Facts

In early 2000, plaintiffs Jose Martinez, Zoilo Sayo and Wilma Sayo purchased the 12-unit Gardenwoods Apartments complex in Haywood. They purchased it for $1.55 million as an investment which they intended to improve and increase rent. They assumed a loan from the building's owners, defendants Arturo Layos and Anita Layos. The real estate professional represented that the property was not subject to rent control.

After close of escrow, plaintiffs learned that the property was in fact rent controlled. Later, the bank that held the mortgage found out that plaintiffs assumed the loan and started to foreclose on the building. Their attempts to secure a new loan failed because every bank they consulted told them that they overpaid for the building and they would not issue a $1.55 million loan.

PLAINTIFFS' CONTENTIONS:
Plaintiffs sued the Layoses and the realtor AFM Realtors of America, and the real estate agent who sold them the building, claiming fraud, willful misrepresentation and failure to disclose the rent controlled status of the units. They contended that the realtors breached their fiduciary duties. Plaintiffs also sued the brokers and agents Ruby Rieta, Jess Tamondong, Al Bautista and Greg Reyes.

Plaintiffs argued that AFM Realtors of America agent, Jess Tamondong, told them that the apartment building was not rent controlled. Plaintiffs asserted they were enticed to buy the building after Tamondong presented them with a multiple listing document that indicated that the month-to-month rents could be increased to generate more income. AFM Realtors of America also gave plaintiffs a projected rent document that indicated rents would increase by up to 50 percent annually, despite regulations of rent controlled apartments allowing for only 5 percent annual rent increases.

DEFENDANTS' CONTENTIONS:
Defendants argued that all of the agents told plaintiffs the building was rent controlled. They countered plaintiffs' claims that the projections suggested the apartments were not rent controlled by asserting the projections were based on the units becoming "decontrolled" under the rent control laws.

Settlement Discussions

Plaintiffs demanded $100,000; defendants offered only $25,000.

Damages

Plaintiffs sought damages to compensate them for the $50,000 in lost annual income that they failed to gain. On average, the tenants were paying between $7,000 and $8,500 annually, but the market for a two-bedroom unit that was not rent controlled was generating about $12,000 annually. Plaintiffs' real estate expert opined that the building would have been valued at just over $1 million had plaintiffs purchased it with the understanding that it was rent controlled. An appraisal, performed by a bank when the plaintiffs' were denied a loan, indicated that they overpaid for the building by $330,000. The defense argued that plaintiffs were not entitled to any damages because they failed to pay attention to the paperwork and their broker's notifications that the building was rent controlled. Further, if the building was overpriced, it was only by $100,000.

Result

The jury awarded plaintiffs $209,100 in compensatory damages. They found the Layoses' real estate agent Ruby Rieta 10 percent liable, Jess Tamandong 42 percent liable, Rieta's and Tamandong's broker Al Bautista 43 percent liable, Tamandong's assistant Greg Reyes 5 percent liable, and AFM Realtors of America jointly and severally liable for plaintiffs' damages due to breach of contract, breach of fiduciary duty, misrepresentation and negligence. The jury did not find any of the defendants liable for fraud. The jury found no liability of the sellers, the Layoses.

Deliberation

two days

Poll

12-0 (on damages)

Length

three weeks