Real estate contracts are governed by the ordinary rules relating to fraud. If one person intentionally deceives another, and the other is fooled into entering a transaction, the injured party can sue for fraud. The most obvious type of fraud is when one person intentionally lies to another, about an important fact, in order to persuade the other person to do or not do something.
To prove this type of fraud, the injured party must show that: (1) the other party made a written or oral statement about a presently existing fact; (2) the statement was false; (3) the party making the statement knew that the statement was false, or made it recklessly and without caring if it was true or not; (4) the party making the statement intended the other person to rely upon the fraud; (5) the injured party did, or did not, do something in reliance on the fraud; and (6) the injured party was damaged as a result.
In the real estate purchase context, a good example of fraud would be if the seller lied about something important concerning the property. Perhaps the seller said that the roof had been replaced last year and was in great shape, when in fact the roof was twenty years old and leaked every time that it rained. Such a lie, if proven, could be the basis for a fraud suit.
Under California law, particularly good evidence is needed to prove that someone committed fraud. Further, there are very specific rules about each aspect of the definition of the fraud. For example, the lie must be about some particular, presently existing fact. The lie cannot be about an opinion or a future fact. For example, if a seller says that this apartment building is “a great investment” without any more detail, that will probably be considered opinion and not fact, and thus not good enough for a fraud suit. On the other hand, if the seller said that this apartment building is “95% occupied by stable, long-term tenants and has monthly gross income of $25,000” when, in fact, the place has been 40% occupied for years, and has monthly income of $10,000, that is probably a specific enough factual statement to be a good basis for a fraud suit.
There are a number of other requirements for a successful fraud action. If you believe that you have been defrauded in a transaction, you should consult an experienced litigation attorney. Fraud law is quite complex, and fraud cases tend to be very hard fought in court.
A big reason that injured parties like to allege fraud is that one can recover substantially more damages in a fraud action than in a simple breach of contract action. If the fraud is intentional, egregious and morally reprehensible, the judge or jury can award, in addition to compensatory damages, punitive or exemplary damages. Compensatory damages are designed to compensate the wronged party. Punitive damages, by contrast, are designed to punish the guilty party and to discourage similar behavior in the future. If punitive damages are awarded in a given case, and this is always a subjective decision for the judge or the jury, they can be many times the amount of compensatory damages.