Trouble for Sale : More home buyers say they aren’t getting the full story on known property defects. It may be reflected in more lawsuits.
It was the house the couple had been waiting for: three large bedrooms, a beautifully remodeled kitchen and a family room that would be perfect for the kids. Best of all, they bought it at far below its market value of just a few years ago.
But what the buyers really bought into was trouble.
Four months after moving in, a Simi Valley city inspector informed the buyers that the family room--a converted garage--violated several building and safety codes. The house also lacked a covered parking area, required by the city if there was no garage. Unless the new homeowners wanted to convert the room back to its original purpose, the inspector said, they were probably looking at about $10,000 in construction and wiring costs.
“We were never told that there weren’t permits for this room or that we’d have to invest a penny to make it legal,” said the husband, a computer consultant who has contacted an attorney. Pending possible legal action, he asked that his name not be used. “If we had known about this going in, I don’t know whether we would have chosen this particular house. We wiped out our savings for the down payment, and we sure don’t have an extra $10,000 lying around now for this kind of thing,” he said. “We should have been told about this.”
They were not the only home buyers who said they didn’t get the full story before they signed on the dotted line.
Real estate attorneys report that lawsuits against sellers and real estate brokers have risen dramatically in Ventura County in recent years, the majority centering on alleged failure to disclose information to the buyers about known defects on the property.
Although many of the cases are eventually settled out of court, lawyers nevertheless say the trend is significant.
“There are definitely more disclosure suits now,” said Mark Nelson, real estate committee chairman for the Ventura County Bar Assn. “They’ve been steadily increasing over the last few years.”
The issue of disclosure, of course, is nothing new. Since 1987, sellers and their realty agents have been required by state law to reveal in writing all of a home’s known defects, including structural problems, the presence of hazardous substances such as asbestos, zoning violations or neighborhood noise problems.
Intentional failure to notify the buyer makes the seller liable for damages, whereas disclosing a residence’s defects usually relieves the seller and realtor of any future liability for the cost of repairs.
But a seller or real estate agent’s liability doesn’t necessarily end just because every question on the standard disclosure form given to a prospective buyer was answered.
In one case, for instance, a woman sued the former owner of her home for failing to disclose that a slaying had taken place on the site, which, she claimed, made her home worth less than what she paid for the residence. Opposing attorneys attempted to have the case dismissed, but the judge ruled that the woman had justifiable cause for legal action. The case was settled out of court.
In another case, a buyer was permitted to get out of his real estate deal several months after buying a residence and moving in. The seller’s omission? Failing to mention that the residence had ghosts.
“Now I think the general feeling among realtors is: disclose, disclose, disclose,” said Emily Irelan, president of the Conejo Valley Board of Realtors, which represents 2,000 real estate agents. “Our philosophy is to tell everything.”
From the look of things, though, not everyone shares that philosophy.
The state Department of Real Estate keeps no statistics on the number of lawsuits filed against sellers or real estate agents for failure to disclose. Consequently, determining the extent of the problem is difficult. Nevertheless, a spokesman for the department said that despite a sluggish housing market, the agency each year continues to receive thousands of complaints against sellers and real estate agents.
“Even with the economy the way it is, we’re still processing the same amount of complaints--if not more,” said Bill Koenig, district director of the department’s Sacramento enforcement section.
Locally, attorneys say cases such as the one involving the Simi Valley family with the converted garage abound. According to Michael Muirhead, a real estate attorney in Ventura, a common cause for disclosure lawsuits in this county involves converted garages that don’t meet building and safety codes.
“Generally it is illegal to convert your garage to rooms,” Muirhead said, “but you drive down any neighborhood and every third house has a garage converted to rooms.” If a buyer isn’t truthfully told whether such a room meets city building standards, he said, “it potentially affects the decision to buy.”
But improperly done home improvements or add-on rooms built without permits represent only a sampling of the type of disputes that have come across legal desks in recent months.
Take the case, for instance, of The House That Really Wasn’t One. Or the case of The Disappearing Driveway. Or The Four-Legged Peeping Tom. And the list goes on. (See accompanying story.)
What’s causing the increase in cases? The answer appears to be up for grabs.
Muirhead speculates that the rise in litigation is largely the result of confusion by sellers. “I think everyone understands that if there is something detrimental to their home, they should tell the buyer about it. But (what should be disclosed) is becoming so much broader now,” he said.
“Also, you see a lot more Fizzbos--For Sale By Owners--and that can be a fountain of litigation. If a seller is an ordinary Joe Blow, a lot aren’t aware of the extent of their duty to disclose.”
Most attorneys and real estate agents contacted said the economy is probably playing a role as well.
Some professionals speculate that as housing values declined and the market sputtered, many sellers panicked at the “For Sale” signs swinging on their front lawns for months at a time. When a potential buyer did come along, the seller might have conveniently overlooked certain defects in the home so as not to jeopardize the sale.
“There are probably plenty of people out there who are desperate to sell their houses,” said Linda Corwin, a CPA and real estate attorney in Westlake Village. People in that mind-set, Corwin said, “will probably tend to have a more selective memory about what’s wrong with the house.”
But buyer attitudes have also been affected by the economy. David Grokenberger, a real estate attorney with offices in Santa Barbara and Ventura, said there has always been a problem with failure to disclose, but that past buyers might have been more willing to overlook surprises.
“When property was appreciating, people were in the business of turning it over and not worrying about problems as much,” Grokenberger said. “Now, property is more expensive and people can’t afford to take on the added problems. They’ve already extended themselves just to get into the property.”
Attorney Corwin agrees that buyers have become less willing to pay for anything they don’t have to, and sometimes, she said, that can translate into frivolous cases.
“It seems like with the down trend in the economy, a lot more attorneys are willing to file litigation than before. . . . A lot should be dismissed,” Corwin said. “More people are looking to the litigation process as a source of income.”
That view is shared by plenty of people who sell houses for a living.
Doug Moe, a real estate broker and co-owner of Century 21 Realty Sales in Ventura, said putting out “emotional fires” in new home buyers is something real estate agents have always had to do.
“I’ve seen people get unhappy over a broken pane of glass, a missing light bulb or torn screens,” Moe said. “They may sound like small, trivial things to you--and believe me, they are--but sometimes people are under high pressure. . . . The little things become big things.”
In a court of law, however, the question would not boil down to big or little, but knowledge versus ignorance. For instance, in order for a home buyer to prevail in a lawsuit over having discovered asbestos on the property, it would be necessary to prove that the seller knew about the hazardous substance at the time of the sale.
“If there was no knowledge of the asbestos, there was no misrepresentation,” the Bar Assn.’s Nelson said. “Some people don’t recognize that. They think (the disclosure form) has to be a true statement (on the home’s condition). It really is only about the seller’s knowledge.
“If you really don’t know,” he said, “you’ve made an honest statement, haven’t you?”
