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In Urman v. South Boston Savings Bank, the Supreme Judicial Court of Massachusetts addressed allegations by buyers against a vendor bank for fraud and violations of the business practices act. The court held that the bank was not liable for fraud for failing to disclose off-site environmental problems, and that the bank’s limited knowledge of the problems precluded liability under the business practices act.
South Boston Savings Bank (Vendor) held a first mortgage on a condominium. After the owner defaulted, Vendor bought the unit at a foreclosure sale for $199,000. In December 1990, the Urmans (Buyers) bought the unit for $175,000. At purchase, Buyers were not aware that there had been contaminated groundwater near the home. The State of Massachusetts declared the area near the condominium to be a “priority” site because of evidence that trichloroethylene (TCE) vapors were entering a local school from contaminated groundwater flowing under it. From February to September 1990, the school was closed for cleanup purposes; it reopened approximately four months prior to the closing on the unit.
The previous owner told the Vendor that he had difficulty selling the unit because of a hazardous waste problem at the school. He also told them that the property was located between the school and the source of the contamination. Vendor’s records indicated it was aware of a “hazardous waste problem” and its impact on the ability of the previous owner to sell. Nevertheless, Vendor did not inform Buyers that there had been a contamination problem, that the school had been closed, or that the previous owner had difficulty selling the unit. In May 1991, Buyers had the unit tested for TCE. Only minimal, nondangerous levels were found. Buyers sued Vendor alleging fraud and violations of the business practices act for failure to disclose the contamination and marketability problems. The superior court granted Vendor summary judgment and Buyers appealed.
Regarding the fraud claim, the Supreme Judicial Court of Massachusetts stated “a seller of property is not under any obligation to disclose defects to a buyer in the absence of a fiduciary duty.” Also, “silence does not constitute a basis for claiming fraud and misrepresentation, even where a seller may have knowledge of some weakness in the subject of the sale and fails to disclose it.” Further, “such nondisclosure does not amount to fraud and is not a conventional tort of any kind.” The court noted that Vendor did not make representations of any kind as to the condition of the unit and did not stand in a fiduciary relationship to the plaintiffs. It held that Vendor owed Buyers no duty under the common law to disclose the minimum amount of information it knew and was not liable for fraud or misrepresentation.
Regarding the business practices act claim, the Supreme Judicial Court of Massachusetts stated that a violation occurs if “any person fails to disclose to a buyer or a prospective buyer any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.” This provision also applies to cases of nondisclosure of a material fact. The court then addressed disclosure in the context of off-site problems. It stated “in appropriate circumstance, off-site physical conditions, known to a seller . . . may require disclosure if the conditions are ‘unknown and not readily observable by the buyer and if the existence of those condition is of sufficient materiality to affect the habitability, use, or enjoyment of the property and, therefore, render the property substantially less desirable or valuable to the objectively reasonable buyer.’”
Under this statement of law, the Supreme Judicial Court of Massachusetts affirmed summary judgment for Vendor. It noted that the record established only that the bank had been made aware of an undefined hazardous waste contamination problem that had affected a neighborhood school and had caused difficulty when the bank’s mortgagee attempted to sell the unit. In view of this limited knowledge, the past nature of the condition at the school, the fact that the contamination had not affected the condominium, and the absence of any demonstrable future damage to the unit, the court held that Vendor was not liable under the business practices act for failure to disclose.
Urman v. South Boston Savings Bank, 424 Mass. 165, 674 N.E.2d 1078 (1997).
Editor's Note:
To see pre-1990 Broker Lability cases organized by jurisdiction, click here.
To see cites to pre-1990 cases applying State Consumer Protection Acts to Broker Liability, click here.
To see cites to early cases involving Fraud and Broker Liability, click here.