Protecting Yourself Against Buyer’s Remorse
Two years after closing the sale of a client’s home, you receive
an ominous letter from an attorney for the buyer. The letter advises you
that his client recently discovered defects that weren’t disclosed
on the Transfer Disclosure Statement (“TDS”). This is the
first you’ve heard of the asserted defects. You contact your seller,
who admits awareness of the defects, and informs you – much to your
surprise – that you also knew and advised him not to list the defects
on the TDS. Don’t you remember?
Congratulations. You’ve just been invited to a lawsuit. Facing a
claim that will cost you tens of thousands of dollars to defend, you find
yourself caught between a disgruntled buyer and a feckless seller. If
only you had spent the few minutes necessary to send an email to the sellers
confirming that the only defects of which they are aware are listed on the TDS.
In the field of medicine, a simple yet profound axiom has long been taught
to aspiring physicians: “If it isn’t written down, it didn’t
While divorced from the medical necessity of accurate patient notes, the
same axiom applies with equal force to the practice of real estate professionals.
Yes, the use of the TDS was implemented to avoid this very problem. Unfortunately,
like any process, garbage in equals garbage out. The efficacy of the TDS
is only as reliable as the memory, morals or scruples of your client –
the seller. As friendly and happy as the seller seemed at closing, he
or she may attempt to deflect blame onto you at the first sign of trouble.
You know you’re in the right, and the seller knows you’re in
the right. Unfortunately, if the seller stands by his or her story –
even to the point of perjury (not an uncommon occurrence) – you
cannot get out of the resulting lawsuit short of settlement or trial –
and both options will prove to be expensive.
In its 2016 decision in
Horikke v. Coldwell Banker, the California Supreme Court addressed a disgruntled buyer’s claim
that the Coldwell Banker sales agent misrepresented the usable square
footage of a Malibu residence. Representing the seller, the sales agent
had calculated the advertised square footage using public records. Communicating
with a potential buyer prior to the plaintiff, the agent specifically
noted, in hand-writing on the TDS, that the seller disclaimed any warranty
with respect to the square footage and recommended that the buyer “hire
a qualified specialist to verify the square footage.”
The transaction with the prior potential buyer fell through, and the home
ended up being sold to the Plaintiff. The TDS provided to the plaintiff
did not contain the hand-written notes provided to the first potential
buyer. The plaintiff closed on the home purchased, discovered a discrepancy
in the square footage, and sued the agent and his broker.
While the Court devotes most of its opinion to issues of fiduciary relationships
owed by brokers and agents in a dual agency relationship (the plaintiff
had engaged an agent in another Coldwell Banker), the Court, noted the
seller’s (and listing agent’s) duty of disclosure to the plaintiff
encompassed the disclosure concerning square footage even in the absence
of the dual agency. As the Court noted: “regardless of whether a
listing agent also represents the buyer, it is required to disclose to
the buyer all known facts materially affecting the value or desirability
of a property that are not known to or reasonably discoverable by the
buyer.” By way of example, the Court noted that listing agents have
duties to disclose that: a “murder had occurred on the property”;
the “neighborhood contains an overly hostile family who delights
in tormenting their neighbors with unexpected noises or unending parties”;
the “lot was filled with debris” which was covered over; the
“house sold was constructed on filled land”; and, “improvements
were added without a building permit” in violation of building codes
or zoning regulations.
While certainly aware of their disclosure requirements, why are honest
agents still being dragged to court over unconcealed defects? The answer
obviously lies in the failure to identify the defects in the TDS. As the
TDS is generally prepared by the seller with the assistance of the agent,
the buyer’s attorney has no choice but to allege that the agent
participated in the non-disclosure. Failure to do so potentially renders
the attorney liable for failure to name a potential participant in the
fraud – and more importantly, a potential participant who may be
covered by an error or omissions liability policy.
Back to our initial example of the disgruntled buyer and the feckless seller,
what can an honest agent do to protect him or herself in such circumstances?
The prudent agent not only documents the disclosures to the buyer via
the TDS, he or she also documents the process by which the TDS was prepared.
Send a short email to the seller, attaching the TDS, confirming that you
asked for all facts regarding the property, and that every fact disclosed
to you by the seller is disclosed on the TDS. The email should conclude
“If there is anything you know that isn’t disclosed, please
advise me immediately.” Print the email for your paper file and
back it up on a secure server or other medium for later access.
While not a bullet-proof “get out of jail free card,” such
an email constitutes a powerful piece of evidence in any subsequent dispute
over the purported non-disclosure. Absent a written response from the
seller disclosing additional matters, the feckless seller’s defense
is rendered untenable (if it is ever asserted in the first place). Without
such written confirmation, however, the case is reduced to a question
of your credibility versus that of the seller in the eyes of the trier
of fact – in other words, sheer chance.
The simple fact is that memories fade or are distorted over time. Written
evidence, such as a confirming email, do not fade and do not distort the
facts that occurred. It is for this very reason that the clear majority
of real estate disputes are determined by the written record.
Turning back to the facts in
Horikke v. Coldwell Banker, one can be certain that the agent in question will claim at trial that
he orally disclosed to the plaintiff the same facts regarding square footage
noted on the prior TDS. Unfortunately, in the eyes of a judge or jury,
if it wasn’t written down, it didn’t happen.
For more information or questions about this matter, please
contact Paul Sievers, Esq. at Geraci Law Firm.