Not telling a buyer about material facts about real estate could be the basis of a lawsuit against the seller and or the seller’s agent. Most sellers and agents are smart enough to know covering up defects is risky given the property will probably be inspected, or the owner will find them eventually. Unfortunately, not all sellers or agents are honest, and some buyers end up getting a home not worth what they paid for.
Fraud for failing to disclose a material fact
Under state statute, before completing a residential sales contract, the seller or their broker must give the buyer an accurately filled out checklist of problems or potential problems with the property. A common law (law created over time through court decisions) fraud claim can be based on nondisclosure and misrepresentation in property sales.
Defects that should be disclosed include:
- A history of flooding on the property or in the house
- Known HVAC, plumbing, or electrical problems
- Animal or insect infestations
- Mold problems
- Presence of lead paint or asbestos
- A renovation or addition made without permits
Fraud can be actual or constructive. Hiding something true by someone with knowledge or belief of the fact is actual fraud. Constructive fraud involves failing to disclose material facts when there’s a duty to do so, even if fraud isn’t intended. A cause of action for actual fraud due to nondisclosure by a seller may arise if:
- There’s a confidential relationship between the buyer and seller
- Without the disclosure, the seller made a representation that is likely to mislead
- There is active concealment of an undisclosed issue, or
- When the seller has sole knowledge or access to material facts and knows they’re not known or reasonably discoverable by the purchaser
If the seller’s real estate agent or broker knows of material facts not disclosed by the seller to the purchaser, the agent is under the same duty to disclose them as the seller. The agent or broker may be liable for nondisclosure if his or her conduct in the transaction indirectly tells the buyer the fact at issue doesn’t exist. The seller or agent must state the fact or facts affecting the property’s value, but they don’t need to disclose how or why it’s impacted.
The plaintiff must show reliance on the seller or agent was reasonable or justifiable. It’s a question of fact that needs to be proven. Whether the property was inspected or not doesn’t matter.
Possible awards in a successful case
If the case is successful, you can be awarded:
- The difference between what you paid for the property and, given the undisclosed defect, what the property is actually worth.
- Repair costs
- Punitive damages if the defendants acted with malice to conceal the defect. These damages punish the defendant for its actions, and to deter it and others from doing the same in the future
In some cases, the contract may be rescinded. The seller must take the property back and return your money. Attorney’s fees could be awarded if the parties signed a contract that allows for them.
The time limit to file this kind of lawsuit is three years from finding the undisclosed defect or from the time you have a reason to find it (you have information or the circumstances would put a reasonable person on notice of a need to investigate).
How we can help you with nondisclosure in a real estate sale
Whether you believe a nondisclosure has harmed you or you’re a seller or agent accused of nondisclosure, we can help you through negotiation, using a mediator to reach a resolution, or litigating the matter. Call Anthony Burton at (949) 244-4207 or fill out our contact form today. We can discuss how we can put our knowledge and experience to work for you or your business.
