Property Condition Disclosure Highlights: 1Q 2017

Two of the following cases consider the extent to which the seller’s representative may be liable to the purchaser of the property. In both of those cases, the courts concluded that the representative did not owe a duty to the purchaser of the property, absent an effort by the representative to actively conceal or work with the sellers to conceal a problem with the property. Two of these cases also addressed claims against the licensee who assisted the purchasers in the transaction. In all of the cases, the court held that the real estate representatives were not liable to the purchasers.

A. Cases

1. Gallagher v. Ruzzine, 147 A.D.3d 1456 (N.Y. App. Div. Feb. 3, 2017)

After moving into their new home, purchasers discovered cracks in the walls and water leaking into the basement. The house also “popped,” which caused cracks in the basement walls, the fireplace to pull away from the wall, and the front porch to pull away from the house. The purchasers sued the seller, seller’s representative, purchaser’s representative, and the prior owners of the property for various claims, including fraud, breach of contract, gross negligence, and breach of fiduciary duty. The trial court granted summary judgment in favor of the defendants.

On appeal, the court stated that the seller’s representative does not represent the interests of the buyer. New York law does not impose a duty on the seller’s representative to disclose anything when dealing with the buyer at arms-length, unless the representative is actively concealing information. The court concluded there was no evidence of concealment or intentional or reckless conduct on behalf of seller’s representative. With respect to the purchaser’s representative, the court found that the representative did not have a duty to investigate unknown facts, and had no actual knowledge of the alleged defects. The claims against the sellers and prior owners of the property also failed. The appellate court affirmed summary judgment in favor of the defendants.

2. Haynes v. Lunsford, No. E2015-01686-COA-R3-CV, 2017 WL 446987 (Tenn. Ct. App. Feb. 2, 2017)

The purchasers of a cabin sued the seller and the real estate licensee and broker who assisted the purchasers in the transaction for allegedly misrepresenting the age and history of the cabin and failing to disclose a mold problem. The purchasers alleged that the licensee and broker should have known that the property was not new or recently built because the property sat vacant for an extended period of time, a fact which was common knowledge in the community. The purchasers brought claims for fraudulent misrepresentation, breach of the duty to disclose, and violation of the Consumer Protection Act. The trial court entered summary judgment in favor of the licensee and broker.

The appellate court agreed that the real estate licensee and broker were not liable to the purchasers. According to the court, the purchasers had the same information about the property as that provided to the licensee. Although the extended vacantness of the property was common knowledge in the community, that fact did not establish that the licensee had actual knowledge of the vacantness. The licensee does not need to undertake an independent investigation of the property. Therefore, the licensee did not violate the duty to disclose information to the purchaser. The court affirmed summary judgment for the licensee and broker.

3. Zuberi v. Hirezi, No. 1:16-CV-1077, 2017 WL 436278 (E.D. Va. Jan. 30, 2017)

Home purchasers claim that the sellers, a contractor hired by the sellers, and the listing broker concealed structural defects with the foundation and plumbing defects in the home. The purchasers asserted claims for fraud, fraudulent concealment, negligence, and civil conspiracy against the real estate defendants. The purchasers allege that the sellers concealed structural problems with cosmetic fixes.

The court determined there was no misrepresentation based on the listing information. The listing described the home as fully renovated and updated. This description did not constitute an actionable misrepresentation that all known defects had been repaired and that no additional repairs were needed, as the purchasers suggested. Also, the buyers inspected the property and the inspection identified a long list of needed repairs. The negligence claim also failed because the seller’s real estate representative does not owe an actionable duty to the buyer under the real estate licensing laws. Finally, there was no indication that the real estate representative worked with the sellers to deceive the buyers. The court granted the real estate defendants’ motion to dismiss the claims against them.

B. Statutes and Regulations

Mississippi

The Mississippi Real Estate Commission issued a revised Property Condition Disclosure Statement.[1]

Montana

Montana amended the statute regarding buyer’s representative responsibilities. A buyer’s representative must disclose to the seller when the representative has no personal knowledge of the veracity of information regarding adverse material facts concerning “the ability of the buyer to perform on any purchase offer.”[2]

Virginia

Virginia amended its statute setting forth the disclosures to be provided by the seller of property. The revised statute notes that sellers must provide a residential property disclosure statement “for the buyer to beware of certain matters that may affect the buyer’s decision to purchase such real property.”[3] The statute also clarifies that the seller makes no representations with respect to whether the property is subject to conservation or other easements, or whether the property is subject to a community development authority approved by a local governing body.[4] Purchasers are advised to undertake due diligence with respect to these issues, including determining if a resolution or ordinance has been recorded in the land records for the locality.[5] A new statute requires property owners to disclose to the purchasers if the owner has actual knowledge of any pending enforcement actions that affect the “safe, decent, sanitary living conditions” of the property of which the owner has been notified in writing.[6] A property owner must also disclose any pending violation of a local zoning ordinance that the violator has not abated or remedied.[7]

C. Volume of Materials Retrieved

Property Condition Disclosure issues were identified 6 times in 3 cases (see Tables 1 and 2). The cases addressed Structural Defects, Mold and Water Intrusion, Plumbing, and Other Issues. Two statutes and two regulations regarding Property Condition Disclosure issues were retrieved this quarter (see Table 1).