Seller’s Failure to Disclose Construction Defect Lawsuit May Be Fraud


A California Court last month ruled that a seller of a condominium could be liable for fraud because that seller did not disclose to the buyer of the condo that water intrusion problems were so bad that two (2) separate lawsuits were filed to address them.

After their garage flooded in 2005, the Calemines learned that the condominium they had purchased from Mr. Samuelson in 2002 had been the subject of two (2) lawsuits.  The first lawsuit was filed in 1986 against the builder of the condominium; the second filed in 1996 against the company hired to fix the flooding problem.  Mr. Samuelson had purchased the condominium in 1983 when it was first sold, had participated in both lawsuits, but failed to disclose the lawsuits during the 2002 sale of the condominium to the Calemines.

The Calemines sued Mr. Samuelson, the Homeowners’ Association and others on a variety of claims, including fraud.  Mr. Samuelson argued that he fully disclosed the water intrusion/flooding issues, even though he did not disclose the lawsuits and related details.  The Calemines countered that in addition to not disclosing the lawsuits and related details, Mr. Samuelson underplayed the problems by only generally describing the repairs made and declaring “Problem solved,” leading the Calemines to believe that “the water intrusion problem was a minor issue.”  Had the Calemines been told that the water intrusion/flooding issues were the subject of two (2) lawsuits, they would have known better.  Had the Calemines been told that a consultant involved in the second lawsuit estimated the repairs needed would cost over $1,020,800, they would have known better.  Had the Calemines been told that as the “point man” for the condominium Homeowners’ Association, Mr. Samuelson had approved only $119,800 to repair the $1,020, 800+ problem addressed in the second lawsuit, they would have known better.  The California Court of Appeal agreed, and ordered that the Calemines had the right to present their claims to a jury and let the jury decide if Mr. Samuelson’s failure to disclose the two (2) lawsuits and related details constituted fraud by concealment.

The lesson in this tale for homeowners is that if they sell their home they have a broad duty to disclose both known problems, and the full extent of those problems, including that they were bad enough to warrant filing a lawsuit to address them.  Another lesson is to be wary about filing a lawsuit over minor or potentially minor problems with your home because when you go to sell that home you will be faced with the need to disclose the lawsuit as well as the problem itself, which may make the problem appear worse than it is.

For homebuilders, this is also a cautionary tale reminding them that the law imposes a broad duty to disclose issues material to a buyer’s decision to buy a home.  On the positive side, however, the confirmation of this duty is an important tool a homebuilder can use to encourage owners of their homes to work with the homebuilder to fix any problems that may arise with their home, rather than rushing into court at the urging of an eager plaintiffs’ lawyer interested more in the fees generated than the homeowner’s long term value in the home.

Steven Hollandbio – is a  partner in the real estate practice at Morgan Miller Blair in Walnut Creek.

Calemine v. Samuelson
(2009) 171 Cal.App.4th 153


Steve Holland is a member of the firm’s real estate group, focusing on risk management, real estate development, pre-litigation counseling, litigation, and related real estate development and construction industry matters.

He has represented large Fortune 500 companies, as well as small and emerging growth companies and individuals in a wide range of industries, including real estate.

Prior to joining Morgan Miller Blair, Steven served as Of Counsel in the San Francisco office of Morgan Lewis & Bockius LLP where he represented clients in complex commercial, real estate, construction defect and general business litigation


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