Does a seller's real estate agent or broker owe a duty to the buyer to disclose the existence of deeds of trust of record?

The final factor, as noted in Merrill v. Buck, supra, 58 Cal.2d 552, 25 Cal.Rptr. 456, 375 P.2d 304, to be applied in determining whether a seller's real estate agent or broker owes a duty to the buyer, is the policy of preventing future harm. ( Id. at p. 562, 25 Cal.Rptr. 456, 375 P.2d 304.) The brokers here say the only thing to prevent is a seller's breach and that they are not responsible for their seller's conduct. The brokers miss the point. If a seller is at substantial risk of breach, due to factors known to his or her agent or broker, the agent or broker is in a position to prevent harm to the buyer by disclosing **431 the risk. If an informed buyer chooses to take the risk, and then suffers harm, he cannot blame the agent or broker who made the appropriate disclosure. The policy of preventing harm to an uninformed buyer weighs in favor of imposing a duty of disclosure on a seller's agent or broker in circumstances such as those before us.

*1527 To recapitulate, in balancing the factors set forth in Merrill v. Buck, supra, 58 Cal.2d 552, 25 Cal.Rptr. 456, 375 P.2d 304, we conclude that the brokers in the matter before us had a duty to disclose to the buyers the existence of the deeds of trust of record, of which the brokers allegedly were aware. When a seller's real estate agent or broker is aware that the existing amount of debt on the residential real property being sold far exceeds the sales price of the property, such that either the lender's consent to a substantial discount of the debt will be required or the seller will need to put a considerable amount of cash into the escrow in order to be able to clear the debt and convey title free and clear, there is a duty on that agent or broker to disclose the state of affairs to the buyer, so the buyer can make an informed choice whether or not to enter into a transaction that has a considerable risk of failure.

This conclusion is bolstered by the decision in Jacobs v. Freeman (1980) 104 Cal.App.3d 177, 163 Cal.Rptr. 680, a case with certain parallels to the case before us. In Jacobs, purchasers entered into a contract to buy certain commercial real property from a corporate seller. One of the terms of the contract was that the approval of the seller's board of directors was required. However, the seller did not present the contract to its board of directors for approval. Rather, the seller returned the purchasers' deposits and informed them that the contract had been terminated. ( Id. at pp. 184-186, 163 Cal.Rptr. 680.) As it turned out, internal corporate procedures required that a contract be approved by one particular member of the board of directors before it would be presented to the full board. The director in question decided to reject the contract. Consequently, the contract was never presented to the full board. ( Id. at p. 185, 163 Cal.Rptr. 680.)