Brokers Coming Into Cross-Hairs Over Environmental Disclosure

With property values continuing to plummet in the wake of the Great Recession, it is probably not surprising that brokers are increasingly finding themselves embroiled in lawsuits over scope of environmental disclosure. The risk is particularly heightened in states with Property Conditions Disclosure laws. Common issues involve mold, lead-paint, asbestos, radon, poor drinking water quality and leaking home heating tanks.

In an post earlier this year, I discussed how parties in residential transactions in the State of Washington are frequently taking the Ostrich approach when it comes to USTs and ignoring the tank condition for fear of further impacts on property value. Further complicating the issue is that in some states, home inspectors have no obligation to assess condition of heating oil USTs.

Following are some examples of recent lawsuits involving brokers and residential transactions:

Amethyst v. Marcus & Millichap Real Estate , 2011 Cal. App. Unpub. LEXIS 3641 (2nd AppDiv May 16, 2011)(compel arbitration)

Melgardejo v Evans, (8th Jud. Cir. Alachua Cty, Fl)(Complaint)(proximity to superfund site)

Blackmore v Re/Max, 2010 Ida. LEXIS 124 (Id. 2010)

Hall v. Hall, 2010 Mont. LEXIS 401 (Mt. 2010)

Commercial brokers are not subject to the Property Disclosure laws and plaintiffs have to show some contractual or other duty to be able to prevail against a commercial broker. A recent case illustrating this trend is  Movassate v Dudley Ridge Properties, 2011 U.S.Dist. LEXIS 15808 (N.D.Cal. 2/16/11) where the buyer discovered groundwater contamination after taking title to the property.

In New York, many real estate lawyers advise clients selling homes located in downstate counties not to complete the property condition disclosure statement but instead pay the $500 statutory penalty for non-compliance. The lawyers feel it is better for their clients to give the buyer the statutory $500 credit for not preparing the statement rather than risk unlimited liability for common law misrepresentation.

In many states, residential purchasers frequently do not have to retain counsel and simply rely on their brokers. In those states, brokers need to be very careful when preparing the forms.  It would probably be a good idea for brokers to develop relationships with environmental consultants