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Tuesday, July 7, 1998

by: Bert Rush

brush@firstam.com

REAL ESTATE BROKERS/FIDUCIARY DUTY/EAGLE POLICY

Like bookends, realtors and title people brace most real estate transactions--so having touched on our duties yesterday, today is for the realtors.

Cliff Morgan discussed a very interesting case at our National Training Meeting in May: Field v. Century 21 Klowden-Forness Realty, 63 Cal.App.4^th 18, 73 Cal.Rptr.2d 784 (1998).

Plaintiffs Robert and Betty Field purchased rural residential property in San Diego County, using broker Century 21 Klowden-Forness Realty and agent Shirley Hays as their exclusive representive. Prior to closing the Fields and their realtor visited the property and discussed an easement in favorof the Otay Water District which, according to the pleadings, the realtor represented as affecting a driveway area only.

After close of escrow, the Fields moved in and discovered several problems. Mainly, the Water District's easement covered most of the property, and included the right to "spill" water onto their land, including some area occupied by their residence. There were also code violations--the house violated setback requirements and the septic system was inadequate. And the acreage was less than represented.

Almost four years after their purchase, the Fields sued the broker and agent for breach of fiduciary duty and negligence. Before trial, the realtors succeeded in having some of the Fields' claims excluded as barred by a two-year statute of limitations, under California Civil Code sections 2079 and 2079.4. These sections were enacted years ago, at the behest of realtors, to codify and clarify limits of their duties to inspect property offered for sale and disclose defects to prospective buyers--following the landmark case of Easton v. Strassburger, 152 Cal.App.3d 90, 199 Cal.Rptr. 383 (1984).

So sans the physical defect claims the case went to trial on title and code-related defects. The evidence was that the realtor (Hays) made no real effort to determine the extent of the Water District easement, and did not obtain or look at the title company's preliminary report til after close of escrow. She was also faulted for not recommending an inspection, in spite of such red flags as the property's rural location and apparent setback and septic issues. She "impliedly" misrepresented the acreage by (apparently) glossing over the issue when it came up.

The jury found in favor of the Fields, and the realtors appealed claiming the entire case should've been dismissed under the two-year limitations period.

The court of appeal affirmed, holding that the fiduciary duty of a realtor to his client, whom he exclusively represents, is broader than the statutory duties of inspection and disclosure codified in section 2079--so the limitations period contained in section 2079.4 wouldn't bar the non-statutory claims.

Although shocking to quite a few realtors, this decision comes as no surprise. I'd expect the same result in any state having statutory inspection/disclosure requirements similar to California's section 2079.

This case should be shared with realtors everywhere. One lesson is that they should always review the prelim/commitment--and discuss it with their client--before closing. Them that prefer to fly blind are in denial--sooner or later they'll crash & burn. Title and escrow/closing people can do them a big favor by making efforts to see that prelims/commitments are delivered timely...and how about including copies of excepted-to easements, restrictions, and the like? Mortgage lenders want this service--realtors should too.

But the main point here might be that realtors should always recommend that their clients get the most comprehensive title insurance coverage available--a great pitch for EAGLE coverage. If they do, they'll find their negative call-backs reduced and client satisfaction maximized.