Does selling real estate broker incur disclosure liability to buyer who relied on reference to 24 year old earthquake-zone study’s statement that property was “buildable”?

Posted in: Real Estate Law by Steven Vartabedian on

Under the circumstances of Saffie v. Schmeling (filed 3/7/14) E055716, the answer is no. In 2006, seller’s broker posted in the multiple listing service (MLS) the listing of a commercial parcel that stated the property was within an earthquake study zone, but a fault hazard zone investigation by a licensed geologist had determined the parcel buildable. With the help of his own broker, buyer negotiated an agreeable purchase contract. During escrow, seller’s broker provided a copy of the 1982 Fault Hazard Investigation report, bearing the 1982 approval of Riverside County, wherein the property was located; he advised buyer’s broker to “check out” the report. Neither buyer nor his broker read the report nor investigated the issue; buyer’s broker led buyer to believe the property was “ready to build,” and buyer so relied in completing the transaction. After closure of the deal, buyer learned that the state of the art concerning investigation of fault hazards had changed since the 1994 Northridge earthquake, and the County of Riverside no longer accepted investigation reports that predated that earthquake. Buyer’s intended use of the property was rendered impractical by the costs it would now take to make the property buildable for his purposes.

Buyer sued seller, seller’s broker and his own broker. At bench trial, the court found buyer’s broker liable in the sum of $232,147 for breach of fiduciary duty and negligence. Seller and seller’s broker were found not liable. Buyer appealed the finding of non-liability as to seller’s broker. The Court of Appeal, Fourth Appellate District, Division Two, affirmed the judgment.

Without disputing the truthfulness of seller’s statements, buyer contended the statements gave the false impression that the Fault Hazard Investigation report remained valid as a basis for developing the property in 2006. The appellate court began its analysis by commenting that, while a real estate broker owes his own client fiduciary duties, the only duties owed to third parties are statutory, specifically those found in Civil Code Section 1088. There, it is stated that one is responsible for the truth of all representations made in an MLS so far as one has knowledge or should have knowledge; a broker may be found negligent to anyone injured by the falseness or inaccuracy of such statements.

Here, not only was there nothing false or inaccurate in the MLS listing, selling broker disclosed during escrow a copy of the very report summarized in the MLS, inviting buyer’s agent to share it with his client and check it out further. Buyer nonetheless contended liability arises from the falseness and inaccuracy of the MLS statement as not taking into account the passage of time that could render the report unreliable and invalid. But seller’s broker never said the property was presently buildable. He merely noted the report’s finding was the property was buildable, and then timely produced the report which bore its 1982 date.

The appellate court was careful to note a material omission of information may render an otherwise true statement false or inaccurate. However, here, any misleading effect was corrected by the production of the report for purposes of the buyer and/or his broker to read and evaluate. Between the brokers, it was the buyer’s broker who had a higher fiduciary duty to investigate further; and he acknowledged he failed to even read the report, yet he represented to his client the property was ready to build upon. Buyer was awarded judgment in this regard.

This case should serve as a reminder to parties engaged in brokered transactions that all of the details of representations made by non-fiduciaries especially should be scrutinized. This includes timely reading everything that is disclosed.

The information contained in this blog is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients, clients or otherwise, should act or refrain from acting on the basis of any content included in this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. The content of this blog contains general information and may not reflect current legal developments, verdicts or settlements. The Firm expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this blog.