Property Condition Disclosure Highlights: 2Q 2019

Property condition disclosure cases were less prevalent this quarter as compared to the prior quarter. The first property condition disclosure case below considers whether a non-reliance provision in a real estate purchase contract barred the purchasers’ claims for fraud based upon failure to disclose defects in a home. In the next case, the court held that a buyer or seller must be reasonably justified in the reliance when claiming fraud based on a misrepresentation. In the final case, the buyers alleged that the seller’s broker actively concealed a recurring mold-causing condition, but because the contract contained a disclaimers of reliance, the court held the claims failed.

1.  Smith v. Rodriguez, No. 5D17-3194, 2019 WL 1868181 (Fla. Dist. Ct. App. Apr. 26, 2019)

Non-reliance provision in a real estate purchase contract did not bar purchasers’ claims for fraud and misrepresentation.

Buyers brought an action against the seller, the listing broker, and the brokerage firm, alleging the seller and listing broker actively concealed numerous defects in the home purchased by the buyers. The broker and brokerage moved to dismiss, based on a non-reliance provision in the purchase contract that stated that the buyers agreed to rely solely on the “seller, professional inspectors and governmental agencies for verification of property condition . . . and not on the representations . . . of the broker.”

The trial court granted the motion to dismiss. Buyers appealed, contending that the non-reliance provision in their real estate purchase contract did not bar their claims for fraud and for violations of the Florida real estate licensing laws.  The appellate court agreed with the buyers and reversed as to the fraud and the statutory claims, stating that while the non-reliance provision effectively barred some claims, other language in the contract expressly provided that the non-reliance clause did not bar claims based upon violations of the licensing laws. The appellate court further held that the buyers sufficiently alleged a private cause of action against the broker under the license law. 

2. Hildebrandt v. Hukill, No. 2018-CA-000968-MR, 2019 WL 2067366 (Ky. Ct. App. May 10, 2019)

A buyer claiming fraud cannot prevail by merely asserting that he or she relied on a misrepresentation, as the reliance must be reasonable or justifiable.

Buyers and sellers executed a purchase contract for a home. Due to the number of issues raised in the inspection report, the buyers contacted their broker and requested that a contractor inspect the property. A letter from the contractor stated that there were no signs of deficiencies in the second floor, the area of concern for the buyers. A subsequent contractor hired to remodel the property stated that there was insufficient support from the basement and an undersized header. The buyers then requested to be released from the purchase contract. After the buyers were informed that the sellers would not release them, they closed on the purchase without protest. Thereafter, the buyers allegedly discovered numerous structural defects (sagging floors, ceilings, and doorways, and sagging joists), none of which were noted on the inspection report. Buyers brought breach of contract and negligence claims against the seller’s broker, who then brought a motion for summary judgment. The court granted the motion.

On appeal, the court determined that the trial court correctly held that the buyers had notice of the defects, and failed to ask either the seller’s broker or the seller for any information about the alleged floor defects until after the closing.  The court found that the buyers did not demonstrate reasonable reliance, which precluded any fraud claim they may have had against the seller’s broker. The appellate court further noted that a party who claims fraud cannot merely assert that he or she relied on a misrepresentation and prevail. The claimant’s reliance must be shown to have been reasonable or justifiable. In addition, the appellate court held that it could not properly consider the statutory claim made against the broker based on violation of the licensing law, as such claims must be filed with the Kentucky Real Estate Commission. Summary judgment for the broker affirmed.

3. Comora v. Franklin, No. 62604/15, 171 A.D.3d 851 (N.Y. App. Div. Apr. 10, 2019

No duty on the seller or the seller’s agent to disclose any information concerning the premises when the parties deal at arm’s length.

Buyers brought an action for fraud against the seller and listing broker alleging concealment of a recurring mold-causing condition in the purchased property. The seller and listing broker individually moved to dismiss the complaint. The Supreme Court issued an order in favor of buyers to recover damages for fraud. Seller and listing broker appealed.

On appeal, the court noted that in the context of real estate transactions, “New York adheres to the doctrine of caveat emptor and imposes no duty on the seller or the seller’s agent to disclose any information concerning the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller or the seller’s agent which constitutes active concealment.”  Here, the contract of sale for the subject premises expressly stated that the buyers were fully aware of both the physical condition and the state of repair of the premises based on their own inspection and investigation. The court found the listing broker had no duty to disclose any information concerning the premises where the sales contract contained such a specific disclaimer of reliance by the buyers on representations as to the condition of the property. The appellate court further held that the buyers failed to establish reliance as required to prevail on fraud claims against a broker, and accordingly, held that the fraud claims against the seller and listing broker should have been dismissed. 

Statutes and Regulations

Washington

Washington revised its fire protection statute to state that licensed real estate brokers are not liable in any civil, administrative, or other proceeding for the failure of any seller or other property owner to comply with requirements for installing smoke detectors in residential properties.¹

North Dakota

North Dakota enacted a new statute, Property disclosure – Requirements, which requires the use of a property condition disclosure form in transactions “for the sale, exchange, or purchase of real property when a real estate broker, real estate broker associate, or real estate salesperson who is associated with a real estate brokerage firm represents or assists a party to the transaction” and the real property is an “owner occupied primary residence located in this state being sold or exchanged by the owner.” The written disclosure must include all material facts of which the seller is aware, and which could adversely and significantly affect “an ordinary buyer’s use and enjoyment of the property,” including but not limited to latent defects, general condition, environmental issues, structural systems, and mechanical issues regarding the property. ²

Arizona

Arizona’s statute relating to the Affidavit of Disclosure was amended to require the disclosure of water rights and solar energy devices that are leased or owned on a property.³

Volume of Materials Retrieved

Property condition disclosure issues were identified in five cases.  The cases addressed mold and water intrusion, as well as disclosure of meth labs.  Four statutes regarding property condition disclosure issues were retrieved this quarter.

1. Wash. Rev. Code § 43.44.110 (as amended by 2019 Wash. Laws ch. 455, § 1)
2. N.D. Cent. Code. § 47-10-02.1 (2019) (as enacted by 2019 N.D. Laws ch. 378 § 1)
3. Ariz. Rev. .Stat. § 33–422 (2019) (as enacted by 2019 Ariz. Legis. Serv. ch. 103 and ch. 131)