Calemine v. Samuelson- Duty to Disclose Prior Construction Defect Lawsuits

As residential real estate home sales seem to be showing signs of life, disclosure has become more important than you might think under current California law.  If your home has a few defects, you need to be aware of the basic disclosure requirements.

Sellers of real property in California have a general duty to disclose all material facts that may adversely affect the value of the property, and which the seller knows are not known by the buyer or within the buyer’s diligent attention and observation.  A failure to fulfill that duty may subject the seller to a possible lawsuit arising out of the failure to fully disclose.

Sales involving less than four residential units are governed by California Civil Code Section 1102.6 (entitled Real Estate Transfer Disclosure Statement), which provides a detailed form/check list of disclosures that the seller is required to complete and then provide to prospective buyers.  The disclosures are extensive, including interior and exterior walls, roofs, windows, concrete slabs and foundations, and plumbing.  The form also requires disclosure of “Any lawsuits by or against the Seller threatening to or affecting the Property, including any lawsuits alleging a defect or deficiency.” For those selling units in a condominium or townhouse development, this includes defects in the common areas.

The 2009 California Court of Appeal decision in Calemine v. Samuelson (2009) 171 Cal.App.4th 153, suggested that a seller may be required to disclose prior lawsuits, if such knowledge of the prior lawsuit would have affected the buyer’s decision to complete the purchase of the property. In the Calemine case, the seller disclosed the prior problem with water intrusion, but did not disclose the fact that two separate lawsuits involving that issue had been filed in court.  When the buyer discovered the non-disclosure, the buyer filed suit.  The trial court initially found that the seller had adequately disclosed the water intrusion problem.  The Court of Appeal disagreed and sent the case back to the trial court to determine whether the seller also should have disclosed the prior lawsuits.  The Court of Appeal ruled that if the buyers had known of the prior lawsuits, they could have obtained the court records and conducted a further investigation.

Although it will not invalidate the sale, a seller who intentionally or negligently fails to accurately complete a Real Estate Transfer Disclosure Statement may be subject to liability in a lawsuit filed by the buyer if the non-disclosures are deemed to be material.  If the buyer is successful in its action against the seller, the seller is liable for actual damages suffered by the buyer.  Additionally, compliance with the Civil Code requirements does not relieve a seller of the general, common law duty to disclose anything that might adversely affect the value of the property.

The moral of the story in the Calemine case seems to be, “when in doubt, it is better to disclose, than not to disclose.”