Real Estate Purchase, Failure to Disclose…No Harm, No Foul?

California is home to over 35,000,000 people. With all those real estate transactions happening in the State, it has become common for an allegation of a “failure to disclose” to arise after escrow has closed on a residential sale (e.g. condo or single family residence). This article does not address any failures to disclose in commercial transactions.

California courts have answered this question by empowering a the Buyer with a common sense choice, called an “election of remedies” — the Buyer can (1) file a Complaint for Rescission or (2) Affirm the Contract and Sue for Damages. In English, Option 1 means that a Buyer can ask a Court to order the Seller to take the property back and repay the Buyer (with certain credits and offsets for the time period the property was owned by the Buyer), such that both parties are returned to their prior positions before the sale. Option 2, means that a Buyer can simply elect to keep the property and sue the Seller for damages (i.e. money). (The calculation of damages will be the subject of another post).

The law makes a fundamental distinction between liability and damages. Liability means that a party is legally responsible for the “damages” caused by his wrongful act (i.e. he/she broke the law). Damages is a legal attempt to quantify the harm so that a Court can order the party liable to pay money.

In some failure to disclose cases, there may be liability but no damages, and in such cases the Courts want the parties to move on with their lives, even where one party clearly failed to disclose something that they should have disclosed. In such cases, the rule boils down to “no harm, no foul” (or “he / she lied, but so what”).

In other failure to disclose cases, there can often be SUBSTANTIAL AMOUNTS of money at stake, climbing into the HUNDREDS OF THOUSANDS or even MILLIONS!