In this case that holds lessons for brokers, foreclosing lenders and mold inspectors, a California court ruled that a purchaser may bring claims for fraud and negligent mispresentation against a listing broker.
In Sawaya v. Coldwell Banker, the plaintiff agreed to purchase a home in Glendale, California where the listing agent and buyer’s agent was Coldwell Banker Residential Brokerage Company. The purchase agreement provided that Coldwell Banker did not guarantee the condition of the property and "strongly advised" plaintiff to have a professional inspect the property, particularly to determine if mold was present. The agreement provided that the buyer had the right to conduct inspections.The buying agent was the niece of the plaintiff. According to the court’s opinion, the plaintiff had a close relationship with her niece and relied on her to inspect the property as well as to read and understand all documents. The plaintiff’s niece assured her that she would ensure inspections were proper and thorough and that plaintiff would be "protected."When she inspected the property, plaintiff noticed "a very strong, musty odor." The listing agent later told plaintiff that she had been informed by the sellers that the source of the odor was a broken toilet, and that sellers would repair the toilet and take care of the problem." The listing agent conducted a visual investigation of the property and after observing a water stain on the bedroom ceiling, she advised plaintiff to have the property inspected by a professional inspection company. The buying agent recommended that plaintiff retain Amrow Inspection Services, Inc. (Amrow), to inspect the property. Amrow inspected the property and observed moisture stains at northeast bedroom. Amrow recommend asking the seller for further information regarding the history of the damage but did not address the presence or absence of mold.Prior to the closing, the plaintiff was given a disclosure statement which stated the sellers were unaware of any mold, flooding or drainage problem or major structural damage. Plaintiff also signed a "Mold Disclosure Agreement" provided by Coldwell Banker which stated that
"every Buyer/Lessee should have a mold test performed by an environmental professional as either a separate test or an add-on to their whole house inspection. This is especially necessary if any of the inspection reports or disclosure documents indicate that there is evidence of past or present moisture, standing water or water intrusion at the property since most mold thrives on moisture. . . . Any waiver or failure on the part of a Buyer/Lessee to complete and obtain all appropriate tests, including those for mold, is against the advice of Broker." The form went on to say that by signing, the buyer/plaintiff agreed Coldwell Banker would have no further responsibility regarding the possibility of mold contamination of the property or any resulting injury. Moreover, the form contained a disclaimer that that "[n]othing any sales agent may say to [her] can change this Agreement or the advice contained [in it]."
The day before the final walk-through inspection, the plaintiff signed a "Receipt for Reports and Contingency Removal," acknowledging she had completed all inspections and reviewed all reports, and assumed any expense for repairs or corrections. At the final walk-through, plaintiff also signed a "Verification of Property Condition" where she agreed to hold harmless the broker and brokerage employees from any liability and damages arising out of the contractual obligations of the Buyer and Seller concerning the condition of the Property."
After the closing plaintiff removed wallpaper as part of her remodeling and discovered mold in the master bathroom as well as mold-related damage in the kitchen. She hired an inspector who discovered that the moisture originated from inside the wall from the unit above and from the exterior walls in the rear of the unit. After she moved in, plaintiff discovered additional water intrusion and the presence of toxic mold in wall cavities that rendered the residence is uninhabitable. Plaintiff was forced to vacate the home due to health problems resulting from mold exposure.
Plaintiff then filed suit, asserting claims of fraudulent concealment, negligent misrepresentation, failure to inspect and disclose, and breach of contract against Coldwell Banker. Plaintiff also sued her homeowners association, the seller, a former seller, and one of the inspectors, alleging the latter parties failed to disclose the home's structural damages.
In July 2008, Coldwell Banker moved for summary judgment, denying that it concealed any facts or made misrepresentations and asserting that plaintiff did not or could not rely on any representations In support of the motion. The trial court granted summary judgment to Coldwell Banker and plaintiff appealed.
On its claim for fraudulent concealment and negligent misrepresentation, the plaintiff said that Coldwell Banker had actual knowledge of certain material facts that it knew were unknown or beyond the reach of Plaintiff. These alleged material facts were that the broker knew there was improper drainage away from the exterior walls of the unit due to the placement of exterior planters causing pooling of water, that damage to the exterior wall allowed water intrusion, and that there was no effective moisture barrier along the exterior walls outside of the walls and windows of the affected rooms. Plaintiff alleged that Coldwell Banker failed to disclose these facts and intentionally or negligently misrepresented the condition of the property
The court began its analysis by stating that mere silence alone did not constitute fraudulent concealment absent a fiduciary or confidential relationship between the parties, or special circumstances that would equitably estop a person from relying on its silence or inaction, and which were sufficient to create a positive duty to speak or act. The court then explained that even absent a duty to speak, one who undertakes to speak must not suppress facts that materially qualify those stated.
Turning to the facts, the court noted that the listing broker had told plaintiff that the source of the musty odor was a broken toilet and that the sellers would "take care of the problem." The court said that listing agent should have been aware that a musty odor, water stains on the ceiling, and a leak from a broken toilet strongly suggested a mold problem. However, instead of informing plaintiff about the potential serious toxic mold problem, the court said the listing agent told the plaintiff that the sellers' repair of the broken toilet would "take care of the problem” even though fixing a leak only addresses the water problem and does not abate the mold problem. Thus, the court found there was a triable issue of fact if the listing agent lacked “reasonable ground” for believing her statement that sellers' repair of the broken toilet would take care of the problem was true. Thus, the court found she had made a negligent misrepresentation.
By the same token, the court held there was a triable issue of fact exists as to whether the listing agent fraudulently concealed a material fact from plaintiff by misleading her into thinking that repairing the toilet would take care of the problem manifested by the musty odor, water-stained ceiling, and leaking toilet.
The rejected Coldwell Banker's reliance on the "Mold Disclosure Agreement. The court noted that this form was among 40 to 50 pages of documents that plaintiff had to sign and that the plaintiff was told these were standard documents used in every real estate transaction that she should simply sign. The court said that even assuming plaintiff read and understood the "Mold Disclosure Agreement," her claim was that she was deceived by Coldwell Banker when the listing agent told her that the sellers "would take care of the problem." The court said this was an affirmative act by the listing agent that was designed to persuade plaintiff that she did not have to be concerned about the musty odor and therefore prevented Coldwell Banker from hiding behind the "Mold Disclosure Agreement."
On the breach of oontract claim, the court said that an "as is" provision in a real property sale contract is ineffective to relieve a seller and a broker of either affirmative or negative fraud such as where the seller or his agent misrepresents the then condition of the property or fails to disclose the true facts of its condition not within the buyer's reach and affecting the value or desirability of the property. The court also pointed out under the state Civil Code, brokers had a statutory obligation to disclose to a prospective purchaser all facts materially affecting the value or desirability of the property that an investigation would reveal. Because the broker was aware of a musty odor, water stains on a ceiling and a broken toilet, the court ruled that the broker breached its duty when it told the plaintiff that the repair of the broken toilet will "take care of the problem." Moreover, the problem was not addressed and as a result plaintiff bought a property that she could not live in due to the presence of toxic mold.
This case illustrates how making inaccurate statements where the speaker has no obligation can lead to liability. This can be particularly important for banks who may not be fully aware of conditions at a foreclosed property.
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