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Lawsuits in real estate transfers can include breach of contract allegations, and also fraud allegations if the seller failed to properly disclose defects in the purchased residence.

The residential purchase agreement includes a separate form called Transfer Disclosure Statement (“TDS”). This form is required to disclose any known defects in a residential property containing up to four dwelling units. Civil Code section 1102 obligates the seller to disclose the condition of the property. The TDS is not a warranty, but it can be relied upon by the buyer as the basis for a lawsuit if the disclosures are incorrect and the correct information was within the personal knowledge of the seller through the exercise of ordinary care.

A violation of section 1102 is a form of fraud. E.g. Peake v. Underwood (2014) 227 Cal. App. 4th 428, 442 (real estate agent only liable for fraud if they failed to disclose facts based on reasonably competent and diligent visual inspection of the property). Fraud brings with it potential recovery of punitive damages. Civil Code section 3294 permits punitive damages for oppression, fraud, or malice.  For section 3294 purposes, “fraud” means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.

Many TDS plaintiffs wish to sue the seller’s real estate agent along with the seller. Civil Code section 2079(a) protects real estate agents as follows:

It is the duty of a real estate broker or salesperson…to a prospective [residential] buyer to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose to … buyer all facts materially affecting the value or desirability of the property that an investigation would reveal, if that broker has a written contract with the seller to find or obtain a buyer or is a broker who acts in cooperation with that broker to find and obtain a buyer.

Punitive damages are awarded “for the sake of example and by way of punishing the defendant.” Where the lawsuit is not contested because defendant has defaulted by failure to file an answer, it is still possible to recover punitive damages if you have clear and convincing evidence of fraud. But you must clear legal hurdles.

The Notice of Preservation of Right to Seek Punitive Damages against defendant must be served on the defaulting defendant. California Code of Civil Procedure 425.115. Your Notice must state the exact dollar amount you are going to ask the judge to award.

The 425.115 Notice must be served as you would a summons, before you file your application for entry of default. After service, you are free to ask the judge to include the specified amount in the default judgment. Be prepared to prove it.      

If you are seeking punitive damages and would like to speak to an attorney, contact Schneiders & Associates, L.L.P. today to schedule an appointment.

Kathleen J. Smith is an experienced civil litigator. Kathi advises clients on and handles all types of civil litigation, including employment matters, wage and hour, business, real estate, trademark disputes, class action defense, trust and probate, and homeowners association disputes. Kathi is experienced in all types of dispute resolution, from mediation to arbitration to civil trial.

About the Author
Theodore J. Schneider practices in the areas of business and corporate transactions, employment law counseling, municipal and public law, real estate and land use, and homeowner associations. Ted began his legal career in 2002 when he joined the Los Angeles office of Gibson, Dunn & Crutcher, L.L.P. before relocating to Ventura County to join his father in practice.