Is real estate agent liable for failing to reveal tax liens?

John Strebel’s purchase offer to buy the home of Jon andLaurie Steel for $420,000 was accepted by the sellers. Unknown to Strebel, thehouse was encumbered with Internal Revenue Service tax liens and courtjudgments exceeding its sales price.

Real estate agent Haya Smith, acting as a dual agent for thebuyer and sellers, was aware of the liens but failed to disclose them to buyerStrebel. Meanwhile, Strebel made preparations to sell his former residence,contingent on the purchase of the Steel house.

Purchase Bob Bruss reports online.

When Strebel told agent Smith his home sale was ready toclose, she assured him his home purchase was “on track.” In relianceon his agent’s statement, he closed the sale of his former residence.

Unfortunately, the Steels were unable to resolve their IRStax lien and judgment disputes. The sellers eventually told Strebel they couldnot deliver marketable title because of the tax liens.

Strebel then placed the proceeds from his home sale into anaccount earning 4 percent interest while he searched for another suitable home.More than two years later, he concluded that due to rising prices he was unableto find an equivalent replacement home as he had been priced out of the rapidlyrising local market.

Home buyer Strebel then sued Smith and her brokerage, FrankHoward Allen Realtors, for fraud, negligence, breach of fiduciary duty, andunfair business practices. He also alleged emotional distress damages andeconomic damages.

If you were the judge, would you rule home buyer Strebel isentitled to damages for the lost market value appreciation of his formerresidence and for emotional distress damages?

The judge ruled Strebel is entitled to damages for the lostincreased market value of his former residence, due to the dual agent’s failureto reveal the tax liens, but he is not entitled to emotional distress oreconomic damages.

Dual agent Haya Smith, who represented both the sellers andthe buyer, should have disclosed to buyer Strebel the house was over-encumberedby IRS tax liens and judgment liens, the judge began.

Because Strebel’s sale of his former residence wascontingent on purchase of the Steel home, when dual agent Haya Smith lied tohim by informing him his purchase was “on track,” she and herbrokerage, Frank Howard Allen Realtors, became liable for resulting damages.

“Contrary to defendants’ assertion, there is nothinginequitable about the recovery of appreciation damages in this case. The factthat Strebel received what was the fair market value for his house at the timehe sold it did not eliminate financial loss from the premature sale of theproperty,” the judge emphasized.

Therefore, real estate agent Haya Smith and her supervisingbrokerage, Frank Howard Allen Realtors, are liable to John Strebel for $202,273damages, the judge ruled.

Based on the 2006 California Court of Appeals decision in Strebelv. Brenlar Investments Inc. (dba Frank Howard Allen, Realtors), 37Cal.Rptr.3d 699.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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