A Broker Can Obtain Equitable Indemnity From a Home Inspector For Failure to Disclose Defects in a Report Prepared for a Prior Purchaser

Q: I am a broker who has been sued by a buyer I represented in the purchase of a residence that the buyer contends has defects that were not disclosed to him before the sale was completed. I believe that I performed a sufficient visual inspection and I was not aware of any of the defects the buyer is claiming. Also, a prior prospective purchaser had retained a licensed home inspector and I provided a copy of the inspector’s report, that did not disclose any of the defects that the buyer is now claiming, to the buyer that is suing me. Can I bring a claim against the home inspector for equitable indemnity even though the inspector was not retained by the buyer who is suing me?

A: Yes, you can file a cross‐claim against the home inspector for equitable indemnity, contribution and declaratory relief based upon the allegations that the inspector knew or should have known about the defects and should have disclosed the defects in the report provided to the broker, even thought the inspector was not retained by the buyer who completed the sale. A prospective purchaser of residential real property is owed a duty by various persons involved in the transaction. The listing agent owes the purchaser a statutory duty to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose all facts materially affecting the value or desirability of the property that an investigation would reveal. The buyer’s agent owes a higher fiduciary duty to act with the utmost care, integrity, honesty and loyalty. A home inspection company retained by a purchaser owes the purchaser a statutory duty to conduct a home inspection with the degree of care that a reasonably prudent home inspector would exercise.

Each of these duties include an obligation to discover and disclose certain defects in the property. When two or more persons have an obligation to discover and disclose the same defect, the failure of each to do so may be a proximate cause of a single indivisible injury to the person to whom the disclosure would have been made. In such cases, both of the realtors and the home inspector may be found to be jointly (together) and severally (individually) liable to the purchaser for the injury in the form of the purchase of a defective house.

Indemnification is an equitable rule created to correct potential injustice between persons jointly responsible for negligent conduct. In most cases, equity and fairness call for an apportionment of loss between the joint wrongdoers in proportion to their relative culpability, but in some cases, responsibility for the entire injury may be imposed upon either of the joint wrongdoers. Some home inspectors attempt to limit their liability in their contract to the cost of the inspection. However, by statute, an inspector may not contractually eliminate or limit the duty of reasonable care and any such provision in the contract is void.

Allowing a realtor to seek equitable indemnity from the inspector does not unfairly shift the burden of disclosing defects from the realtor to the inspector because the purchaser would be able to sue the inspection company directly even if the realtor had not been sued. Because both the realtor and the purchaser can initiate a lawsuit against the inspector, the inspector’s overall exposure is not increased for a single inspection.

Even though the purchaser retains a home inspector, the realtor may not rely on the inspection report to avoid his or her own statutory duty to conduct a reasonable inspection. But the realtor may still seek equitable indemnity in appropriate cases. If the purchaser is damaged by the nondisclosure of a defect that both the inspector and the realtor were obligated to discover and disclose, the damages may be apportioned between the two.

The duty to disclose by an inspector may arise from the representations contained in the report, rather than negligence in the course of the inspection. This can create liability for the inspector regarding buyer number two based upon a deficient report that was prepared for buyer number one when the report is provided to the listing agent. By providing the report to the listing agent, the inspector knew with substantial certainty that the report would be transmitted to other prospective purchasers and their agents if the original transaction that the report was prepared for was not completed. This can result even if the written contract of the inspector states that the report could not be used by or transferred to other persons without the inspector’s consent.

By statute, sellers and agents for both the seller and buyer may make substituted disclosures based on the reports of third party professionals, including licensed engineer, land surveyor, geologist, structural pest control operator, contractor, or other experts such as home inspectors. Delivery of the professional’s report is sufficient compliance for application of the exemption if it is provided to the prospective purchaser pursuant to a written or oral request.

Neither the seller nor any listing or selling agent is liable for any error, inaccuracy, or omission of any information delivered to the prospective purchaser if the error, inaccuracy, or omission was not within the personal knowledge of the seller or the agents, it was based on information timely provided by licensed professionals, and ordinary care was exercised in obtaining and transmitting the information.

Therefore, it is usually in the best interest of the sellers and the agents if a prospective buyer retains a home inspector to inspect the residence and the inspector prepares a report of conditions that may constitute defects. Such a report not only provides the professional perspective of the inspector, but delivery of the report can be a valuable defense by the agents so long as they performed their statutory or fiduciary duty, they were not personally aware of any error, inaccuracy or omission in the report, and they used ordinary care in obtaining and transmitting the information. In addition, if a lawsuit is filed against an agent, it can seek equitable indemnity against the inspector, even if the inspection report was prepared for a prior purchaser, and not by the buyer who completed the sale.

The opinions expressed in this article are those of the author, and they do not create an attorney client relationship or constitute legal advice. Individual circumstances may vary and professional advice is recommended before making any decisions concerning legal matters.

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Forry Law Group: Real Estate and Civil Attorneys

15501 San Fernando Mission Blvd., Suite 309
Mission Hills, CA 91345
Office: (818) 361-1321
Fax: (818) 365-6522

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