Disclose That Lawsuit

By
Thomas N. Jacobson
The Law Offices of Thomas N. Jacobson

March 24, 2008

The recent case of Calemine v. Samuelson, 171 Cal. App. 4th 153 (2009), reminds of us of the proverbial saying, "You can't disclose too much".

Samuelson was the owner of a condominium unit in a complex known as Jared Court. Between 1983 and 1999, Samuelson observed intermittent incidents of water intrusion and flooding of the lower level of the condominium. In 1986, the Jared Court Homeowners' Association and individual unit owners, including Samuelson, brought an action against Westar. Samuelson served as the president of the HOA from March 1993 to June 1994 and as treasurer from June 1994 to April 2001. The Westar lawsuit settled in 1998.

The HOA solicited and received bids to correct the problems. The successful bidder was CHI and they completed their work in 1998. Following the repairs, Samuelson did not observe any water intrusion but did observe occasional wet spots on the garage floor during extremely heavy rains.

During the fall of 2001 Samuelson and Calemine began negotiations for the purchase and sale of the condominium. Samuelson disclosed on the Transfer Disclosure Statement (TDS) he was aware of flooding, drainage or grading problems and disclosed to Calemine "heavy rains below ground walls & slab". The listing agent noted in the agent's remarks, "Water damage noted in garage. Buyer is urged to get a physical inspection from a licensed contractor." Calemine engaged a professional inspector and an inspection was completed. The inspector found further evidence of water intrusion. Calemine asked Samuelson for further clarification and Samuelson provided oral information concerning the intrusion and some steps that had been taken to control the problem.

Calemine moved into the condominium in July 2002 and in January 2005 the garage flooded. At that time Calemine first learned about the Westar and developer lawsuits. Samuelson did not disclose the lawsuits.

The Court of Appeals reviewed the standards for disclosure and noted that a seller of real property has a duty to disclose facts materially affecting the value or desirability of the property. A seller is not under a duty to provide details that will merely serve to elaborate on the disclosed facts.

The court found that Samuelson disclosed the material facts relating to the water intrusion but did not disclose the existence of the litigation. The court found that despite the fact the litigation was completed, the existence of the prior litigation was a material fact and should have been disclosed to Calemine. The court also addressed some claims made by Calemine that Samuelson had not disclosed enough detail concerning that repairs were made by a low bidder and other details of the repair. The court provided guidance for disclosure of material facts by stating that it is a duty of the seller to disclose all material facts include past and present litigation. Once the seller has disclosed the existence of the material fact, it is the duty of the buyer as part of their due diligence to obtain the detail. By way of example, it was the duty of Samuelson to disclose the existence of the litigation, but it was not the obligation of Samuelson to produce all of the filings and contents of the litigation file. It was the duty of Samuelson to disclose that repairs were made but it was not his duty to disclose the extent and detail of the repairs.

Real estate professionals must be careful in counseling their clients about disclosure requirements. Sellers are obligated to not only disclose the existence of a soil or water intrusion problem, but they must also disclose if previously or at the time of the transaction litigation has occurred or is pending. Irrespective as to market conditions the obligations with regard to disclosure do not change. It is an important part of any real estate transaction and it is important to take time with the seller to assure they have considered everything that may be of possible interest to a buyer. When in doubt, DISCLOSE.