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A Connecticut federal court has ruled on the manner in which a seller and the listing agent must make disclosures pursuant to the federal Residential Lead-Based Paint Hazard Reduction Act ("Act").
Jonathon Whitaker and Joseph Mager, acting as executors for an estate ("Sellers") listed a home for sale with Coldwell Banker Real Estate Services, and Mary Licata was the listing agent ("Listing Agent"). At the time the property was listed for sale, in January 1997, the Listing Agent recommended to the Sellers that they have a lead-based paint analysis performed. They followed this advice, and an outside company performed a lead-based paint analysis. A report ("Report") was prepared by the company showing that lead-based paint was discovered in the home. The Sellers completed the lead-based paint disclosure form, acknowledging the existence of lead-based paint in the home, but they did not attach a copy of the Report to the disclosure. The Sellers did not give the Report to the Listing Agent, and so the she was unable to initial the "agent's acknowledgement" section in the Report.
That spring, Angela and Alex Smith ("Buyers") were interested in purchasing the property and in July, the parties signed a sales contract. The Sellers orally advised the Buyers of the presence of lead-based paint in the house. However, the Report was not given to the Buyers until the closing in August, and the Buyers also did not sign the required "Disclosure and Acknowledgement Form" concerning these disclosures when the sales contract was executed, since they did not receive the Report until the closing. The Buyers eventually filed a lawsuit against the Sellers and the Listing Agent for violations of the Act. The Buyers filed a motion seeking judgment by the court in their favor.
The United States District Court, District of Connecticut, entered judgment against the Listing Agent, but denied the Buyers' motion against the Sellers. The Act requires that sellers of property built before 1978 disclose all known information about lead-based paint and lead-based paint hazards within their premises. The Act also provides that any person who knowingly violates the Act is liable for triple damages. Regulations enacted pursuant to the Act also require a real estate licensee to inform sellers of their disclosure obligations and also insure that the seller comply with the requirements of the Act. This includes the providing the buyers with copies of any testing reports and also incorporating a "Disclosure and Acknowledgment" statement into the sales contract, which confirms that all of the necessary disclosures have been made to purchasers. In this case, the Buyers claimed that the Sellers and Listing Agent violated the Act because they never gave the Buyers a copy of the Report prior to the sales contract being signed and also that the required "Disclosure and Acknowledgement" statement was never incorporated into the sales contract.
First, the court considered whether orally notifying the Buyers of the presence of lead satisfied the Act. It ruled that oral notification alone did not satisfy the requirements of the Act, finding no language in the Act which supported such an argument. The Sellers and Listing Agent next argued that they could not have violated the Act because the sales contract never obligated either party to complete the transaction, since the contract stated that "the validity of this agreement is that each party has received, signed and annexed hereto a completed Disclosure and Acknowledgement Form." Since this form was not attached, the Sellers and Licensee argued that the contract was never valid. The court rejected this argument, ruling that if it gave this provision that effect, it would allow individuals to easily circumvent the lead-based paint disclosure obligations by simply inserting a similar clause in all sales contracts.
The court next considered the Sellers' and Listing Agent's argument that they did not "knowingly" violate the Act. The court ruled that "knowingly" means that the individual was aware of his/her conduct and did not act through ignorance, mistake, or accident. The court then separately analyzed the actions of the Sellers and the Listing Agent to see if, based on the undisputed facts, either of the parties had knowingly violated the Act. The Listing Agent knew the Act's requirements, and yet did not provide the Report to the Buyers until the closing. Thus, the court ruled against her and entered judgement in favor of the Buyers for the Listing Agent's knowing violations of the Act.
Finally, the court considered the Seller's actions. It found that there was no evidence demonstrating the Sellers knew that the Report had to be given to the Buyers before the execution of the sales contract. Therefore, the court denied the Buyers' motion for judgment against the Sellers, and ordered a trial on the liability of the Sellers as well as the damages suffered by the Buyers.
Smith v. Coldwell Banker Real Estate. Serv., Inc., 122 F. Supp. 2d 267 (D. Conn. 2000).
To learn how to comply with HUD/EPA disclosure regulations, click here.