Imagine this: You have been a tenant in a downtown high-rise condominium building for more than a year when you learn that another unit in the building has been foreclosed upon and it is now offered for sale by the bank. The price is attractive and you make an offer that is accepted. During the course of the negotiations and escrow you are informed by the agent, who is representing both you and the seller, that the Homeowner Association (HOA) had earlier sued the developer for construction defects, and that the lawsuit had been settled for $5.1 million. Your agent and the seller both advise you to obtain a professional inspection of the property, which you do. Everything appears to be ok, the previous lawsuit doesn't bother you, and you go ahead and close escrow.
Later, when you are about to proceed with your plans to install marble flooring, you are informed by the HOA that this cannot be done, because the construction defects affected the load-bearing capabilities of the building. Nobody had told you that part. They should have, right? You should be able to recover damages, or rescind the deal, right? Wrong; at least wrong if this occurs in the appellate court district for Los Angeles.
In an important case (Assilzadeh v. California Federal Bank, 2nd Appellate District, 7/19/2000) whose facts closely resembled those we have hypothesized, the court ruled that both broker and seller had fulfilled their disclosure duties by making the buyer aware of the construction-defect suit and its subsequent settlement. The court rejected the buyer's argument that it was the broker's duty to investigate the details of the litigation in order to determine whether she would be able to make the improvements that she desired.
The court's reasoning in this situation was similar to that of a San Diego appellate court in the case of Sweat v. Hollister (4th Appellate District, 7/28/1995). In that situation a buyer was informed that the property he was buying was in a flood-zone and that, as a result of that fact, the city had zoned it as a "non-conforming use." Later, after escrow had closed, he discovered that, because of the zoning classification, he would not be able to obtain a permit for a planned addition. In that situation the court ruled that it was not the broker's duty to investigate and/or explain the implications of the facts that had been disclosed.
In the Assilzadeh case the court concluded that the fiduciary duties of the dual agent, "…were fulfilled when the buyer was informed that a construction defect lawsuit had been filed and settled. At that point the buyer should have investigated further and, if necessary, should have hired an attorney for advice on the legal aspects of the lawsuit and settlement…[Neither the broker nor the individual agent] was required to read and analyze the legal documents located in the court file."
Real estate brokers, their attorneys, and their insurance companies like such decisions. And, to be sure, it does contain some sound principles. Brokers and agents can't be expected to investigate, interpret and explain everything. To do so would surely go beyond the scope of their training, and it would put them in the position of being amateur geologist, building inspector, soils engineer, fire safety expert, etc.
Moreover, buyers need to take on some responsibility for themselves. They need to ask lots of questions. They need to be willing to do some investigating on their own. They cannot assume that all questioning will be done on their behalf.