On February 6, 2019, the Texas Court of Appeals reversed a trial court’s dismissal of a lawsuit by the Buyer against their agent. Calhoun v. I-20 Team Real Estate, LLC, 2019 WL 456892. Not surprisingly, this is another case involving disclosure issues. In 2015 Michael and Shea Calhoun relocated to Tyler, Texas and were first time homebuyers. They retained the services of the I-20 Team to assist them and eventually they purchased a home.
Failure to provide explanation of prior water intrusion.
During their visit to the home, they were provided a copy of the sellers’ disclosure notice (which is similar to the Nevada Seller’s Real Property Disclosure Form) which indicated “yes” to “previous flooding into the structure”. However, no further explanation was provided. There were also no items checked indicating whether or not there was improper drainage, present flood insurance, location in a hundred year flood plan or location in floodway. The Buyer’s agent did not alert her client that sellers were required to provide an explanation which would have informed them as to the source of the water that caused previous flooding into the structure. The Calhouns claimed they were not aware that an explanation was required or that it was improper for an explanation to be omitted. Interestingly, the disclosure notice (similar to the Nevada form) indicates that “if the answer to any of the above is yes, explain (attach additional sheets if necessary)”.
Guess what happens next.
Sure enough, shortly after the Calhouns purchased the home the area received heavy rainfall and there was water intrusion into the first floor which caused substantial damage to the structure and Calhoun’s personal belongings. It was subsequently discovered the home had inadequate drainage and learned this problem had occurred for years. The Calhouns sued the Seller’s agent for failure to disclose the prior flood issues. However, they also sued their own agent for failing to advise them that the disclosure notice was deficient. The I-20 Team argued that Calhouns failed to plead a legally cognizable claim because it had no legal duty to inspect the property and because the Buyers failed to establish that I-20 Team’s acts or omissions proximately caused their damages. The trial court agreed and granted dismissal. However, the Texas Court of Appeals reversed the decision.
The ruling of the Appeals Court.
The Appellate Court reinstated the lawsuit and found that the Calhouns “were first time home buyers and had no reason to know that further explanation was legally required beyond simply checking “yes” on the disclosure for “previous flooding into the structures.” [The Buyers] hired I-20 Team to represent and assist them in the purchase of their home, and I-20 Team could reasonably have anticipated that their failure to alert [the Buyers] to the sellers’ failure to provide a complete explanation for the “previous flooding into the structures” would result in purchasing a home with an unknown and unanticipated defect that caused the previous flooding.” Since the Court concluded the Calhouns had established a duty was owed to them by their agent which was the proximate cause of their damages, the trial court’s dismissal was reversed.
Licensees shouldn’t assume that Buyers read and/or understand the importance of the disclosures on the Seller’s Real Property Disclosure Form. Regardless of the experience of the homebuyer, the buyers’ agent should carefully review the Disclosure Form, confirm that it was fully completed, and any explanations were provided as required. The agent is not an expert who should provide an assessment of the explanations and, as a result, you should recommend, in writing, that they seek further expert advice about any disclosures.
Potential liability for sellers agent.
The Calhouns also sued the sellers agent but the appeals court only had the issue before it regarding the dismissal of the buyers agent. An interesting issue arises regarding whether the Calhouns could have asserted that the sellers agent acted below the standard of care by failing to review the Disclosure Notice and advise the Seller to provide the required explanation and complete the questions that were left blank. Pursuant to NRS 645.252(1) a licensee shall disclose to each party to the real estate transaction as soon as is practicable, any material and relevant facts, data or information which the licensee knows, or which by the exercise of reasonable care and diligence should have known, relating to the property which is the subject of the transaction. Moreover, subsection 2 requires the agent to “ exercise reasonable skill and care with respect to all parties to the real estate transaction.” While the seller agent does not have a contract with a buyer, it is clear that NRS 645.252 imposes statutory duties that the agent owes to the other party. It is likely a court, as well as the Nevada Real Estate Division, would find a sellers agent exercising reasonable care would be required to review the Disclosure Form and point out to the client any deficiencies in completion of the form. As a result, this is a great reminder for both buyers and sellers agents of the importance of carefully reviewing the Seller’s Real Property Disclosure Form and advising your client as appropriate.
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For more than 30 years, Attorney Lee A. Drizin has practiced in the areas of estate planning, probate, trusts, guardianship and real estate matters representing clients throughout the state of Nevada.
Drizin Law is providing this information for educational purposes only. It should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. This information is based on general principles of Nevada law at the time it was created and you should be aware laws frequently change. Moreover, the laws affecting you may differ depending on the circumstances. You should consult with a qualified attorney in your own state or jurisdiction concerning your particular situation. Review of this information does not create an attorney-client relationship.