6.2 Disclosure Obligations, Stigmatized Property, and Liability

Material facts and the death of caveat emptor

A material fact is any information that could affect a reasonable buyer's decision to buy or the price they will pay. Examples: a cracked foundation, a leaking roof, a failed septic system, prior flooding, or a known environmental hazard. The old doctrine of caveat emptor ("let the buyer beware") has been largely replaced by a duty to disclose known defects, especially latent defects — hidden problems a buyer could not discover through reasonable inspection.

The distinction matters: a buyer can see a cracked driveway (patent defect), but cannot see a chronically wet basement that the seller paints over before showings (latent defect). The seller and the seller's agent must disclose the known latent condition; concealing it is fraud (active concealment) or misrepresentation.

The agent's three failure modes

• Misrepresentation — stating something false ("the roof is new") whether intentional or negligent.
• Concealment — hiding a known defect, e.g., placing furniture over a damaged floor.
• Failure to disclose — staying silent about a known material fact the agent had a duty to reveal.

The safe answer on the exam: disclose known material facts in writing; the agent has no duty to discover hidden defects but cannot ignore red flags or repeat the seller's claims they know to be false.

Stigmatized property and protected information

A stigmatized property is one psychologically impacted by an event — a death, suicide, murder, alleged criminal activity, or a reputation for being haunted — even though nothing is physically wrong. Whether these must be disclosed is state-specific; many states say a death on the property is not a material fact and need not be disclosed, while others set time limits.

Two items are protected by federal law and must not be disclosed even if asked:

• A prior or current occupant's status as having HIV/AIDS (a disability under the Fair Housing Act).
• The fact that a property was the site of a death from AIDS, or information that would reveal protected status.

Likewise, agents may not answer questions about the racial, religious, or ethnic makeup of a neighborhood (steering). The general rule: disclose physical material facts; do not disclose protected personal characteristics of occupants.

CERCLA, Superfund, and cleanup liability

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), also called Superfund (1980), governs cleanup of sites contaminated by hazardous substances. Its liability is the harshest concept on the exam:

• Strict liability — an owner is liable regardless of fault; they need not have caused the contamination.
• Joint and several liability — any one responsible party can be held liable for the entire cleanup cost, then seek contribution from others.
• Retroactive liability — liability reaches back to conduct that occurred before the law was passed.

Responsible parties ("PRPs") include current owners/operators, past owners at the time of disposal, generators, and transporters. The takeaway for buyers: you can inherit massive cleanup liability simply by buying contaminated land.

Limiting liability: the innocent landowner defense

A buyer can claim the innocent landowner defense (and related Brownfields protections) only if they made all appropriate inquiry before purchase. In practice that means commissioning a Phase I Environmental Site Assessment (ESA) — a records and site review with no sampling. If the Phase I flags a problem, a Phase II ESA does physical sampling. Brownfields are previously developed sites with real or perceived contamination; federal programs encourage their cleanup and reuse with liability relief.

Worked example: allocating cleanup cost

Three former owners contributed to soil contamination; total cleanup is $900,000. Under joint and several liability, the EPA can pursue the one solvent party for the full $900,000, even if that owner caused only one-third of the harm. That party then sues the other two for contribution — roughly $300,000 each — but bears the collection risk if the others are insolvent. The exam point: the government does not have to split the bill evenly; it can collect 100% from any single PRP.

California Disclosure Liability and the Death-Disclosure Statute

California gives precise statutory shape to the national disclosure duties, and the DRE tests the exact rules and timeframes.

The Easton Duty and the Visual Inspection

Following Easton v. Strassburger and now codified in Civil Code 2079, a listing and selling agent in a one-to-four-unit residential sale owe the buyer a duty to conduct a reasonably competent and diligent visual inspection of accessible areas and disclose material facts revealed. This is broader than the national rule that an agent need not "discover" defects: in California the agent must actually look and report what a visual inspection would reveal. The agent is not, however, required to inspect inaccessible areas or areas off the site.

The Three-Year Death-Disclosure Rule

California Civil Code 1710.2 sets a bright-line rule the exam loves: a seller or agent has no duty to disclose a death on the property that occurred more than three years before the offer to purchase. A death within the prior three years is generally a material fact that must be disclosed. Two carve-outs always apply: (1) the manner of death from HIV/AIDS may never be disclosed (fair-housing/privacy protection), and (2) the agent may never lie in response to a direct question. So even a death older than three years cannot be actively misrepresented if a buyer asks point-blank.

A Worked Stigma Timeline

A seller's grandfather died of natural causes in the home four years before the buyer's offer. Must the agent volunteer it? No — it is outside the three-year window, so there is no affirmative duty. But if the buyer directly asks, "Has anyone died here?", the agent cannot answer falsely; an honest "yes, four years ago of natural causes" is required, while the cause may be omitted if it implicates a protected status.

Trap: The three-year death rule is California-specific. On the national portion, stigma disclosure is described as "state-specific," but a California-portion question expects the precise Civil Code 1710.2 three-year answer. Match the rule to which portion the question targets.