Property Condition Disclosure Highlights: 4Q 2018

In the Property Condition Disclosure cases, real estate representatives were largely successful in defeating liability claims brought against them for failing to disclose certain conditions including mold growth, plumbing issues, and general structural defects. In one case, the Buyer brought a claim against the real estate representative for failing to explain the scope of a conservation easement to which the purchased property was subject. In another case, a Buyer was awarded monetary damages based on a finding that the home inspection and property disclosure statement failed to disclose significant plumbing issues. Real estate representatives on both sides were required to pay damages.

1. Ferman v. Bogaard & Assocs., LLC, No. A-4503-16T2. 2018 WL 6683943 (N.J. Sup. Ct. Dec. 20, 2018)

Buyers purchased a newly constructed home which was subject to a conservation easement affecting nearly four acres of the approximately five and one-half acre parcel. Buyers alleged their closing attorney committed legal malpractice, and their real estate representatives were negligent and committed consumer fraud, by failing to explain the scope of, and limitations imposed by, the conservation easement. Buyers claimed they would not have purchased the property had they been properly advised about the easement.

Real estate representatives not liable for failing to properly inform Buyers of a conservation easement affecting the property where Buyers were aware of the easement prior to purchasing the property.

Both the attorneys and real estate representatives moved for summary judgment, contending their respective alleged negligence did not proximately cause the damages claimed by Buyers. The trial court granted partial summary judgment, dismissing the majority of Buyers’ damage claims based on a lack of proximate causation. Buyers voluntarily dismissed their remaining claims and appealed. The appellate court affirmed the partial summary judgment, which dismissed the negligence claim against the real estate representatives for failing to inform Buyers on the environmental property condition. Buyers were aware of the easement before the purchase, proceeded to build their home, lived in the home for several years, and provided no evidence that the sale price was affected by the conservation easement.

2. Francis v. Loviscek, No. 2017-L-167, 2018 WL 5259148 (Ohio Ct. App. Oct. 22, 2018)

Real estate professional not liable for injuries where no evidence demonstrates knowledge of the condition.

Seller hired a real estate representative to list his property for sale. On the second viewing of the property, Buyer slipped and fell on the garage floor suffering injury. Buyer claimed negligence on the part of Seller and real estate representative for not disclosing the dangerous property conditions.

The trial court entered judgment against Buyer. The court found that neither Seller nor the real estate representative had a duty to warn Buyer about the entrance to the garage. The court on appeal held that the real estate representative owed no duty of care to the Buyer as the “open and obvious” doctrine only applies to property owners, not real estate representatives. Further, there was no evidence that the real estate representative had knowledge about the alleged danger and as such, did not owe a duty of care under ordinary negligence principles. Summary judgment affirmed.

3. Pilecki v. City Side Properties, No. 2016-12-000562, 2018 WL 5405866 (Pa. Feb. 7, 2018).

Buyers awarded $50,000 in damages through arbitration against the Seller and the Seller’s real estate representative for claims of breach of contract and breach of fiduciary duty.

Buyers entered into an agreement with City Side Properties to purchase a property at a cost of $174,000. A professional home inspection found no significant issues. Buyers alleged they received a property disclosure statement during the sales process, which also did not disclose any major issues. After the sale closed, Buyers discovered the house had significant plumbing issues, which were not mentioned on the disclosure statement or found during the home inspection.

Buyers sued City Side Properties, the home inspector, and both parties’ real estate representatives, claiming the Seller’s disclosure statement was materially false and misleading as it failed to reveal serious issues with the home that made it uninhabitable. Buyers contended Seller and both real estate representatives had deliberately concealed known defects, and engaged in breach of contract, unjust enrichment, misrepresentation, fraud, negligence, breach of fiduciary duty, violation of the Unfair Trade Practices and Consumer Protection Law, and breach of implied warranty. Per the purchase agreement, the matter was arbitrated. The panel found in favor of the home inspector against a claim of negligence but held City Side Properties and the Seller’s real estate representative liable for the false and misleading disclosure statement, awarding the Buyer $50,000 as damages.

4. Flores v. Payne, Civ. Action No. 16-0856, 2018 WL 4956814 (W.D. La. Oct. 12, 2018)

Real estate representative denied judgment in her favor because questions of fact existed as to whether she was aware of undisclosed property conditions at the time of sale.

Buyers, assisted by their real estate representative, made an offer on a Louisiana residential property. The representative subsequently emailed to Buyers a property disclosure statement by Seller and a dual agency agreement disclosing that she was representing both parties in the transaction. Buyers sent a signed and initialed offer with no modifications to Seller. After closing, Buyers became aware of alleged unsafe conditions of the house that rendered it uninhabitable, including sealed windows that could not be opened, rotting wooden porch floor, mold-covered interior walls, a moist crawl space with a water-stained floor, and uninsulated plumbing under the house. Buyers then hired a professional home inspector who verified the condition issues with the home.

Buyers brought claims against the real estate representative for fraud and negligent misrepresentation. The District Court denied the real estate representative’s motion for judgment, finding a genuine fact dispute existed as to whether the real estate representative had actual knowledge of the property conditions. If so determined, there could be a finding of liability against the real estate representative.

B. Statutes and Regulations

California

The Department of Justice maintains a registry of sex offenders pursuant to Penal Code section 290.4. Civil Code section 2079.10a currently requires a notice about how to seek information from the sex offender registry to be included in every lease, rental agreement, or sale contract for residential properties with one to four dwelling units. This bill adds “a leasehold interest in real property consisting of a multiunit residential property with more than four dwelling units” to the list of contracts that must contain a specified notice to the Buyer about the state’s sex offender website.

Wisconsin

The Wisconsin Legislature amended the real estate disclosure statutes to include a new mandate that the Seller of residential real property disclose to a prospective Buyer any known burial sites on the property.1

C. Volume of Materials Retrieved

Property Condition Disclosure Issues were identified 24 times in 17 cases collected during 2018 (see Table 1). Property Condition Disclosure: Other, Mold and Water Intrusion, Sewer/Septic, and Plumbing disclosures were each addressed in multiple cases (see Table 2). Several other issues were encountered as well. Eight statutes and three documents from regulatory agencies were retrieved.

1 Wis. Stat. § 709.03 (2018)

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