ASSOCIATIONS CAN SUE OWNERS’ BROKERS (June 2012)

In a very recent case, the Second District Court of Appeal held that a homeowners association can sue the unit owners’ real estate brokers when the brokers’ misconduct pertains to damage to the common area or separate interest that the association is obligated to maintain or repair, even though the association did not hire the brokers (i.e., the brokers owed a duty to the owners, not the association). This result can have broader application, enabling community associations to sue third parties, with whom the association has no contractual or other relationship, for their misconduct “pertaining” to damage to the common area or a separate interest that the association is obligated to maintain or repair.

The case was Glen Oaks Estates Homeowners Association v. Re/Max Premier Properties, Inc. (2012) 203 Cal.App.4th 913. That case involved a slope failure along a common area slope and driveway, resulting in the Association becoming embroiled in lawsuits against other parties and incurring $3 million in repair expenses.

The Association sued the brokers, who jointly represented the owners and developers in the original sale of the units, alleging that the brokers advised the developers to lower the monthly HOA dues so that the parcels would not fall out of escrow and then intentionally provided a false budget and deceptively low monthly dues statement to the owners; failed to provide the required public report to the purchasing owners and to inform them that a public report was required; and failed to warn the owners that the soil reports, used as the basis for the construction of the common roadway and common area slopes, might not be legitimate, despite having information constituting undeniable bases for questioning the reliability or validity of the soil reports (e.g., the brokers received material information that the soils engineer may not have been validly licensed and did not have errors and omissions insurance; some of the soil reports lacked a signature and/or seal of an engineer or geologist; the body of one or more soil reports referenced testing, investigation, and grading of a different property; and the body of one or more soil reports referenced a nonexistent report).

The brokers contended that the Association has no standing to sue them because they owed a duty to the owners, not the Association. Relying on Civil Code section 1368.3, the court disagreed and held that the Association has standing to sue the brokers even though the Association was not a party to the sales/purchases of the units. Under section 1368.3, a community association has standing to institute litigation in its own name, as the real party in interest and without joining with it the individual owners, in matters pertaining to damage to the common area, damage to a separate interest that the association is obligated to maintain or repair, and damage to a separate interest that arises out of, or is integrally related to, damage to the common area or a separate interest that the association is obligated to maintain or repair. The court found that the matter of the brokers’ misconduct pertained to damage to the common area (i.e., the failed slope and driveway), giving the Association standing to sue the brokers.

Effective Representation Responsive to Our Clients' Needs

Print | Sitemap
© Pariser and Pariser, LLP

Call

E-mail