Tag: Real Estate Attorney Los Angeles; Los Angeles Real Estate Lawyer; Real Estate Litigator Los Angeles; Real Estate Trial Attorney Los Angeles

It is well established under California law that a seller or the seller’s broker for that matter, owes a legal duty to disclose all known material facts to a buyer in a real estate transaction. See Cal. Civ. Code § 1102 et seq.; see also Holmes v. Summer (2010) 188 Cal.App.4th 1510, 1519. The question that our real estate fraud attorneys in Los Angeles recently faced is whether that duty would support a claim by the buyer against the seller and/or listing broker for constructive fraud.

To state a claim for constructive fraud, a plaintiff must establish that defendant was under a legal duty and in any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him…. See Cal. Civ. Code § 1573. see also Alfaro v. Community Housing Imp. System & Planning Ass’n, Inc., (2009) 171 Cal. App. 4th 1356, 1382-83 (“A claim of fraud based on mere nondisclosure may arise when there is a confidential relationship, when the defendant has made a representation that is likely to mislead absent a disclosure, when there is active concealment of the undisclosed matter, or ‘when one party to a transaction has sole knowledge or access to material facts and knows that such facts are not known to or reasonably discoverable by the other party.’”) (internal citations omitted); see also Bynum v. Brand, (1990) 219 Cal. App. 3d 926, 937 (“The breach of duty referred to in section 1573 must be one created by the confidential relationship, which is one of the facts constituting the fraud.”); see also Martin v. Martin, (1952) 110 Cal. App. 2d 228, 233 (“’ Where there exists a relation of trust and confidence, it is the duty of the one in whom the confidence is reposed to make full disclosure of all material facts within his knowledge relating to the transaction in question, and any concealment of material facts is a fraud.’”) (internal citations omitted); see also In re Rugani’s Estate, (1952) 108 Cal. App. 2d 624, 631 (Confidential relations are said to exist whenever trust and confidence is reposed by one person in the integrity and fidelity of another.)

Thus, the argument can be made that a buyer can allege a constructive fraud claim against the seller or seller’s broker premised on the legal duty owed in a real estate transaction.

A real estate broker or agent owes a prospective purchaser of a residential real property comprising of 1 to 4 units, a duty to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose to that prospective purchaser all facts materially affecting the value or desirability of the property that an investigation would reveal, if that broker has a written contract with the seller to find or obtain a buyer or is a broker who acts in cooperation with that broker to find and obtain a buyer. See Cal. Civ. Code § 2079(a). However, there are some limitations with respect to the extent of that inspection. The standard of care owed by a broker under California law is the degree of care that a reasonably prudent real estate broker or agent would exercise and is measured by the degree of knowledge through education, experience, and examination, required to obtain a broker/agent license. See Cal. Civ. Code § 2079.2.

These duties to disclose carried by the selling broker/agent do not relieve a buyer or prospective buyer of the duty to duty to exercise reasonable care to protect himself or herself, including those facts which are known to or within the diligent attention and observation of the buyer or prospective buyer. See Cal. Civ. Code § 2079.5.

The scope of inspection is also somewhat limited in that it does not involve or include an inspection of areas that are reasonably and normally inaccessible to such an inspection, nor an affirmative inspection of areas off the site of the subject property or public records or permits concerning the title or use of the property. See Cal. Civ. Code § 2079.3.

Prospective buyers should also be aware that if a breach or nondisclosure within the scope of duties outlined under Section 2079 et. seq., is discovered, the buyer has two years from the date of possession, which means the date of recordation, the date of close of escrow, or the date of occupancy, whichever occurs first, in order to bring an action against the selling agent/broker. See Cal. Civ. Code § 2079.4. This two year statute does not affect the 3 year statute for intentional fraud, nor does it affect the 4 year statute for breach of fiduciary duty claims.

It is also important to note that these rules regarding an agent’s duty to disclose defects visible to him/her during escrow, do not diminish the duty of disclosure owed to buyers by agents from liability for their conduct in connection with acts governed by these rules or for any breach of fiduciary duty or a seller’s legal duty of disclosure. See Cal. Civ. Code § 2079.24.

The City Attorney’s office has sued U.S. Bank, one of the largest owner of foreclosed properties in Los Angeles for its alleged disregard of its legal duties and responsibilities as owner of these foreclosed properties resulting in a large number of vacant nuisance properties.

The lawsuit alleges that U.S. Bank has been repeatedly advised over the course of several years of its failure to take care of the properties as an owner is legally bound to do. This lawsuit is important on several levels but most importantly, the upkeep of foreclosed properties, owned by banks , is important in preventing blight and a decline in home values with respect to the immediate neighborhood.

The complaint alleges various common law and statutory violations perpetrated by U.S. Bank through their conduct in ownership of these foreclosed properties including public and private nuisances, (California Civil Code §§ 3479, 3480; California Gov’t Code § 38771; L.A. Municipal Code § 11.00(l)); violations of California’s Vacant Foreclosed Property Maintenance law (Cal. Civ. Code § 2929.3); Los Angeles’ Vacant Building Ordinance (L.A.M.C. § 98.0701); Los Angeles’ Foreclosure Registry Ordinance (L.A.M.C. § 164.01); California Health and Safety Code violations (Section 17920.3); common law habitability and quiet enjoyment violations; and numerous tenant protection laws including L.A.’s rent control ordinances and federal Section 8 tenant protection measures and various building code violations.

There are hundreds of violations alleged in the Complaint by City Attorneys and they can all be summed up as claims aimed to mitigate and eliminate widespread blight and nuisance properties, which have become the ugly bi-product of the mortgage and financial crisis.

Through this lawsuit, and others like it, City Attorneys are attempting to hold banks accountable for the maintenance and upkeep required by law. Of course, maintenance and upkeep requires the expenditure of resources, which banks are inherently adverse to, but the net result of a blighted community and the existence of nuisance properties, is the diminution in value of neighborhood homes.

Abandoned and foreclosed properties, which are not properly maintained invite, as alleged in the complaint, health hazards, gang activity and other problems plaguing innocent communities.

The City’s lawsuit against U.S. Bank can be found here: LASC No.: BC488436

Generally, in a nondisclosure/fraud claim arising out of a real estate sale and transaction, wherein the buyer is bringing claims against both the seller and broker, we analyze the Transfer Disclosure Statement (“TDS”) to determine whether a breach of statutory duty claim should also be brought. If it is found that the TDS was not accurate or failed to disclose known material facts, we would consider bringing a breach of statutory duty against both the Seller and Seller’s Broker and California law supports such a claim.

Section 1102.4(a) seems to suggest that a listing agent shall be liable for any omission that was (a) within its personal knowledge, (b) was based on information timely provided by public agencies or by a person providing information as specified in this section and (c) required to be disclosed. See Cal. Civ. Code § 1102.4(a). Furthermore, Section 1102.9 states that an agent can amend the TDS if information becomes known. Moreover, in Loken v. Century 21 – Award Properties, (1995) 36 Cal. App. 4th 263, 274, the Court of Appeal held that a claim against a broker under Cal. Civ. Code § 1102 et seq for breach of statutory duty, is subject to a two year statute of limitations. Thus, such a claim against a broker is authorized under California law.

If you are a buyer of real estate and believe certain material facts were not disclosed during escrow, contact one of our Los Angeles Real Estate Attorneys today for a free consultation and case evaluation.