- Always ensure that material, known facts and defects are disclosed to the buyer.
- Review the seller’s disclosure to ensure all questions are answered, and if the seller refuses to disclose a material fact or defect that you know about, you should make the disclosure.
- Consider providing buyers and sellers with a due diligence checklist.
- Advise clients to consult with experts regarding applicable zoning codes and municipal ordinances for buyer’s future intended use.
- Be sure to have clear communications with your client setting forth pre-closing expectations and responsibilities with regard to due diligence, inspections, expert consultation and other relevant investigations.
On July 12, 2022, the Supreme Court of Montana affirmed summary judgment in favor of a real estate brokerage that was sued by a homebuyer who alleged professional negligence and constructive fraud against both the seller and buyer agents. In this post-transaction suit, the allegations were that the agents failed to disclose material information. Based on the representation agreement, due diligence checklist, and state real estate law, the court held that the home buyer could not establish that either the seller’s or buyer’s agent violated their professional obligations by failing to disclosing information prior to closing.
In the claim against the buyer’s agent, the plaintiff alleged that the agent failed to disclose material information by not telling them about zoning limitations for a fence (i.e., height and setback requirements). The plaintiff owned a service dog and wanted to adequately enclose their yard, but after closing learned that zoning limitations prohibited the desired enclosure. To establish a buyer agent breached their duty to disclose, a plaintiff must prove the agent failed to disclose known and material information that was not discoverable or previously known by the plaintiff.
With regards to the claim against the seller’s agent, the plaintiff argued that the agent committed professional negligence and constructive fraud by failing to disclose information about significant past water intrusion which caused extensive mold damage discovered by the buyer after closing. In Montana, seller agents are required to disclose known and adverse material facts concerning the property, however the seller agent is not required to inspect the property or verify any statements made by the seller. Here, the plaintiff believed that the seller’s agent failed to disclose known information about the property’s history of water damage because the agent’s father-in-law had owned the property.
The district court granted summary judgment in favor of the buyer’s agent because zoning requirements were public and discoverable, holding that the plaintiff could not establish the agent owed her a duty to disclose this information. Additionally, the buyer’s agent advised the plaintiff to seek independent consultation of municipal zoning ordinances, and both the buyer broker agreement disclaimed guarantees of zoning compliance and the due diligence checklist advised the buyer to consult building and zoning ordinances in connection with any intended future improvements.
Summary judgment was also granted in favor of the seller’s agent because the court determined there was no evidentiary dispute as to the seller agent’s lack of knowledge regarding previous water damage. The agent never lived in the home and denied having any knowledge of the water intrusion. By failing to submit evidence to the contrary, plaintiff’s claim against the seller agent failed. The plaintiff also could not prove any alleged failures to disclose by seller’s agent caused the post-closing damages because inspections conducted pre-closing revealed signs of past water damage and evidence of negative drainage.
The Supreme Court of Montana affirmed the district court’s judgments, holding that the buyer’s agent didn’t have a professional obligation to disclose publicly available information regarding the fence zoning limitations. In affirming judgment in favor of the seller’s agent, the supreme court found the inferences that the agent possessed knowledge of past water intrusion were nothing but “unsupported suspicion.” The court also agreed with the district court’s determination that the pre-closing inspection reports foreclosed plaintiff’s causation theory that the seller agent caused the damage discovered post-closing.
Young v. ERA Advantage Realty, 513 P.3d 505 (Mont. 2022)