PROPERTY CONDITION DISCLOSURE FORMS: HOW THE REAL ESTATE INDUSTRY EASED THE TRANSITION FROM CAVEAT EMPTOR TO "SELLER TELL ALL"

V. THE ORIGIN OF SELLER DISCLOSURE STATUTES AND THE BROKER'S INDEPENDENT DISCLOSURE OBLIGATIONS

California was the first state where brokers successfully lobbied for a statute mandating the use of property condition disclosure forms. The brokers lobbied the legislature in 1985 following a landmark case, Eastern v. Strassburger,n which extended broker liability in two ways. Easton delivered a message to California real estate agents selling residential listings that: (1) Real estate agents would have an obligation to inspect the property for sale and relay the results of that inspection to prospective buyers, and (2) in addition to checking out the physical condition of the property, real estate agents would be required to disclose to buyers not only known or recently discovered information, but also any and all "facts materially affecting the value or desirability of the property . . . which through reasonable diligence should be known" to the agent.94

In Easton, the Strassburgers purchased the property in 1972, and shortly afterwards, built a home and swimming pool and converted a barn into a guest house. In 1973 and 1975, the Strassburgers placed netting on a slope to repair damage caused by major landslides. The Strassburgers also constructed a retaining wall, which was not finished by the time they entered escrow with the buyer, Mrs. Easton. Instead of telling Mrs. Easton about the landslides they had experienced, the Strassburgers answered "no" on a broker-administered property information sheet that specifically asked if the sellers were aware of any past soil subsidence or settlement problems.95

The uneven floor and hillside netting were plainly visible in the sales brochure photos. Had these clues of soil problems troubled Mrs. Easton enough to hire a geologist, she probably would have learned about the potential for recurrent landslides. But she did not hire a geologist. Mrs. Easton admitted knowing the lot was "cut and fill," but she had no idea that the soil was soft adobe and the fill was poorly compacted. Within two years of the closing, a landslide undermined the driveway and threatened the stability of both the house and guest house.96

Prior to the sale, one of the agents admitted noticing an uneven floor in the guest house, a common indicator of soil problems (although an uneven floor could be caused by a bad framing job, lack of sufficient support beams, advanced termite infestation, earthquake, or water damage). One or both of the agents involved in the transaction knew that the house was built on fill and that erosion problems commonly occur on improperly compacted fill. Both agents kept this knowledge to themselves and never advised the buyer to hire a geologist to check soil stability.97

Once the landslides occurred, Mrs. Easton sued everyone potentially liable in the transaction, including the sellers, the listing and selling brokers, and both the developer and builder who had constructed the home. Mrs. Easton's purchase price was $170,000, but in its damaged condition, the property could have been worth as little as $20,000, with repair estimates ranging as high as $213,000.98