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A lawsuit filed this month by a Southern California real estate broker alleges that many of California’s natural hazard disclosure services for real estate transactions have engaged in “widespread fraudulent acts,” including the failure to properly research and report properties located in high fire-hazard zones. Arleen Freeman, the broker who launched this lawsuit, had earlier engaged in high-profile litigation charging five San Diego-area Realtor associations with price-fixing.

Dave Barry, a San Francisco lawyer who is best known for pursuing real estate antitrust cases, represents Freeman in this case against natural hazards disclosure companies and in ongoing legal proceedings relating to the San Diego-area case.

Mauricio Brain, chief operating officer for LGS Reports, Inc., one of the companies named in the suit, said today he was surprised to hear about the lawsuit and could not comment on the specifics because he has not yet seen the complaint.

“We expect the complaint to be dismissed,” said June Barlow, general counsel for the California Association of Realtors. The association owns Natural Hazards Disclosure, LLC, a company named in the lawsuit. “It’s an example of a shakedown lawsuit that (state law) is designed to prevent.”

While the association has not been formally served with the complaint, Barlow said, “The plaintiff, a real estate agent, is not even alleging she’s an injured buyer. In fact, there don’t appear to be injuries to anyone except in the imagination of the plaintiff’s attorney. David Barry has filed and lost well over two dozen lawsuits against organized real estate.”

The Dec. 10 complaint names several other disclosure providers: JCP Geologists Inc.; Natural Hazards Disclosure LLC; Fidelity National Flood Services Inc.; Property Data Services Inc.; Be Disclosure!; California Property Disclosure LLC; Disclosure Save; Geo Logix; Geo Tech; Haz Check by ABW Corp.; First Consulting Services LLC; White Consulting; Nationwide (RealtyCheck); and SafeRealEstate.

The lawsuit calls for restitution paid to the buyers of natural hazard reports that allegedly falsely indicated that properties were not in high fire-hazard zones; an injunction to prohibit disclosure companies from selling natural hazard reports until there are systems in place to determine whether properties are in the high-hazard zones; and requirement that defendants advise buyers of non-complying natural hazard reports filed up to four years before the lawsuit.

The lawsuit charges that the companies named in the lawsuit “have not, in the past four years, utilized the local (high fire hazard severity zone) data” that is intended to indicated areas with high fire hazards. “Instead, (the companies) rely on state maps superseded by local maps,” the lawsuit states, and property disclosure reports may not indicate whether homes are actually located in these zones.

As a result, the lawsuit alleges that “thousands of buyers of such properties are falsely told their prospective properties are not located in local (very high fire hazard severity) zones, and such buyers are not afforded the opportunity to make an informed decision whether to buy the property.”

Barry said in an announcement this week, “This suit has wide-ranging implications throughout the state.” The announcement also states that Barry’s law firm “is also investigating real estate brokerages that resell private-labeled disclosure reports, prepared by the (disclosure companies),” and that “real estate agents who skirt their fiduciary duties to their clients and collude with their brokerages to defraud their clients are also being investigated.”

The announcement also directs consumers to visit http://www.nhdlawsuit.com/ if they feel they were provided with an incomplete disclosure report.

In the city of Berkeley, Calif., the lawsuit alleges, about 750 residences are in a very high fire hazard severity zone, “and buyers are defrauded and deceived when they purchase homes in that zone and (are) falsely told by defendants that the subject property is not in such a zone.”

Also, the lawsuit references Southern California wildfires in October 2003 that killed 23 people, and questions whether people who suffered injuries or damages in those fires “received natural hazard reports containing false information regarding very high fire hazard severity zones.”

The lawsuit also charges, “The business practice of defendants is to falsely advise in their natural hazard reports that properties are never located in local very high fire hazard severity zones. Such business practices are unlawful, unfair and fraudulent.”

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