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California Court Notes Limits To Real Estate Agents' Duties

Written by on Monday, 20 January 2014 12:38 pm

It is refreshing, from time to time, to read, or read of, a court decision that makes good sense. (I don't mean to imply by this that most judicial decisions do not make sense. It's just that the ones we most often hear about are the ones that are questionable.) It's especially nice to come upon such a decision when real estate agents are involved. Far too often the demands and expectations placed upon agents are quite beyond the bounds of what makes sense. Also, they may often be beyond the bounds of the law.

Recently, an eminently sensible opinion was issued by California's Fourth Appellate District Court of Appeal (Swartz v. Coldwell Banker Residential, Nov. 15, 2013). It involved determining the duty owed by a real estate agent to her clients.

In November of 2006, the buyers engaged the services of a Coldwell Banker agent to represent them in a transaction to purchase a residential property. The property was a residence built by the seller on a parcel adjacent to their own residence.

Prior to the purchase, the sellers informed the buyers that the property they were buying was burdened by an easement, but that the easement was "unusable." During the course of escrow the buyers obtained a preliminary title report and a title insurance policy that described the relevant easement as a "Proposed Private Road Easement". The buyers closed escrow and obtained title to the property in January of 2007.

In March of 2009 the buyers filed a lawsuit against the sellers and the agent related to various construction defects and also that the sellers "were asserting 'an easement on the subject property...'" During the course of that lawsuit, the buyers said that they learned that an earlier owner of the properties had recorded a "Covenant of Improvement Requirements" that burdened the properties. That covenant required the development of improvements including a paved access road on the portion of the property that the buyers ultimately acquired. The title company had not identified that recorded covenant in either the preliminary title report or the title policy.

Subsequently, then, the buyers sued both the title company and, of course, the real estate agent and broker. Coldwell Banker filed a demurrer (essentially, a motion to dismiss) which the trial court granted. The buyers then appealed.

Essentially, what the buyers were saying was that the real estate agent had a fiduciary duty to conduct her own investigation of the public records and that she should have discovered the Covenant which the title company had missed. As the Appellate Court put it, "...plaintiffs seek to expand the scope of a real estate agent's duty to his or her client to include a duty to conduct an independent investigation and search of the public record to find recorded documents pertaining to the property that were not disclosed by the title insurance company."

The Appellate Court then went on to say, "...the scope of a real estate agent's duty to his or her clients is not so broad as to encompass the duty that plaintiffs propose." "Real estate agents are entitled to rely on the expertise of other professionals who are hired to complete a task in their own area of expertise. Thus, where a title insurance company is hired to perform the task of searching the public record, a real estate agent is entitled to rely on the work of the title insurance company and does not have a duty to independently search the public record to ensure that the title company has completed its job correctly."

Thus, the court concluded, "We decline to impose such a duty on real estate professionals. A real estate agent is entitled to rely on the reporting of a title company to the same extent as a purchaser of real property, and does not have an affirmative duty to independently scour the public record to 'double check' the work of a title company."

Additionally, the buyers had brought a charge of negligent misrepresentation. The Appellate Court noted that, for such a charge to be upheld, "...a positive assertion is required; an omission or an implied assertion or representation is not sufficient." It went on to observe that "Plaintiffs failed to allege in the operative complaint the existence of even a single false statement that the Coldwell defendants made to them." Rather, their complaint was that the agent didn't make an independent investigation and therefore didn't tell them about the easement problem. But that is not misrepresentation.

The Appellate Court upheld the dismissal by the trial court. While this was an encouraging opinion to read, unfortunately it was not published and therefore cannot be cited as authority. There is, however, a procedure by which parties can petition for the opinion to be published. That procedure has been followed. As of this writing, the result is not known.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.

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  About the author, Bob Hunt

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.
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