Thought you got a great deal in the buyer’s market? Sold your home to finance your new dream home? Then finding out that your dream home is actually up side down for $392,000.00 more than what you bargained for?
In Holmes et al., v. Summer et al., http://www.courtinfo.ca.gov/opinions/documents/G041906.PDF, Buyers brought suit againt Sellers’ real estate brokers alleging that the Brokers failed to disclose that the home being sold for $749,000.00 is actually encumbered with $1,141,000.00 in mortgages. Essentially, there was no way that Buyers could have obtained free and clear title to the property unless Sellers could convince three separate lenders to release their liens on the home and walk away from $392,000.00.
Real estate brokers generally owe a duty to disclose to a buyer any physical defect of the property or any matter that affects the desirability of the property. In this case, Brokers argued that they cannot be held accountable for the Buyers’ damages because they could not disclose to Buyers the confidential information pertaining to Sellers’ financial condition. Brokers further pointed out that they are only being sued by Buyers because Sellers are judgment proof.
The court did not buy Brokers’ argument since the deeds of trust recorded against the property were a matter of public record. The court ultimately held that real estate agents and brokers have a duty to disclose to a buyer any impediment to the seller’s ability to transfer the title of the property free and clear of monetary liens and encumbrances.
With this decision, the court acknowledges that buyers must be adequately protected in order for the real estate market to recover, even if that means holding intermediaries accountable for buyers’ losses.