Much of the litigation arising from real property sales transactions involves some form or non-disclosure or even concealment of information related to the condition of the property by the brokers and agents in the sale. There are specific disclosures required of the broker-agents by law and violating these disclosure duties gives rise to a cause of action.
However, different statutes of limitation apply to claims arising from broker-agent’s disclosures depending on the relationship between the non-disclosing broker and the buyer. Knowing and understanding the statutes of limitation that apply to broker non-disclosure in real estate sale transactions is vital to protecting and maintaining the buyer’s right to bring such claims.
Broker-Agent Duty of Disclosure: 2-Year Statute of Limitations Civil Code § 2079.4
A broker’s duty of disclosure in California real property sales transactions is set forth in Civil Code § 2079, which requires a broker or salesperson to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose to the prospective buyer all facts affecting the value or desirability of the property that an investigation would reveal.
The statute of limitations for actions for breach of this duty is found in Civil Code § 2079.4, which is 2 years, starting from the date of possession of the property, the date of recordation, close of escrow or occupancy, whichever occurs first. By its clear terms, the delayed discovery rule does not apply to actions brought under § 2079.4.
Broker-Agent as Fiduciary: Statutes of Limitation
Certain variations to the broker-client relationship will shift the statute of limitations that apply based the nature of the relationship. For example, where the broker represents the purchaser in a real estate sale transaction, either exclusively or as a dual agent, that broker is in a fiduciary relationship with the purchaser client, thus owing the client a fiduciary duty.
Field v. Century 21 Klowden-Forness Realty (1998) 68 Cal.App.4th 18, 24-27. As indicated in Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399, 414, a broker in a dual agency relationship, representing both the seller and buyer, also has a fiduciary duty to both buyer and seller.
Thus, any broker representing a client in a real estate transaction also acts as a fiduciary to that client, requiring the highest good faith, undivided service and loyalty, including a duty to learn the material facts that may affect the client’s decision.
The broker is hired for their professional knowledge and skill and is expected to perform the necessary research and investigation in order to know those important matters that will affect the client’s decision and has a duty to counsel and advise the client regarding the propriety and ramifications of the decision.
The broker must place themselves in the position of the client and ask himself the type of information required for the client to make a well-informed decision, including the investigation of facts not known to the agent.
These fiduciary duties are broader and more expansive than the simple visual inspection and disclosure requirements of Civil Code § 2079, and the statute of limitations for a breach of fiduciary by a broker-agent in a real estate transaction is not governed by Civil Code § 2079.4, but is governed by the statutes of limitation that apply to breach of a fiduciary duty, such as negligence or fraud, in the context of a real property transaction, and thus falls within the 3-year statute of limitations set forth in Code of Civil Procedure § 338, governing actions for injury to real property or fraud.
Further, as noted above, the discovery rule does not apply to a claim under Civil Code § 2079.4, but the discovery rule would apply to a claim for breach of fiduciary duty.
In actions involving fiduciary obligations, where the discovery rule would apply, the start of the statute of limitations is triggered on the date the plaintiff discovers, or should have discovered, the negligence or breach, rather than at the date of the transaction, as provided in § 2079.4, thus giving the buyer a reasonable period of time to “discover” the harm, thereby extending start time to the date of discovery.
As noted above, the relationship between the broker and the buyer is a key factor in determining which statutes of limitation apply. For instance, where the seller’s broker makes a negligent misrepresentation to a prospective buyer, where that broker is representing the seller exclusively and not the buyer, in that case, a negligent misrepresentation, although technically a species of fraud, would not take the case out of the purview of the 2-year statute of limitations in Civil Code § 2079.4.
Thus, in that circumstance, the 2-year statute of limitations would apply, and the discovery rule would not. So, the claim would start to run from the close of the transaction, and the statute of limitations would bar the claim after 2 years from that date.
Broker-Agent as Fiduciary: Fraud & Constructive Fraud: Statutes of Limitation
As discussed above, the breach of a real estate agent-broker’s fiduciary duty to his or her client may constitute negligence or fraud, depending on the circumstances of the case, with fraud typically involving intentional misrepresentations or concealment, and with negligence intent being absent.
However, a real estate agent or broker, as agent or fiduciary may also be liable to the client/principal for constructive fraud even though his conduct was not actually fraudulent. This is “constructive fraud”, a unique species of fraud applicable only to a fiduciary or confidential relationship, comprising any act, omission or concealment involving a breach of legal, equitable duty, trust or confidence that results in damage to another, even though the conduct is not intentional or fraudulent.
In fact, most acts by an agent in breach of their fiduciary duties is constructive fraud, even though there is not fraudulent intent. In terms of the statute of limitations, this would fall under the 3-year statute of limitations for fraud. Code of Civil Procedure § 338(d).
Timothy Norton has 35-years experience litigating real estate disclosure issues. $180m in construction defect jury verdict awards. $72m in punitive damages awarded. Millions more in settlements.
For a consultation call (310) 706-4134 or visit us on the web at constructiondefect.com to make an appointment.
Norton & Associates. Los Angeles Construction Defect and Real Estate Litigation Attorney. Experience. Excellence. Results.