Seller Didn't Disclose Known Defects: Your Legal Options in California

You moved in and discovered problems the seller clearly knew about but never disclosed. Here's what California law says you can do.

You closed on the house. Weeks later, the basement floods during the first rain — and your neighbor tells you it happens every year. Or the HVAC system fails and the repair technician finds evidence of previous patches. Or you pull up carpet and find water-stained subfloor that was clearly covered up.

In each case, the seller's TDS said "no known issues." California law takes this seriously.

What California Law Requires Sellers to Disclose

Under California Civil Code §1102, sellers of residential property (1-4 units) must provide a Transfer Disclosure Statement that honestly discloses all known material defects — anything that could affect the property's value, desirability, or intended use.

The critical word is "known." Sellers aren't required to hire inspectors or search for hidden problems. But they are absolutely required to disclose problems they know about, have experienced, or should reasonably be aware of based on their time living in the property.

How to Prove the Seller Knew

The biggest challenge in undisclosed defect claims is proving the seller actually knew about the problem. Here's what strengthens your case:

• Physical evidence of prior repairs. Patched drywall, recently painted areas that don't match, new flooring in just one room — these suggest someone addressed a problem and chose not to disclose it.
• Neighbor testimony. Neighbors often know about recurring issues. "Oh yeah, their basement floods every winter" is powerful evidence.
• Insurance claims. If the seller filed insurance claims for water damage, mold, or other issues, those are discoverable records that prove knowledge.
• Contractor or repair records. If the seller hired professionals to address the problem, invoices and work orders prove they knew.
• Previous inspection reports. If the seller had the home inspected (perhaps when they bought it) and those reports documented the issue, the seller had knowledge.
• Duration of ownership. The longer the seller lived in the home, the harder it is to claim ignorance of obvious, recurring problems.

Your Legal Options

Before Closing (During Contingency)

If you discover contradictions between the inspection and disclosure before closing, you're in the strongest position. You can negotiate, demand repairs, request credits, or cancel the contract entirely and recover your earnest money deposit.

After Closing

Your options are more limited but still meaningful under California law:

• Demand letter. A formal letter to the seller (often through an attorney) documenting the undisclosed defect, the evidence that the seller knew, and the cost of repair. Many disputes resolve at this stage because sellers want to avoid litigation.
• Mediation. Many California real estate contracts include mandatory mediation clauses. This is a structured negotiation with a neutral mediator, less expensive than court.
• Lawsuit for damages. You can sue the seller for the cost of repairs, diminished property value, and in some cases additional damages. California courts have consistently held sellers liable for knowingly concealing material defects.
• Rescission. In extreme cases (widespread fraud, the home is essentially uninhabitable), you may be able to undo the entire sale. This is rare but possible.

What to Do Right Now

1. Document the defect. Photographs, videos, and written descriptions. Include dates.
2. Pull out the TDS. Find the specific question related to the defect and note the seller's answer.
3. Get a professional assessment. Hire a specialist to evaluate the problem and provide a written report with repair cost estimates.
4. Talk to neighbors. Carefully and respectfully ask if they're aware of the issue. Document what they say.
5. Consult a real estate attorney. Many offer free initial consultations. The strength of your case depends on the specific facts.

Prevention Is Better Than Litigation

The best time to catch disclosure problems is before closing, not after. That means carefully reading the TDS, cross-referencing every answer against your inspection report, and questioning anything that doesn't add up. Most buyers don't do this thoroughly — which is exactly why tools that automate the comparison exist.