John Strebel’s purchase offer to buy the home of Jon and Laurie Steel for $420,000 was accepted by the sellers. Unknown to Strebel, the house was encumbered with Internal Revenue Service tax liens and court judgments exceeding its sales price.

Real estate agent Haya Smith, acting as a dual agent for the buyer and sellers, was aware of the liens but failed to disclose them to buyer Strebel. Meanwhile, Strebel made preparations to sell his former residence, contingent on the purchase of the Steel house.

Purchase Bob Bruss reports online.

When Strebel told agent Smith his home sale was ready to close, she assured him his home purchase was “on track.” In reliance on his agent’s statement, he closed the sale of his former residence.

Unfortunately, the Steels were unable to resolve their IRS tax lien and judgment disputes. The sellers eventually told Strebel they could not deliver marketable title because of the tax liens.

Strebel then placed the proceeds from his home sale into an account earning 4 percent interest while he searched for another suitable home. More than two years later, he concluded that due to rising prices he was unable to find an equivalent replacement home as he had been priced out of the rapidly rising local market.

Home buyer Strebel then sued Smith and her brokerage, Frank Howard Allen Realtors, for fraud, negligence, breach of fiduciary duty, and unfair business practices. He also alleged emotional distress damages and economic damages.

If you were the judge, would you rule home buyer Strebel is entitled to damages for the lost market value appreciation of his former residence and for emotional distress damages?

The judge ruled Strebel is entitled to damages for the lost increased market value of his former residence, due to the dual agent’s failure to reveal the tax liens, but he is not entitled to emotional distress or economic damages.

Dual agent Haya Smith, who represented both the sellers and the buyer, should have disclosed to buyer Strebel the house was over-encumbered by IRS tax liens and judgment liens, the judge began.

Because Strebel’s sale of his former residence was contingent on purchase of the Steel home, when dual agent Haya Smith lied to him by informing him his purchase was “on track,” she and her brokerage, Frank Howard Allen Realtors, became liable for resulting damages.

“Contrary to defendants’ assertion, there is nothing inequitable about the recovery of appreciation damages in this case. The fact that Strebel received what was the fair market value for his house at the time he sold it did not eliminate financial loss from the premature sale of the property,” the judge emphasized.

Therefore, real estate agent Haya Smith and her supervising brokerage, Frank Howard Allen Realtors, are liable to John Strebel for $202,273 damages, the judge ruled.

Based on the 2006 California Court of Appeals decision in Strebel v. Brenlar Investments Inc. (dba Frank Howard Allen, Realtors), 37 Cal.Rptr.3d 699.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

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