Liens in excess of price must be disclosed by a listing agent before offer accepted

Reported by Jeffery Marino and Heather McCartney

A seller’s broker listed a single family residence (SFR) encumbered by liens in amounts exceeding the asking price. A prospective buyer inquired about the property and the seller’s broker responded but did not disclose his listed property was encumbered by liens which affected the seller’s ability to sell and convey the property at the asking price. The prospective buyer made a cash-to-new-loan offer on the property, which the seller rejected. The seller’s broker then prepared a counteroffer on behalf of the seller to bargain for a better price. The seller’s broker did not disclose in the counteroffer that the balance due on the liens exceeded the contract price, nor did he include a contingency provision in the counteroffer allowing the seller to cancel in the event the lenders would not accept the net sales proceeds in satisfaction of their liens. The buyer accepted the counteroffer. Relying on his right to acquire the seller’s home, the buyer sold his home and incurred expenses. The seller’s broker later disclosed the clouded title condition to the buyer in a preliminary title report (prelim) containing lien information. Ultimately, the seller was unable to close escrow as agreed since the lenders would not accept the seller’s net sales proceeds in full satisfaction of their trust deed liens. The buyer made a demand on the seller’s broker for his money losses, which the broker rejected. The buyer claimed the seller’s broker was liable for his losses since he had a duty as a licensed real estate broker acting as the seller’s listing agent to disclose the existence of liens encumbering the property when the loan amounts are in excess of the agreed-to price and do so prior to acceptance of the offer. The seller’s broker claimed he was not required to disclose the status of the seller’s title condition as encumbered with mortgage liens prior to the acceptance of an offer since to do so would require the broker to breach his fiduciary duty owed to the seller by revealing confidential financial information. A California court of appeals held the seller’s listing broker is liable for the buyer’s losses due to his failure to disclose the existence of liens on the property with balances exceeding the purchase price, and do so prior to acceptance of an offer, since a seller’s listing broker has a general duty owed to prospective buyers before an acceptance occurs to disclose information regarding risks that may affect the seller’s ability to perform on conditions as disclosed. [Holmes v. Summer (2010) 188 CA4th 1510]

Editor’s note — Listing agents! You better start Holmes-proofing yourself and your seller. Holmes v. Summer is the agency case of the decade — the legacy of boom-time attitudes. The only way for you, as a listing agent, to Holmes-proof yourself and your seller: comply with your duty to put prospective buyers on notice of conditions known or information readily available to you as the listing agent that might affect the buyer’s decisions regarding the listed property by preparing and handing the buyer a complete marketing package — and do so before your seller accepts an offer. The property aspects to be disclosed in a marketing package include:


  • physical condition (the seller’s transfer disclosure statement (TDS) and a home inspection report);
  • title condition (property profile information and documents);
  • property operations (monthly ownership expenses, any rents);
  • property location (natural hazards and neighborhood security); and
  • environmental conditions (man-made conditions hostile to human sensitivities).

Although all listing agents have the general duty to provide buyers with these disclosures before an offer is accepted, the buyer’s selling agent must be diligent and ensure the listing agent follows through with his duty to “Holmes-proof” himself and his seller.


Property line from shoreline into littoral waterway determined by county assessor’s maps

Reported by Kelli Galippo

Adjacent properties with a common property line fronted a body of water. The littoral water beyond their shoreline was included in the ownership of the properties. The owner of one lot had a boat, which when docked, was entirely within the extension of their common property line into the littoral, the lots themselves being diagonal to the shoreline. The county assessor’s maps showed the ownership of the littoral rights for each lot as perpendicular to the shoreline at the point the common property line met the shoreline, in which case the owner’s boat straddled the property line into the littoral as shown by the assessor’s map. The neighbor owning the adjacent lot made a demand on the owner to remove his boat from the neighbor’s side of the property line into the littoral perpendicular to the shoreline as shown on the assessor’s maps, claiming the owner was trespassing on his property since the neighbor’s boat was on his side of the assessor-designated line into the littoral. The owner claimed he was not infringing on the neighbor’s property, since the line for setting the ownership was an extension of the common property line into the littoral, not a line set perpendicular to the shoreline at the point the common property line meets the shoreline. A California court of appeals held the owner was required to remove his boat from the neighbor’s property as it was trespassing on the owner’s right to possession of the littoral since a property line extending into the littoral is determined by the county assessor’s current records, which indicated the property line into the littoral is perpendicular to the shoreline. [Kendall v. Walker (2009) 181 CA4th 584]


Transportation of hazardous material abandoned by a tenant requires a permit

Reported by Kelli Galippo & Alex Gomory

A tenant vacated the premises he had occupied, but left behind containers of hazardous materials which he promised the landlord he would remove. The tenant did not remove the hazardous materials and the landlord moved the unclaimed materials beyond his property line onto the frontage road. The local department of environmental health investigated the materials and filed a complaint with the district attorney (DA), who determined the landlord did not have a permit to transport hazardous waste. The county sought to convict the landlord for improper transport of hazardous waste, claiming the landlord illegally transported hazardous waste since he transported hazardous material without the necessary permit. The landlord claimed that he was innocent of transporting hazardous waste without a permit since the materials were going to be used by the tenant who promised to pick them up, thus disqualifying the materials as being labeled as “waste.” A California court of appeals held the landlord was guilty of transporting hazardous waste since he intended to relocate the hazardous material and did so without a permit to transport hazardous waste. [The People v. Tarris (2009) 180 CA4th 612]