Failure to Disclose Cost a Seller $259,000: Are You Next?

This story is about a “flipper” who purchased a house for $950,000 in 2004, in a great neighborhood, fixed it up and sold it two years later for $1,850,000. A $900,000 profit minus about $150,000 in upgrade costs sounds like a happy ending for the flipper but that was just the beginning of a lengthy legal battle that started when a lawsuit for construction defects and failing to disclose that the house was built on unstable ground was filed against her by the Buyer in 2007.
According to court records, this story began in October 2004 when Ziba Sohaei purchased a property in San Rafael, California for $950,000. Ms. Sohaei received a Property I.D. Report in 2004 which disclosed that according to Marin County the property was in an area underlain by Bay Mud and in High Liquefaction.

Even though the property she purchased was sold while in a trust (the original owners were deceased), the children of the original owners were very forth coming in disclosing that the house was built on landfill, that there were water intrusion problems in the past and that a sump pump had been installed to manage the water problems.

In Early 2006, Ms. Sohaei listed the property for $1,850,000 with Agent Peter Narodny of Frank Howard Allen. The 2004 disclosures, including the original NHD report (with Bay Mud and High Liquefaction disclosures) were withheld from Agent Narodny, Selling Agent Jill Hill, and Buyer Elaine Bandalin.

Elaine Bandalin is the 84 year old buyer who purchased the house from Ziba Sohaei (the flipper) in 2006. The original lawsuit was: Elaine J. Bandalin v. Ziba Sohaei, Peter Narodny, Brenlar Investments dba Frank Howard Allen, Superior Court of the State of California, Marin County CV 073157.

Escrow closed on October 13, 2006 with a different NHD company, apparently a title company related entity. They provided a less complete report which did not include the Bay Mud and High Liquefaction disclosure, but did cost about $40 less than the original report provided to the seller in 2004. The buyer, Elaine Bandalin, was not given the benefit of any of the information the flipper received in her disclosures from 2004.

On July 5, 2007, Buyer sued Seller, Seller’s Agent, and Agent’s Brokerage for construction defects and failing to disclose that the property was built on fill and semi-fluid San Francisco Bay Mud. Worth noting about the suit Elaine Bandalin filed is that while she sued the seller’s agent, Peter Narodny, and the broker representing them, Frank Howard Allen, she didn’t sue her own agent, or the inspector who was recommended by her agent or the company that provided the NHD report that was ordered by the seller’s agent.

According to court records, the buyer won the case after almost five years of delays caused by the seller and then the seller filed for Bankruptcy. However, the Bankruptcy Court ruled that the Seller withheld both condition information and the disclosures she received when she bought the house with the intent to deceive Buyer. The Court found that the Buyer was damaged in the amount of $259,803.67 and that she is entitled to judgment of non-dischargeability.

Many questions remain, like why didn’t Bandalin sue her own agent or the home inspector her agent recommended? Equally surprising is why wasn’t the disclosure company that produced the flawed report sued? We are continuing our investigation and will report further information as we get it.