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Legal Remedies If a California Home Seller Conceals a Defect

You’ve closed escrow and moved into your dream California home. Your happiness is short-lived, however, as you discover a defect that the seller seems not to have told you about beforehand. Perhaps, following the first rain, the new coat of paint decorating the walls turns out to have been concealing mold and water infiltration from a leaking roof. The bills stack up as you seek to replace the roof and remediate the mold. Are these bills your responsibility? Or can you file a lawsuit in California court and force the seller to pay? This article will discuss:

• California sellers' obligation to make written disclosures about the property to buyers
• what types of issues California home sellers are expected to disclose
• how to prove in court that the home seller actually failed to disclose a known defect
• what amounts the court might award if you successfully sue, and
• alternatives to filing a lawsuit.

Under California Law, Sellers Must Make Written Disclosures to Prospective Buyers

California law requires sellers of single-family properties to disclose to potential buyers, in writing, any details about the home or land that could affect the potential buyer’s desire to purchase it or the amount the potential buyer is willing to pay. This applies to nearly all types of property sales, whether of a regular home, a high-rise condominium unit, or a manufactured or mobile home. It doesn't apply to all types of sellers, however; for example, if the owners who had actually lived in the home died, and it's going through probate, the estate administrator would have no disclosure obligations.

The facts concerning the property’s condition that must be disclosed are frequently called “material” facts, and a real estate seller can face severe penalties after failing to disclose one. (See California Civil Code § 1102.)

What Is a Material Fact in California Real Estate Terms?

Material facts frequently involve information concerning the property’s walls, ceiling, floors, insulation, roof, windows, doors, foundation, driveways, sidewalks, fences, electrical systems, plumbing systems, or other structural components. This is not a complete list, as any fact concerning any part of the property can be a material fact if it affects the property’s value, desirability, or ability to be used as intended.

In California, material facts are most often disclosed by completing a form called a “Transfer Disclosure Statement,” which your real estate agent might also refer to as a “TDS.” The point of the Transfer Disclosure Statement is to accurately describe the condition of the property. You should check your TDS to see if the seller did, in fact, fail to disclose the defect now troubling you.

So, in our mold and moisture example above, the relevant section would be part “B” which asks, “Are you (Seller) aware of any significant defects/malfunctions in any of the following?” If the seller failed to check the box next to “Roof,” the seller has failed to disclose that defect.

How Do You Prove That a California Home Seller Concealed a Defect?

If the property sellers concealed a known defect, you can potentially sue for fraudulent misrepresentation. You will have to prove that the seller actually took steps to hide the problem, as opposed to having perhaps been unaware of it.

You might be able to prove the sellers' intent to conceal from conduct, such as their having painted over the evidence of the roof leak. You might also prove the sellers' intent to conceal a defect based on any instructions given to a real estate agent not to tell you, or other prospective purchasers, about the concealed defect. Speak to your neighbors, your agent, and perhaps even the sellers' agent, to gather all relevant facts.

If you end up filing a lawsuit, your lawyer will take depositions (interviews of relevant parties) and gather evidence to establish whether or not the seller was aware of the defect and concealed it from you.

What Damage Payments You Could Collect if California Home Sellers Concealed a Defect

If you can prove that the seller of your California home was aware of the defect and concealed it instead of disclosing it, odds are you have a case for fraudulent misrepresentation. You might also have a case against the sellers' real estate agent, your agent, as well as any inspectors who knew, or should have known, about the defect but didn't tell you.

If you go to court, you may be awarded one or more of the following:

1. Compensatory Damages: The sellers could be forced to pay compensatory damages, to compensate you for any out-of-pocket costs associated with the concealed defect. These could include the cost of repair and any diminution in property value resulting from the defect.

2. Punitive Damages: If you can prove that the property seller acted with malice in concealing the defect, you might be able to recover punitive damages. Punitive damages can be awarded by the court in addition to compensatory damages, as they are intended to punish the wrongful conduct and deter the sellers and others from committing future fraudulent acts.

3. Rescission: In rare, serious cases, the purchase agreement can be rescinded, or cancelled by the judge, such that you would get your money back and the sellers would get the house back.

Is Going to Court Over Home Defects Your Only Option?

Going to court is not your only option. It can be faster and less expensive to try to resolve your issue less formally. A good first step is to contact the:

• Home warranty company: Find out if the item at issue is under warranty. If so, you might be entitled to repairs under the terms of your warranty.
• Insurance company: Call your homeowners' insurance agent to find out whether your policy will cover repairs of the defect. (If it's a pre-existing condition, it might not.)
• HOA: If your home is within a community governed by a homeowner’s association, call the management to see if the affected area is considered part of the common areas. If so, the HOA might contribute to or pay the cost of repairs.
• Sellers: Write a brief demand letter to the sellers describing the issue and demanding payment for all expenses related to repairing or replacing the defect. You might want to send a similar letter to the sellers' real estate agent if you have reason to believe that the agent was aware of the defect and participated in concealing it (contrary to agents' disclosure requirements in California).