Property Condition Disclosure Highlights: 2Q 2018

Two of the Property Condition Disclosure cases discussed below address a licensee’s alleged failure to disclose a condition on the property that affects the purchasers’ ability to use the property in the manner they intended at the time of purchase. For instance, in one case, the purchasers bought a condominium with the intention of renting the property during the school year. The court found that the licensee was not liable for failing to disclose that the condominium board had changed the minimum lease period, which precluded the purchasers’ ability to lease the property as intended. In another case, the purchasers sought to build a home on the property, but learned the property contained too much fill to build a home. There, the purchasers alleged that seller’s real estate representative failed to adequately disclose the amount of fill on the property.

Court denied claims against buyer’s real representative based on the alleged failure to disclose information regarding condominium board’s decision to modify the minimum lease term.

A. Cases

1. Novak v. St. Maxent Wimberly House Condominium, Inc., No. 16-6835, 2018 WL 3126940 (E.D. La. June 26, 2018)

Two teachers purchased a French Quarter condominium for the purpose of using the property in the summers and for leasing during the rest of the year. After purchasers purchased the property, they were informed that the condominium board changed the minimum lease term to one year, which prohibited purchasers from renting the property as they had intended. The purchasers allege their real estate representative and real estate company were negligent in failing to inform them of the condominium board’s actions, and that the licensee participated in a civil conspiracy with the board, sellers, and seller’s representative. The purchasers also brought claims against sellers, seller’s representative, and the condo board.

In this decision, the trial court considered the claims against the buyers’ real estate representative and real estate company. The trial court determined that the Louisiana statute regarding property disclosure only imposed a duty on the seller and not the purchaser’s real estate representative. A purchaser’s real estate representative has a duty only to pass along accurate information about the property, and that applies only to information actually in the real estate representative’s possession. Because the purchasers failed to show credible evidence that the real estate defendants withheld information in their possession, the trial court granted summary judgment in favor of the real estate defendants.

Purchasers allege seller and dual agent real estate representative failed to adequately disclose the amount of fill on the property.

2. Lindstrom v. Moffett Properties, No. 16-00079DKW-RLP, 2018 WL 1975677 (D. Haw. Apr. 26, 2018)

The purchasers of a parcel of land alleged that the amount of fill on the property was not adequately disclosed before the purchase. The purchasers claim that due to the amount of fill, they are not able to build the home they had intended and would not have purchased the property if they had known the correct amount of fill. Although the seller and real estate representative disclosed there was fill on the property, the purchasers claimed they knew more information about the amount of fill on the property, but failed to disclose the information. The real estate representative acted as dual agent for the transaction. The disclosure form indicated “yes” in response to the question of whether there was filled land on the property.

The court noted that the seller’s disclosure did not require the seller or licensee to perform an inspection of the property, but they were required to accurately disclose all material facts 

Home purchasers sufficiently alleged a claim against seller and seller’s real estate company for failure to disclose water damage.

about the property. According to the court, there was a question of fact as to whether the seller and licensee disclosed all material facts. Another real estate representative who worked for the same real estate company and had represented seller in a prior transaction for the property had observed hundreds or thousands of cubic yards of fill on the property, but this information was not provided to the purchasers. The court denied the real estate defendants’ motion for summary judgment.

3. Blevins v. Marcheschi, No. 2-17-0340, 2018 Il. App. 2d 170340 (Ill. Ct. App. Apr. 24, 2018)

After buyers purchased a home, a contractor discovered water damage in a wall of the home. The buyers then sued the sellers and sellers’ real estate company for breach of contract, fraud, and misrepresentation for failing to disclose the water damage. The buyer’s complaint included information from an environmental firm which concluded that, based on the amount of damage and contamination, the seller and seller’s representative had to be aware of the water damage. The trial court dismissed the action. The trial court applied the one year statute of limitations in the Residential Real Property Disclosure Act to all of the claims, and found the claims barred by the statute of limitations. The trial court also determined there was no breach of contract because the contract did not impose a duty to disclose water damage. In addition, the trial court found that the allegations based on the environmental report did not support a finding of fraud or misrepresentation.

Seller’s representative and broker were not liable for alleged failure to disclose structural defects that purchasers claimed were the cause of water damage.

The appellate court concluded otherwise. With respect to the statute of limitations, the appellate court found that the trial court improperly applied the Disclosure Act to the other causes of action. Even though the buyers mentioned the failure to disclose water damage in the disclosure report, the fraud and contract claims were not brought pursuant to the Disclosure Act. Furthermore, the complaint alleged that the sellers and seller’s real estate company knew of the water damage. According to the appellate court, the allegations of the complaint were sufficient to state a claim. The trial court’s dismissal of the claims was reversed and the case was remanded to the trial court.

4. Van Duren v. Chife, No.1-17-00607-CV, 2018 WL 2246213 (Tex. Ct. App. May 17, 2018)

After living in a home for more than two years, the purchasers discovered rotting wood and mold in the home. The purchasers did not have the property inspected, and the contract contained an as-is provision. The purchasers sued the sellers, seller’s real estate broker, and his real estate company for negligent misrepresentation, fraud by nondisclosure, statutory fraud in a real estate transaction, and violations of the Deceptive Trade Practices Act. The purchasers claim that the sellers knew about construction defects at the home, failed to disclose them, and those defects caused the water intrusion and mold at the home. With respect to the real estate broker, the purchasers claim the broker failed to disclose a conflict of interest when he represented them in a sale of property and persuaded them to sell their home for less than it was worth.

The court enforced the as-is provision in the contract. Furthermore, the court noted that the sellers’ disclosure law imposes a duty only on the sellers of property, but not on their real estate representatives, unless the real estate representative is aware that the disclosure contains false information. Although the purchasers presented evidence of defects, known to sellers and the real estate representative, which had been previously repaired, the court determined that knowledge of past repairs does not establish knowledge of a present defect. There was also no interference with the purchasers’ right to an independent inspection, and the real estate representative did not owe a fiduciary duty to the buyers. The appellate court affirmed summary judgment for the seller, real estate broker, and real estate company.

B. Statutes and Regulations

Connecticut

Connecticut revised its Property Condition Disclosure form to place emphasis on the responsibility of real estate brokers to disclose material facts regarding the property to prospective buyers. The revised property condition disclosure report includes a separate section immediately below the seller’s certification captioned: “IMPORTANT INFORMATION (A) RESPONSIBILITIES OF REAL ESTATE BROKERS,” and also includes a statement that the report in no way relieves real estate brokers of their legal obligation to disclose any known material facts about the property in question and the potential for punitive action should they fail to do so.⁴ The disclosure form also requires the seller to disclose if there have been any problems with electrical systems or mechanical systems at the property.⁵

Louisiana

Louisiana modified its seller’s disclosure statement to include a statement of acknowledgment by the seller whether an illegal laboratory for the production or manufacturing of methamphetamine was ever located on the property.⁶

The Texas Real Estate Commission made several changes to the mandatory forms for residential transactions. The changes relate to clarification of the reservation of mineral rights, the definition of “effective date (final date of acceptance),” and the time for the seller to cure objections. There are additional changes that relate to termination of a contract, and to the time for delivery of earnest money. Some formal changes to the documents have also been made.⁷

C. Volume of Materials Retrieved

Property Condition Disclosure issues were identified 7 times in 6 cases (see Tables 1, 2). The cases addressed Mold and Water Intrusion, Structural Defects, Flooring/Walls, Lead Paint, and Other Issues. Two statutes and one regulation regarding Property Condition Disclosure issues were retrieved this quarter (see Table 1).

Alleged claims which do not involve the sale of any property or the requirement that title insurance be purchased from a particular title company do not state a RESPA claim.

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⁴ Conn. Gen. Stat. § 20-327b (2018)

⁵ Id.

⁶ La. Rev. Stat. § 9:3198 (2018)

⁷Texas Real Estate Commission