Property Condition Disclosure Highlights: 3Q 2015

A. Cases

In the cases discussed below, the buyer sued the real estate professional for failure to disclose a property condition, even though that condition was disclosed in an inspection report or a disclosure form.  In all three of these cases, the real estate professionals were found not to have breached their fiduciary duties.  In one of the cases, however, the licensee could be liable for fraud based on his own statements, separate from the inspection report, regarding the property condition.

1. McNulty v. Chip, 116 A.3d 173 (R.I. 2015)

A licensee could be liable for fraud if he had knowledge of previous water intrusion, even though agreement contained AS-IS provision.

A seller had purchased her home from her parents. She provided the later buyers of the home with a disclosure form indicating no prior flooding or water intrusion. The seller did not fill in the form herself, but provided the answers to her real estate agent.

The seller’s agent became a dual agent for the seller and the new buyers in their transaction. When the new buyers looked at the house, this representative said that there had been “an inch or so” of water in the basement in the past, despite the fact that the disclosure form did not admit any water issues. The buyers ordered an inspection, and the resulting report did mention evidence of water intrusion. Despite the inspection and the representative’s statement, the buyers purchased the home on an “AS-IS” basis.

Later storms caused flooding at the house, even after the buyers took remedial action. The buyers sued the seller’s representative, claiming negligence, negligent misrepresentation, breach of fiduciary duty, and fraud. The trial court dismissed the claims.

On appeal, the court upheld the judgments for the licensee on the negligence and fiduciary duty claims, but reversed the trial court’s decision on the fraud argument. The higher court said that the seller’s representative might be responsible for fraud, because he had made statements about water penetration in addition to the reports provided. The “AS-IS” disclaimer was not specific enough to bar the fraud claim against the licensee. The case was sent back to the trial court for further proceedings on the fraud issue.

2. Prejean v. Estate of Monteiro, No. 2015 CA 0197, 2015 WL 5515763 (La. Ct. App. Sept. 18, 2015)

A licensee was not liable for failing to disclose structural defects when the licensee did not know of problems beyond what was in the disclosure form.

The seller’s disclosure form indicated the property had termites and termite damage. The inspection report also noted major defects and moisture issues on the property. The buyers requested repairs from the seller, but did not re-inspect the home. The buyers claimed that the seller’s representative concealed or failed to disclose the defects to them. The court decided that the seller’s representative was not liable to the buyers because the buyers were aware of the defects. There was also no evidence that the licensee was aware of any termite damage beyond what was disclosed to the buyers. The court affirmed summary judgment in favor of the licensee.

3. Hall v. Hall, 380 Mont. 224 (2015)

Brokers were not liable for failing to disclose defects when the defects were noted in the disclosure form, even though the buyer claimed a page was missing from his copy of the form.

A buyer sued an inspector and real estate brokers, arguing that they failed to disclose structural defects and toxic mold. The disclosure form noted these defects, but the buyer claimed that the page with that information was missing from his copy. The trial court decided that the defects were disclosed to the buyer and dismissed his case against the brokers. The appeals court upheld that decision.

B. Statutes and Regulations

North Carolina

North Carolina  requires residential real estate sellers to provide buyers with a “Mineral and Oil and Gas Rights Mandatory Disclosure Statement.”7 The broker must inform clients of their rights and obligations under this section.

C. Volume of Materials Retrieved

Property Condition Disclosure issues were raised seven times in five cases (see Table 1). Some involved more than one type of property condition disclosure; Structural Defects and Mold/Water Intrusion were each identified twice (see Table 2). One regulation regarding Property Condition Disclosure was retrieved this quarter (see Table 1).

7 N.C. Admin. Code tit. 21, r. 58A.0119 (2015).

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