Rogue Realtors (and buyers) beware
If you are not a real estate broker or sales agent, stop reading. Stop right now and find something more interesting in the Sierra Sun. Try the classifieds.
If you are in the real estate world, at least consider reading this. It is certifiably boring.
The buyers wanted to acquire a piece of property they could subdivide into two lots, one for them, one for the wife’s parents.
That may have been their first mistake.
The MLS listing read: “ALL USABLE 2.62 ACRES COUNTY STATES 1 ACRE MINIMUM LOT SIZE COULD BE SPLIT.”
The seller’s broker basically told the buyer’s broker the property could be split, but they should check with the county. The seller’s broker testified that county representatives said the property could be split, but he could not remember with whom he had spoken.
A big fat “disclosure packet” was given to the buyer’s broker, which noted the property was zoned residential, one-acre minimum lot size, but also indicated the general plan was “24-Impact Sensitive-1 du/4 acres.”
The buyers testified they conducted a basic investigation of local laws and ordinances, then closed the deal. They paid $235,000.
You guessed it, the buyers hired a civil engineer who promptly discovered that, while the zoning specified one acre minimum, the general plan required a minimum lot size of four acres ” the proverbial discrepancy between zoning and the general plan. General plan trumps. No lot split.
Buyers sue seller’s broker for intentional and negligent misrepresentation.
As you would expect, the CAR “Vacant Land Purchase Agreement” contains all sorts of advice and disclosures to the buyers: that they conduct due diligence, investigate the property and specifically check on the zoning and local ordinances. Some warnings were presented in bold type. There was even a handwritten note advising the buyers to investigate the representations from the seller.
The trial court ruled that the seller’s broker intentionally misrepresented the “splitability” of the property (if there is such a word); however, the CAR contract form advising the buyers to investigate relieved the seller’s broker of liability.
The Court of Appeal took the case and determined the seller’s broker knew (or made reckless statements without regard for the truth) about the general plan four-acre minimum requirement, yet represented the property “could be split” or suggested the county so represented. The court found intentional misrepresentation, i.e. fraud. Intentional misrepresentation is worse than negligent misrepresentation where you misrepresent unintentionally.
Practice point: Normally a representation “County says lot may be split,” passing on someone else’s belief, is better than disclosing “lot may be split.” But in this case the court apparently determined the county did not so represent.
The determining issue in this real estate disclosure case was whether the buyer was “reasonable and justifiable” in relying on the false statements that the property could be split.
The seller’s broker pointed out all of the CAR contract form advisories about investigating the property, arguing that the CAR language exempted the seller’s broker from responsibility.
The court recited what it called well established California law in the event of fraud by the seller or the seller’s broker: the negligence or ineptitude of the buyer in failing to discover the falsity is no defense. The court quoted former California Supreme Court Justice Roger Traynor, one of our professors at Hastings in San Francisco: “No rogue should enjoy his ill-gotten plunder for the simple reason that his victim by chance is a fool.”
In the end, the Court of Appeal allowed the buyers to take their case to a jury where they will have to prove the broker intentionally misrepresented that the property could be split and they justifiably relied on that misrepresentation.
This ruling is correct if indeed the seller’s broker knew the property could not be split.