Property Condition Disclosure Highlights: 3Q 2019

The property condition disclosure cases retrieved this quarter addressed mold and water intrusions, and roof and structural defects. Property condition disclosure issues were identified in seven cases.

1. Radlauer v. Curtis, No. 2019-CA-0311, 2019 WL 3818794 (La. Ct. App., Aug. 14, 2019)

A house that has flooded under extraordinary rainfall is not a redhibitory defect.

Purchaser, represented by a real estate agent, made an offer to purchase a house. The purchaser and seller executed an “Agreement to Purchase or Sell” the property.  An “As Is Clause” addendum was executed at the sale. The addendum included a waiver of redhibition, stating that the purchasers were not relying upon any representations, statements, or warranties made by the vendor or his agent regarding the condition of the property. Redhibition allows a sales contract to be rescinded because the thing purchased was defective. To prevail in an action for redhibition, the plaintiff must prove that the thing sold contained a hidden defect that was not apparent upon ordinary inspection, which rendered the thing unfit for its intended use or so imperfect that the purchaser would not have bought it had he known of the defect.  The sale of the property at issue occurred approximately nine months before Hurricane Katrina. After the property sustained flood damage as a result of the hurricane, the buyer sought rescission of the sale and return of the purchase price.

The court found that the record was clear that the property flooded twice in a 10-year period, each time at the time of a natural disaster that brought extreme rainfall. The property also flooded when the levee was breached during Hurricane Katrina. On cross-motions for summary judgment brought by the defendant vendor and real estate agent, the court held that the purchaser failed to present factual support evidencing that the property flooded or experienced water seepage on days not marked by extraordinary rainfall. Additionally, the court found while that a house’s susceptibility to flooding is a redhibitory defect, the mere fact that a house flooded under extraordinary rainfall is not a redhibitory defect.  The grant of summary judgement was affirmed and purchaser’s claim was dismissed with prejudice.

2.  Bacovsky v. Fetzer, No. 2018AP1347, 2019 WL 3211269 (Wis. Ct. App. July 17, 2019)

Buyer’s testimony regarding the impact on the value of the property from an alleged misrepresentation about the roof was sufficient to support claim.

Four days after closing on the purchase of a condominium, the buyer discovered ceiling leaks in the upstairs hallway of the unit. The leaks continued throughout the winter. The buyer reported the leaks to the Menomonee River Condominium Association, Inc. (MRCA). MRCA acknowledged that the leaks had been going on for “a while” and advised the buyer to “watch and wait.” After the ice had cleared off the roof, MRCA repaired the roof and the ceiling leaks stopped. However, the buyer believed that there was mold in the unit and took steps to remediate it by hiring a company to remove drywall and other materials. Unsatisfied with the results and believing that the mold was affecting her health, the buyer deemed the unit uninhabitable, moved out, and stopped paying the mortgage. The bank foreclosed on the unit. The buyer subsequently filed suit alleging breach of contract, negligence and misrepresentation against the sellers, the sellers’ real estate broker and the MRCA (collectively, Defendants). 

The court affirmed the dismissal of the claims related to the issue of mold, noting that the buyer would need to provide expert testimony if she wanted to show the leaks caused mold. The court concluded that the failure to provide expert testimony regarding the impact on the condominium’s value was not fatal to the misrepresentation claims because the buyer was able to offer testimony regarding the impact the alleged misrepresentation about the condition of the roof had on the value of the property. In addition, the court concluded that the buyer's misrepresentation claims relating to the roof could go forward against the sellers and their real estate broker because the sellers did not disclose a defect in the roof in the real estate condition report that they prepared with their real estate broker prior to the sale. The case was remanded for trial on the buyer’s misrepresentation claims relating to the roof. ¹ 

3. Morgan v. Cohen, No. 107955, 2019 WL 4316809 (Ohio Ct. App. Sept. 12, 2019)

Buyers’ breach of contract claim was barred by the “as is” clause in the purchase agreement and the doctrine of caveat emptor.

Sellers retained a real estate agent to assist them in selling their condominium unit in the Random Road Lofts. The buyers agreed to purchase one of thirteen units in that complex. During the time the sellers owned the unit, they experienced very few issues with the property. The sellers, however, were aware that owners of certain other units had experienced problems with water leaking into their units from outside and knew of a defect with a support beam over the driveway of the complex. The sellers denied knowledge of any existing structural problems or any defects affecting common areas or the complex as a whole. Prior to the sale, the sellers completed an Ohio residential property disclosure form (RPDF) for the property, in which they represented that they had no knowledge of any “material defects in or on the property” or “any recent or proposed assessments, fees or abatements, which could affect the property.” The sellers also completed a “condominium addendum” and a “condominium, cluster home, or planned unit development information” form. In the condominium addendum, they disclosed that the property was subject to maintenance fees of $1,500 per quarter and warranted that there were no other additional fees, proposed or voted assessments, or maintenance fee increases.

On the same day that they purchased the unit, the buyers received notice of a condominium association meeting regarding the status of negotiations relating to construction defects. At the meeting, the buyers learned about the concerns with the construction of the building, negotiations and a potential lawsuit related to those concerns, and the potential for a special fee assessment to be levied against association members for investigation and litigation related to the construction defects. The buyers filed a complaint asserting breach of contract, fraudulent misrepresentations, and fraudulent inducement against the sellers.

The sellers subsequently filed a third-party complaint against their real estate agent, alleging that their agent had assisted them in the completion of the RPDF, the condominium addendum, and the condominium disclosure form. The trial held that the buyers’ breach of contract claim was barred by the “As Is” clause in the purchase agreement and the doctrine of caveat emptor (“buyer beware”). The trial court found that there was no evidence that the sellers' disclosures were false, and that the sellers did not have a duty to disclose conditions in the common areas or other units owned by other parties. It further held that because the buyers had an opportunity to inspect the meeting minutes of prior association meetings but failed to do so, they were charged with knowledge of the conditions that a reasonable inspection would have discovered. In addition, the court held that the buyers could not establish that their reliance on the sellers’ alleged misrepresentations and concealment was justified or that the sellers “had a duty to speak.” The appellate court held that the trial court properly granted the sellers' motion for summary judgment on the buyers' fraud claims. 

Statutes and Regulations

Oregon

The Seller’s Property Condition Disclosure Form must now include a statement that flood insurance may be required for homes in a designated floodplain, per an amended statute. ²

1 This case has not yet been resolved.
2 2019 Or. Laws ch. 564.