Do real estate brokers owe disclosure duties to buyers when representing sellers? Hermansen v. Tasulis Explained

In Hermansen v. Tasulis, the Utah Supreme Court addressed whether real estate brokers and agents representing sellers owe independent disclosure duties to purchasers and whether such claims survive economic loss rule challenges.

Background and Facts
The Hermansens purchased property and contracted for home construction through real estate broker George Tasulis and agent Terena McDougal, who represented the seller/developer. The defendants knew about significant soil instability problems, including surface water accumulation and a backhoe being stuck for days in “chocolate pudding-like mud.” Despite this knowledge, they failed to disclose the soil conditions to the Hermansens. The home subsequently settled 3.75 inches, causing substantial structural damage. The trial court granted summary judgment for defendants, applying the economic loss doctrine from American Towers.

Key Legal Issues
The court examined whether the economic loss rule barred the Hermansens’ negligence and fraud claims against real estate professionals who failed to disclose known material defects. The central question was whether real estate brokers and agents owe duties independent of contractual relationships that would allow tort recovery for economic losses.

Court’s Analysis and Holding
The Supreme Court distinguished American Towers, noting this case involved direct relationships between parties rather than third-party beneficiary claims. The court adopted Colorado’s formulation that the economic loss rule bars tort claims only when duties arise solely from contractual obligations, but permits claims based on independent duties of care. The court held that real estate professionals owe independent duties to be “honest, ethical, and competent” and must disclose known material defects, regardless of whom they represent. For fraudulent nondisclosure claims, the court established that sufficient disputed facts existed regarding defendants’ knowledge of the soil defects to preclude summary judgment.

Practice Implications
This decision significantly expands potential liability for real estate professionals by establishing independent tort duties that survive economic loss rule challenges. Practitioners should carefully document what clients knew and when they knew it, as actual knowledge of material defects creates disclosure obligations even to adverse parties. The court’s spousal privilege analysis also provides guidance for piercing privilege claims when communications allegedly facilitate tortious conduct, requiring substantial independent evidence to justify the exception.