With all real estate sales transactions, California law mandates the disclosure of material information and commonly used real estate contract forms tend to cover most, if not all required disclosures.
But with the increasing supply of homes and a decrease in qualified buyers, material information that affects the value and desirability of the property might not make its way to a buyer for fear of killing the deal. Additionally, with REOs and short sales making up a large portion of sales (roughly 40% of sales for May 2012 according to the California Association of Realtors(R)), national lenders and mortgage servicers aren't exactly the traditional seller a buyer can rely upon for an "above-board" transaction.
A seller, whether a bank, a trust or a natural person, has a legal duty to disclose all known material facts affecting the desirability of a property to a prospective buyer. With the real estate market in flux and the volume of homes sitting on the supply side, real estate fraud attorneys are seeing an increase in nondisclosure and fraud claims after a sale. Artin Gholian, litigation partner at Los Angeles based Real Estate law firm, Jordan Law Group APLC, has seen an increase in nondisclosure related inquiries from buyers.
"Sellers are required by law to disclose all known facts about the property and when a seller makes the decision to withhold material information for fear of losing the buyer, that decision often times leads to a lawsuit."
But even the most diligent buyer can fall victim of fraud in a real estate transaction since every property is inherently unique and form disclosures will never cover every possible material fact requiring disclosure.
"Certain disclosures such as the size of the lot or proximity to a flood zone are rarely the subject of a nondisclosure suit since most real estate transaction forms cover such standard disclosures. It's the atypical information about a home that sellers tend to conceal such as city ordinance violations, latent nuisances and defects or failed repairs," says Artin Gholian. Sellers are under more pressure than ever to offload inventory. To protect themselves, buyers need to ask a lot of questions and not be so quick to close the deal.
