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Bedbugs Take A Big Bite Out Of Seller

In one of our recent cases, we witnessed a seller getting well and truly “bitten” by bedbugs, roaches, mice, and rats.

Our clients, the buyers, purchased a 34-unit apartment house in the valley. It was a lower-income property, and they paid $2.4 million for it with a seller carryback loan of $1.4 million. Shortly after close of escrow, our clients discovered that the seller did not disclose that the building had a long history of having bedbugs, roaches, mice, and rats. They immediately rescinded the contract, demanding that the sellers take the complex back and return their money. The seller refused to rescind or settle.

Even after repeated negotiations, mediations, and other attempts to resolve the case, the seller made all sorts of claims and excuses – they had no duty to disclose this problem, the problem really didn’t exist to any great extent, the problem existed with every apartment house, everyone knows there are termites, bedbugs, and roaches, etc., etc., etc.

We went to arbitration about a month ago, and it was entertaining from the start. We had engaged an expert entomologist by the name of Gail Getty, who has appeared on the “Today Show” and a number of other television programs. Her specialty happens to be bedbugs, roaches, and termites. (As an aside, I honestly wondered, and asked her, how and why she decided to specialize in those critters, but that’s another story.) In any event, her testimony was excellent, explaining these pests’ insidious nature – especially the bedbugs – and the way they move from one apartment to the next, how they move upstairs and downstairs, and how they can rapidly infest an entire complex. She had an impressive display case of deceased bedbugs, bedbug eggs, evidence of bedbugs getting under mattresses, and plenty of horror stories.

Following Ms. Getty’s testimony, I called the seller as an adverse witness and cross-examined him on what he knew and didn’t know about the issue of bedbugs. We presented him with the numerous violations from the city where the apartment was located, documenting problems with bedbugs, roaches, rats and mice.

At the end of the first day of arbitration, the seller caved and agreed to release his entire $1.4 million deed of trust, thereby allowing my clients to sell the property quickly and inexpensively to recoup their purchase price.

Bedbugs are hard to discover. You can inspect an apartment, but you never know what’s hiding in or under the mattress. This is why detailed disclosures are necessary and are given to the seller and seller’s agent to fill out. This is also why it is so important to go through those disclosures, make sure they are complete, and follow up with questions. We’ve all heard “oh, everybody knows we have bedbugs, so we don’t have to disclose them.” But, of course, that’s never been the law.

A buyer and buyer’s broker sometimes have to play detective in such transactions. They have to make sure the contract calls for various disclosures, then go through those disclosure forms, then compare them with actual inspection reports and physical inspection of the property to spot inconsistencies that could change the buyer’s mind about putting an offer on that property.

Our clients will receive a return of all of their attorneys’ fees and all of their out-of-pocket expenses, but it was a two-year struggle involving depositions, numerous document productions, and a lot of attorneys’ fees.

I guess we can truly say that in this case, the failure to disclose these problems on the part of the seller and seller’s agent (who, it turned out, also happened to have been the manager of the property for six months) resulted in the bedbugs biting a lot more people than just the building’s sleeping tenants.