LAW REVIEW: Company liable for home woes
In what may only be described as a surprise result, a home inspection company was found responsible to a home buyer for failing to discover and disclose defects in the home. The surprise is, the owner did not sue the home inspector.
The buyers desired to purchase a home in Agoura Hills from multiple sellers. Both the buyers and sellers were represented by the same real estate broker – Adobe.
They relied on an inspection report prepared by Crystal Home Inspection. Crystal prepared the report for a previous would-be buyer who chose not to purchase.
Crystal allegedly did not disclose there was major fireplace structural damage caused by the Northridge earthquake in 1994, nor did the sellers disclose the claimed damage. Dual agent Adobe did not discover or disclose the fireplace structural damage, which was claimed to be “actively concealed” from the buyers. The buyers sued the sellers and the realtors, not the inspection company.
Got those facts?
The interesting ingredient in this case is that after being sued, the realtors (Adobe) sued Crystal Home Inspection claiming that if they were responsible for failing to discover and disclose the defects, Crystal should share in the responsibility because it too had a responsibility to discover defects on behalf of the buyers.
The trial court ruled against the realtors, stating “under these circumstances, it isn’t fair to allow an agent and broker to point the finger at an inspection company when the agents and brokers have a separate and independent duty to disclose all known and readily observable defects with respect to a piece of real property.”
The realtors argued they were entitled to be partially reimbursed by Crystal Home Inspection, i.e. when two different people are negligent and cause an injury, the two are both responsible for the injury, so if only one gets sued, the other should share the liability.
As noted in the case, real estate agents and brokers involved in the sale of residential property owe the purchaser of that property “a statutory duty to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose to a prospective purchaser all facts materially affecting the value or desirability of the property that an investigation would reveal. The purchaser’s agent also owes the purchaser a higher fiduciary duty to act with the utmost care, integrity, honesty and loyalty.”
The home inspection company retained by the purchaser owes the purchaser a “statutory duty to conduct a home inspection with the degree of care that a reasonably prudent home inspector would exercise.” (Of course everyone knows what a reasonably prudent home inspector would do!)
The Court opined that the duties of home inspection companies and realtors are similar but not the same, concluding “when a purchaser of residential real property was damaged by the non-disclosure of a defect that both the inspector and the realtor were obligated to discover and disclose, it is fair to apportion the damages between the two. There is an obvious lack of sense and justice in a rule which permits the entire burden of a loss, for which two defendants were unintentionally responsible, to be shouldered onto one alone.”
There are some complicating facts and subplots in this case, but it seems to open the door to a sharing of responsibility in real estate disclosures.
What’s particularly disturbing about this case is that Crystal Home Inspection wrote in its report that the defective fireplace should be completely replaced. I predict Crystal will not be found liable, but the cost of litigation will cause the company to settle, which is unfair.
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