Partial disclosures do not protect sellers

Walter Samuelson and his wife became the first owners of a three-story condominium in Woodland Hills in 1983, and during the period of their ownership, until 1999, observed intermittent events of water intrusion into their unit and at other places within the condominium complex. This water intrusion and flooding led to two lawsuits, the first by the homeowner’s association and individual unit owners against to the developer, alleging design and construction defects, and the second against the company conducting repairs, for ineffective repairs.
Iglesia evangélicaMr. Samuelson served on the homeowner’s association board from 1993 until 2001, and had knowledge of these lawsuits. By the end of 1998, the second lawsuit was settled, and the repairs conducted pursuant to the second lawsuit were completed. Mr. Samuelson observed no further serious water intrusion problems thereafter.

When Walter Samuelson sold his condominium in the fall of 2001, he disclosed, on a real estate transfer disclosure statement, the flooding and drainage problems that occurred during heavy rains, his listing agent noted and disclosed water damage in the garage, and advised the buyer to obtain a physical inspection from a licensed contractor, and the home inspection service hired by the buyers reported leakage, moisture and staining problems at the property. When asked by the buyers about these problems, Mr. Samuelson described the repair measures that had been taken to correct the problems, but did not disclose the two lawsuits.

The buyers then purchased Mr. Samuelson’s condominium in July of 2002, experienced flooding (and first learned of the two lawsuits) in January of 2005, and sued Mr. Samuelson, the homeowner’s association, and others, for breach of contract, misrepresentation, and related actions in August of 2005.

Mr. Samuelson moved for summary judgment, arguing that he had disclosed to the buyers, and the buyers were aware of all material facts concerning water intrusion in his unit. And the trial court agreed, finding “that there was sufficient disclosure of defects” by Mr. Samuelson, and that no triable issue of material fact existed concerning his alleged misrepresentation or failure to disclose.

The court of appeal agreed only that Mr. Samuelson’s disclosures concerning the water intrusion and repairs were legally sufficient, but disagreed that Mr. Samuelson had no other disclosure obligations. The court held that there was a triable issue of fact “as to whether disclosure of the prior lawsuits would have been material” to the buyers, and therefore should have been disclosed.

Specifically, the California Second District Court of Appeal found that Mr. Samuelson “owed a common law ‘duty to disclose information materially affecting the value or desirability of the property.’ (Kovich v. Paseo Del Mar Homeowners’ Assn. (1996) 41 Cal.App.4th 863, 866, 48 Cal.Rptr.2d 758.) ” and held that the question of whether Mr. Samuelson should have disclosed the two lawsuits was an issue suitable for trial. Calemine v. Samuelson (2009) (PDF) 171 Cal.App.4th 153, 165, emphasis added.

Calemine v. Samuelson, decided February 17, 2009, is a reminder of the critical importance to residential real property sellers and their agents of disclosing all known facts about the condition and history of the property for sale.  We’ve considered the “The Great Disclosure Obligation Dilemma” before on this site and have learned that buyers are entitled to base their buying decision upon no less than all of the facts about a property that they and their agent can observe, and all of the facts that a seller and their agent know.

The Great Disclosure Obligation Dilemma

Special to the San Diego Daily Transcript

Question: When we purchased our home in 1998, we paid for a professional home inspection that revealed drainage problems with the property. These problems were fixed before we bought the home. We recently sold our home, and the buyers are now claiming that they have drainage problems and they are trying to hold us responsible. They say that we “failed to disclose” the drainage problems to them, but as far as we knew there was no problem because we had it fixed. Anyway, we sold the property “as is”, so we should have no problem, right?

Your obligation to disclose facts about the property being sold, and whether or not you sell the property “as is”, are two different questions.

My short answer is: you have a problem. My longer answer explores the seriousness of your problem.

A contract which states that a property is being sold “as is” means that the property is being sold and will be transferred to the buyer in its present condition. “As is” means that the seller assumes no responsibility for making any repairs or improvements to the subject property. It means that the obvious deficiencies in the property, such as broken windows and the like, are the buyer’s problem. But, “as is” does not mean: “what you see is what you get.” “As is” does not mean that you, the seller, can avoid disclosing to your buyer all that you know about the condition of the property you are selling.