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Real Estate Case Update: Dual Agents – Longer Liability Exposure

Court & Appearances and Real Estate Law by Peter N. Brewer, Esq.

Bad Facts for the Licensee:

The buyers bought a house with substantial water damage.  The problem? The sellers had painted over the damaged areas with dark brown paint.  The bigger problem? The buyer’s agent was present and taking photos of the paint job.  The biggest problem? Nobody disclosed the water damage to the buyers and the agent did not give the photos to the buyers.

Why This Case is Important:

The appellate court decision specifically lays out the statute of limitations for certain claims against brokers, and concludes that Civil Code Section 2079.4’s duty of disclosure only applies to the seller’s broker.

The Lawsuit:

Unsurprisingly, the buyers filed suit against the sellers and the agent who was acting as both the broker for the sellers and the buyers. [William L. Lyon & Associates v. Superior Court of Placer County, 2012 DJDAR 4655, April 13, 2012]  The buyers also executed an exclusive Broker-Buyer C.A.R. form contract with the broker.  The parties closed escrow on May 9, 2006, but did not discover the water damage (because the dark brown paint had covered up the water stains and efflorescence) until after the winter/spring rains, sometime in the spring of 2007.  The suit was filed in May of 2009.

The broker defendant brought a motion for summary judgment on the theory that the buyer’s claims were untimely because the contract reduced the statute of limitations to two years (it is typically four years in California) and because California Civil Code Section 2079.4 provides only a two year limitations period.

Court’s Holding:

The trial court denied the motion, finding that the 2 year limitation of Section 2079.4 applied, but that it was equitably tolled while the parties tried to mediate the dispute.  The appellate court affirmed, but determined that buyers’ claims against the broker were viable for entirely different reasons.

  1. Section 2079.4 (Agent’s Visual Inspection Disclosure)  – Since the statute does not say which broker must provide it suggesting all brokers involved must provide it, the practice has evolved that all brokers make a visual inspection disclosure to the purchaser.  However, the Lyon Court determined that only the seller’s broker (listing agent) had a duty under Section 2079.4 and therefore, the 2 year statute of limitation for Section 2079.4 did not apply in this case because the buyers had sued the dual in the capacity as the buyer’s broker.  They based this reasoning on the case holding from Easton v. Strassberger, which was the impetus for enacting Section 2079.
  2. The CAR form Buyer-Broker Agreement –  The form the plaintiffs signed limited the claims period to two years.  The court concluded the provision did apply, however, the discovery doctrine also applied, and so it was a question of fact as to when plaintiff buyers discovered the latent defects.  Accordingly, more than two years could pass under that delayed discovery doctrine.

Author’s Comment:

Courts are usually reluctant to add words that are not there to the language of the statute.  Section 2079 clearly states: “It is the duty of a real estate broker or salesperson… to a prospective purchaser of residential real property… 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…if” and here’s the important part, “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.” This means that either the listing broker or the cooperating broker—and that is the buyer’s broker.  Accordingly, since Section 2079 imposes the duty to disclose on both agents in the transaction, the limitations of 2079.4 should apply to both agents, or the dual agent in the transaction as well.

Further, from a public policy perspective, the statute is to benefit consumers, and to limit the duty to only one of the professionals seems counter to advancing consumer protection goals.

If you or someone you know may need legal assistance regarding such matters, don’t hesitate to contact Brewer Offord & Pedersen LLP at (650) 327-2900, or visits our firm website to learn more about our attorneys and their practice areas at www.BrewerFirm.com.

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