Imagine this: You've purchased a home in a common interest development and you just learned that one month before you decided to buy the home the homeowners association filed a construction defect claim against the builder for defects in the common areas. The real estate agent for the seller did not tell you that the homeowners association filed a construction defect claim before you bought the home. What do you do?

Although construction defect litigation seems "as common as crabgrass" in planned unit developments in California," a recent judicial decision held that a real estate agent does not have to inform prospective buyers that the home is part OT an ongoing construction defect claim. In Padget v. Phariss, 97 D.A.R. 5949 (May 12, 1997), just such a situation occurred.

The Padgett's decided to buy a home in the Stone Point development on July 23, 1991. However, one month before they decided to buy their home, on June 28, 1991, the homeowners association filed a construction defect claim for the common areas of the development..

The Padgetts wanted to rescind their sales agreement. They argued that the real estate agent for the seller, Timothy Phariss, breached his duty to the Padgetts by failing to inform them that the association had already filed a construction defect claim. The Padgetts argued that Phariss should have told them about the litigation, as part of his duty to disclose all pertinent information about the home, and that he should have known about the ongoing litigation.

However, the court held that there was no duty for the real estate agent to inquire into whether or not there are construction defects in the common areas of a development. The court did not want to impose "a duty of telephone inquiry about defects and pending "litigation" for all the homes in a planned unit development without greater facts to put the real estate agent on notice that there may be construction defects. Because Padgett hired experts to investigate the soil problems at the home before attempting to sell the home, and the experts did not find any construction defects in the soil, Phariss did not have any information that would lead him to believe that there were construction defects in the home.

Furthermore, the owners of the home did not tell Phariss that there were construction defects in the home which might lead to litigation. Therefore, the court held that there were not any "red flags" while which would require Padgett as the real estate agent to investigate the property further.

The decision in Padgett is an extension of a judicial decision last year. In Kovich v. Paseo Del Mar Homeowners Association, 41 Cal.App.4th 863 (1996), the court held that a homeowners association does not have to disclose the status of current or pending construction defect litigation to its members or prospective buyers. The Kovich court noted that the Paseo Del Mar Homeowners Association did not act as a seller, was not a party to the contract and did not assume a special relationship with the plaintiff. Therefore, the Paseo Del Mar homeowners association was not liable to the plaintiff for failing to disclose the status of construction defect litigation.