Property Condition Disclosure Highlights: 4Q 2017

A. Cases

The Property Condition Disclosure cases retrieved this quarter involve familiar topics. The first case addresses a licensee’s liability for incorrect information obtained from a third-party source. The other case involves a failure to disclose with respect to waterfront property. In that case, the purchaser claimed that the real estate professionals failed to disclose structural problems in the seawall supporting the back of the property.

Property Condition Case from Earlier Editions

An issue that arises with some frequency in Property Condition Disclosure cases is whether a licensee or broker is liable for incorrect property information obtained from a third party. Last quarter we reviewed a case alleging misrepresentation and failure to disclose correct information regarding property size. The information was pulled from tax assessor records, and the broker was found not liable. In a similar case this quarter (see Cesso v. Showcase, R.P. below), a licensee was also not liable for incorrect information obtained from the tax assessor regarding the legal classification of a property.

Orellana v. Homes Plus of Connecticut , CV166015339S, 2017 WL 3000696 (Conn. Super. Ct. June 9, 2017). The purchaser of the property alleged that the broker misrepresented the size of the property lot and that the property included a shed. The broker stated that he told the purchaser to have the property surveyed, but the purchaser elected not to do so. Although the listing was incorrect regarding the size of the property, the listing information was based on assessor records that were incorrect. As a result, the purchaser failed to show that the broker knew or should have known the information was false. The court entered judgment for the broker.

1. Cesso v. Showcase R.P., LLC, No. 1584CV0008, 2017 WL 2439112 (Mass. Super Ct. Jan. 14, 2017)

Licensee was not liable for incorrect information about property obtained from tax assessor records.

The purchaser purchased a property under the belief that it was a three-family property based on the listing for the property, which indicated it was a three-family home. Several months after closing on the home, the purchaser discovered that the property was actually a lawful two-family home. The purchaser then renovated the property into a three-family dwelling. The purchaser brought claims against the seller and seller’s listing representative and broker. The seller and purchaser settled the claims against the seller.

The purchaser’s claims for misrepresentation, nondisclosure, and violation of the Consumer Protection Act went to a jury trial. At trial, the listing representative argued that the listing information was based on information from the Boston Tax Assessor and the MLS service automatically populated that information in the listing. The licensee also argued that he had no duty to investigate the validity of that information. The jury entered a verdict in favor of the licensee and broker.

2. Woods v. Kawaguchi, No. 30-2014-00743477-CM-FR-CJC, 2016 WL 8309237 (Cal. Super. Ct. Dec. 7, 2016)

Real estate professionals not liable for alleged failure to disclose structural problems with seawall on the property.

Purchasers of a residential waterfront property alleged that the seller, and licensees and brokers who represented the parties in the real estate transaction, failed to disclose structural problems in the seawall supporting the back of the residence. The purchaser alleged negligence, fraud, intentional infliction of emotional distress, breach of fiduciary duty, and constructive fraud against the real estate defendants. The real estate defendants cross-complained against the parties hired to inspect the seawall. After a jury trial, the jury found in favor of the real estate professionals.

B. Statutes and Regulations

California

California amended its statute regarding disclosures of private transfer fees. Purchasers of property subject to such fees must be notified that the Federal Housing Finance Agency and Federal Housing Administration will not deal in mortgages for such property unless the fee directly benefits the property.¹ The statute relating to the opinions that may be relied upon in preparing a property condition disclosure were amended to allow reliance on statements by a C-39 roofing contractor.²

Illinois

Illinois amended the Residential Real Property Condition Disclosure Act provisions relating to documents needed for financial counseling.³

Iowa

The Iowa statutes relating to property condition disclosure were amended to provide that the disclosure statement may be delivered electronically. The statute also now states that transfers to a person within the third-degree of consanguinity or affinity are not subject to disclosure requirements.⁴

Nebraska

The Nebraska Real Estate Commission newsletter included an informational article on licensee duties regarding the Seller’s Property Disclosure Statement. Disclosure statements must be signed by unrepresented parties at the first practicable opportunity after first substantial contact.⁵

Virginia

The Virginia Real Estate Board revised the property condition disclosure form. The new form requires that only the one-page acknowledgement form that directs purchasers to the Real Estate Board website needs to be signed by both parties. ⁶

C. Volume of Materials Retrieved

Property Condition Disclosure Issues were identified 33 times in 23 cases collected during 2017 (see Table 1). Property Condition Disclosure: Other, Mold and Water Intrusion, Structural Defects, Sewer/Septic, and Pollution disclosures were each addressed in multiple cases (see Table 2). Several other issues were encountered as well. Four statutes and two documents from regulatory agencies were retrieved.