A CLAIM OF STIGMA DAMAGES
DOES NOT APPLY TO AN APARTMENT BUILDING

One of our clients, who is a real estate broker, represented the seller in the sale of an eight-unit apartment building in the Westchester area. The buyer, a well-known broker and owner of a large real estate company with 90 employees, purchased the property. That buyer also owned a four-unit apartment building two blocks away on the same street. After the completion of the sale, the buyer "discovered" individuals would gather at night in the public street in front of the property causing a nuisance. This was not disclosed by the seller. Further, there had been a drive by shooting at the property 1 ½ years earlier, which did not involve a resident of the property. This was not disclosed either.

Not satisfied with the purchase price at 9 times gross, the buyer hired an attorney and threatened litigation unless he received money for this "nondisclosure". He claimed ignorance of the conditions in the area even though he was already familiar with the area and professed to be a Real Estate Expert in all of his advertisements for his company, Boardwalk Realty. Of course, we offered to rescind the transaction, but the buyer refused.

After approximately two years of litigation and a trial, the Court could not ascertain a basis to award damages to the "disgruntled" buyer. Although the disclosures were not made, there was no damage. Specifically, the "nuisance" did not increase any expense of the property, all the tenants that were at the property at the time of the sale were still residing in the property at the time of trial and there was no rent loss. Of course, the owner admitted that he had passed the 3 percent Los Angeles Rent Stabilization general adjustment on to each of the tenants yearly. Based upon these findings, the Court could not award damages against the defendant. Further, the Real Estate Appraiser testified that there are no stigma damages attached to an apartment building, although there can be stigma damages attached to the sale of a private home. For instance, the Expert testified that for the Jon Bonet Ramsey house where the murder occurred, it is doubtful that an intelligent buyer would want to pay the same as a house where a murder did not occur. This is also true with the Nicole Brown Simpson condominium and other single-family dwellings, i.e. The Heavens Gate house. These houses are purchased for owner occupancy, not for the income.

At present, there are motions pending because we believed this litigation to be frivolous and our client desires to be compensated for all of the Expert Witness fees as well as attorney fees, which the Court will most likely grant.

The law in the State of California is that a seller should disclose all material facts of which the seller is aware. This claim of hundreds of thousands of dollars due to "stigma" is not well founded with respect to an income producing property. Of course, it is always better to disclose all conditions of a property to avoid the threat of a lawsuit, either well founded or not. Should you desire to sell a property, be familiar with the requirements of the State of California and Civil Code Section 1102.