The DirtLaw Blog

The Residential Remodel - Working with general contractors who are unlicensed

There has a been a recent flurry of cases in California courts awarding homeowners disgorgement of all fees paid to general contractors (under B&P Section 7031).  In cases like White v. Cridlebaugh, 175 Cal. App. 4th 1535 - 2009 and Oceguera v. Cohen, there were technical defects with the general contractor's license--ie, the general contractor had been licensed at one time, but failed to adhere to the guidelines or insurance to remain licensed.  In the case of Wright v. Isaak, the general contractor had lost his license due to willful underreporting of his employees and failure to maintain worker's compensation insurance for the employees (while billing the unsuspecting homeowner for labor!).

In the recent case of Alatriste v. Cesar's Exterior Designs, Inc., the case actually addressed the issue of the homeowner actually knowing that the general is unlicensed.  The court concluded that the statute is very clear--it didn't matter that the homeowner knew that the general was unlicensed, the general contractor still had to disgorge all payments (including costs) of the job.

It strikes me that in previous case law, there was discussion of the legislative intent to protect consumers from unlicensed contractors, and that before even evaluating whether the contractor could make a showing of unjust enrichment the courts would evaluate whether the general was licensed at the time of negotiating the contract with the homeowners.  The obvious reasoning being the homeowner should not be misled by the general's licensed status at the time of contracting.  However, if the homeowner knows the contractor is not licensed in California, negotiates a lower price as a result, getting "handyman" rates, then should the homeowner retain the right to then seek disgorgement when the relationship goes south? Seems inequitable, and perhaps an unintended gap in the legislation.

Past Litigation is a Material Fact that Sellers are Obligated to Disclose By Julia M. Wei, Esq., Law Offices of Peter N. Brewer

In California, sellers have a legal obligation to disclose any material facts affecting the desirability of the property.  This duty is not only rooted in the common law, but statute as well, codified by California Civil Code Section 1102 et seq.  The sellers must complete the Transfer Disclosure Statement (“TDS”) and certify the information in the TDS.  Additionally, many organizations such as the California Association of Realtors® (C.A.R.) or the PRDS® Forms offer a Supplemental disclosure form as well for sellers to complete.

What should the Seller write on the TDS? Well, anything that affects the value or desirability of the property in the mind of a reasonable purchaser.  A common fact pattern that real estate litigators like myself often see is one where the seller of residential real estate has made a repair or a fix and fails to disclose the repair to the buyers.  The sellers take the position that the leaky roof/window/plumbing was repaired and so they had no reason to inform the buyer of the repair as the sellers no longer felt the property had a defect.  The buyers who are confronted with the leaky roof/window/plumbing (that apparently didn’t get fixed!) often feel that the sellers intentionally concealed the defect as any repair of water damage usually requires new paint or other cosmetic measures to address the water damage. 

 

When the sellers fail to disclose a material fact, and the buyer brings suit against them, this type of case is often referred to as the “bad house” case.  As most real estate purchase agreements contain mandatory mediation provisions, and many purchasers tend to initial the arbitration provision, much of the recent law on "bad house" cases is played out in a private forum with a private judge (arbitrator).  As attorneys, we are left with an older body of caselaw to extrapolate from about whether something is “material” and should be disclosed.

 

Accordingly, the recent case of Calemine v. Samuelson (Cal.2d February 17, 2009; B194461) was met with much attention in the real estate world as it was an opportunity to read an appellate decision regarding a “bad house” case.

 

Defendant Samuelson had purchased a condo in 1983.  In the nearly twenty years that he owned it, the condo had intermittent water intrusion and flooding.  He, along with some of his neighbors sued the developer.  Waterproofing and repairs were made in 1992. 

 

Apparently, when Samuelson sold his condo to Mr. and Mrs. Calemine in 2002, he filled out the Transfer Disclosure Statement and checked the box indicating he was aware of “Flooding, drainage or grading problems” and then added further, “Heavy rains below ground walls & slab.” [sic]

 

Samuelson also informed the buyers (perhaps verbally, as it is not clear from the record), there had been water intrusion and water damage in the past but that there had been extensive repairs that had solved the problem.  Samuelson did NOT disclose the two lawsuits.

In 2005, the condominium garage flooded twice, and twice more in 2006.  The Calemines sued Samuelson and the Homeowners Association and others, for nuisance, breach of contract, negligence and misrepresentation and concealment. 

 

Samuelson brought a motion for summary judgment at the trial court and prevailed but the Calemines took it up on appeal and the Appellate court concluded:

“…it is undisputed that Samuelson sufficiently disclosed the existence of the water intrusion itself.  He even urged the buyers to get their own inspection.  He failed however, to tell the buyers about the two lawsuits which had been filed.” 

 

The buyers testified (by declaration) that they would not have purchased the property if they had known about the prior lawsuits.  The Appellate court concluded there was a triable issue of fact regarding whether Samuelson was obligated to disclose the two lawsuits.

 

What this case illustrates is that when a seller makes the judgment call about what is material to the buyers, it can backfire.  It is what the buyer feels affects the desirability and value of the condominium that gives rise to a legitimate dispute. 

 

Here, the seller clearly disclosed the defect itself, but failed to disclose that the defect (water intrusion and flooding) had been so severe as to warrant two lawsuits from the owners.  Had the buyers known, they could have reviewed the pleadings and discovered that the repairs were possibly insufficient.  With that information, the buyers could have either backed out of the transaction with a justified excuse or negotiated a deeper discount or repair credit.  Seller’s failure to disclose the lawsuits removed that choice from buyers.

California Real Estate Litigation - The "Bad House" Case

Sometimes when lawyers talk amongst themselves, they will refer to certain real estate cases as "bad house" cases.  What they are talking about is a dispute between buyer and seller over the FAILURE TO DISCLOSE material defects in the home.

These are perhaps the most common disputes in residential real estate.  The Transfer Disclosure Statement is mandated by California Civil Code Section 1102, and listing agent will have their seller clients complete the TDS form along with a Supplemental TDS.  The Supplemental disclosure form is not required by law, but considered a "catch all" for things not covered in the TDS. 

The Realtor should be walking through the TDS with the seller.  When in doubt, the general guideline is is to disclose anything the seller thinks is material.  Unfortunately, some agents are not meeting their highest standard of care and practicing a type of "drive by" listing where they simply drop off the forms, and then instruct their clients to fill them out and fax them back.

We once had bad house case where the seller had left many boxes blank on both the TDS and the Supplemental (seller should have checked off yes or no)--all of the blank boxes related to problems with the home.  Her agent obviously did not review the TDS for completion and passed it on to all prospective buyers.

The buyers' agent also missed the fact that the TDS had many blanks.  What happened?  The buyers ended up with a house that had standing water (we're talking ponds and lakes here!) under the house in the summer time, when the heat came on, it blew in mildew smells throughout the home and all kinds of water and mold related problems.  The purchasers of this "lakehouse" ended up spending over $100k to drain, ventilate and remediate the home. 

As you can imagine, this matter went to litigation.  Were the Realtors involved? You betcha.  Did the Realtors point fingers? Yes.  At each other, at their own clients and at the home inspector.  What did the home inspector say?  Well, this guy was paid $300 to walk around the house for an hour--he could hardly remember the house. 

In a similar case we had with standing water under the house, the inspector was told by the seller's agent that the sprinklers had been on earlier (also a summer sale) so that was why there was water under the house.

Lessons to take away?  Sellers--disclose, disclose, disclose.  Buyers--get a good referral to a Realtor who will exercise a high degree of professionalism and skill because they know their business is built on repeat referrals.  I've already blogged about home inspectors, and an established local Realtor will have good contacts and should be able to find a qualified professional for you to work with.  Buyers--you can't abdicate your own duty to visually inspect the property either so don't be afraid to get your clothes dirty and ask questions during the inspection.

New House - New Headaches

Today, guest blogger Eric discusses the ramifications of new construction warranties in California, under California Civil Code §§ 895 through 945.5 – specifically, remediating construction problems in newly constructed homes.

The Code actually gives a complete, verbatim list of actionable construction defects is located in Section 896. The list includes water intrusion, structural (cracks in foundation, etc.), and plumbing and sewer systems problems If your new home has these types of problems, what can the homeowner do?

The initial question to ask is WHEN did you buy your home. This recently revised area of law governs actions for residential construction defects only in newly constructed homes originally sold on or after January 1, 2003. Thus, if you bought your home after this date this change in the law applies to you.

If this area of law applies to you, it provides you with a number of significant building warranties and protections. An example of one of these warranties is that a builder shall provide a homeowner with a minimum "one year express warranty, limited warranty covering the fit and finish of [:]...cabinets, mirrors, flooring, interior and exterior walls, countertops, paint finishes, and trim, but shall not apply to damage to those components caused by defects in other components governed by the other provisions of this title." However, before filing a lawsuit for breaching one of these warranties or for constructing a building with actionable construction defects, one must adhere to an extensive pre-litigation process. These pre-litigation procedures are spelled out in Civil Code §§910-914, 917-928.

Additionally, please note that the statute of limitations for defects and length of warranties can vary. Therefore, it is imperative to consult an attorney as soon as you realize that your newly constructed home has defects so that you are not precluded from seeking damages from the builder.