The Seller Of Property Has A Duty To Disclose The Existence of Lawsuits Alleging Defects In A Condominium

Law Talk

Sam K. Abdulaziz
Attorney at Law

In 1983, Walter Samuelson bought a condominium in a development known as Jared Court. During Samuelson's tenure as a homeowner and on the Homeowner's Association ("HOA") Board, two lawsuits were initiated as a result of water intrusion and flooding on the lower level of the Jared Court Condos. One of those condos was Samuelson's condo. The first lawsuit was against the developer of the condos.

Another contractor was hired by the HOA to make remediation (corrections) with respect to the water damage. No further flooding or water intrusion was observed by Samuelson in his own home, but he was aware that other condos still had problems. The second lawsuit was against the contractor that made the remediation. This suit was settled in 1998. In 2001, negotiations began for the purchase of Samuelson's condo by Larry Calemine. Samuelson stated that he was aware of "flooding, drainage, or grading problems" but explained to Calemine that the problem had been resolved after the HOA had performed work on the affected area. However, Samuelson did not mention the previous lawsuits (he believed he only needed to disclose pending actions) regarding the water issue, and escrow closed in 2002. In 2005, when Calemine's garage flooded, Calemine learned for the first time about the prior lawsuits and filed suit for misrepresentation and breach of contract among other items.

The trial court granted Samuelson's Motion because it felt that there was no "triable issue of material fact regarding a misrepresentation or failure to disclose as to water intrusion."

However, the Appellate Court stated that a real estate seller has the duty to disclose facts materially affecting the value or desirability of the property, which includes disclosure of the existence of "lawsuits alleging a defect or deficiency" in the real property. In this case, Samuelson did not disclose the existence of the prior lawsuits on the issues of water damage that may have materially affected Calemine's willingness to purchase the condo. Samuelson believed he only needed to disclose pending lawsuits. Therefore, the court found that there was a triable issue of fact and the summary judgment was inappropriate.

Case law shows that while disclosure of details of a lawsuit alleging defects in property do not need to be disclosed, a seller's duty of disclosure includes disclosure of the existence of such a lawsuit.