that agents or sellers have already done so. In cases where buyers waive contingencies to secure a deal, they may later regret not conducting thorough due diligence.
Defenses for Sellers and Agents in Disclosure Cases
Sellers and real estate professionals have several defenses against failure-to-disclose claims. If a defect was clearly visible or easily discoverable, the seller may argue that the buyer assumed the risk. Courts may also limit a seller’s liability if the buyer neglected to carefully review the TDS, SPQ, and inspection reports before purchasing the property.
Contracts sometimes include “as-is” clauses, which, while not absolving sellers of fraud liability, can limit exposure for minor defects. Sellers are only required to disclose known defects, so a lack of knowledge about an issue can be a defense. Additionally, some claims may be redirected to real estate agents if they failed in their professional obligations, shifting liability away from the seller. In cases where buyers try to claim damages for market fluctuations rather than actual defects, courts are often skeptical.
Resolving Failure to Disclose Cases
Mediation is often a preferable alternative to litigation. Many cases stem from negligence rather than outright fraud, and courts favor settlements that include a California Civil Code §1542 waiver, ensuring finality. Effective mediation requires careful case preparation, including reviewing disclosures, obtaining expert opinions, and identifying whether a seller’s failure was intentional or merely negligent.
Settlement agreements should be drafted with precision, ensuring that all potential claims are covered. Mediation often results in quicker, less expensive resolutions compared to litigation, which can become drawn out and costly. However, when mediation fails or when sellers refuse to acknowledge liability, litigation may be the only viable path.
For buyers, acting quickly is essential, as fraud and misrepresentation claims generally must be filed within three years under California Code of Civil Procedure §3384. Consulting an attorney early in the process can help assess the strength of a case and identify the best course of action. For sellers, ensuring all disclosures are accurate and detailed and engaging in early mediation can help resolve disputes without prolonged litigation.
Navigating the Complexities of Failure to Disclose Claims in California Real Estate
Failure-to-disclose claims are highly complex and often hinge on whether the seller or agent knowingly withheld information about a defect. At Vokshori Law Group, we provide strategic legal counsel for both buyers and sellers in these disputes, helping our clients achieve fair outcomes. If you are facing a real estate dispute, contact us today for a consultation.
Call us at (855) 855-2608 or visit www.VokLaw.com to learn more.
