ASSERTING NON-DISCLOSURE CLAIM INVOLVING RESIDENTIAL REAL PROPERTY AND WHETHER FACTS ARE “READILY OBSERVABLE”

Posted on September 6, 2021September 6, 2021 by Edward Garber

Under Florida law, there is a claim dealing with the purchase and sale of residential real property known as a Johnson v. Davis or a non-disclosure claim: “[W]here the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer.” Lorber v. Passick, 46 Fla.L.Weekly D1952a (Fla. 4^th DCA 2021). A seller’s duty to disclose extends to a seller’s real estate agent/broker. Id.

A non-disclosure claim is asserted by the buyer of residential real property when the buyer discovers defects or damages with the real property that he believes materially affects the value of the property. While there may be the sentiment these are easy claims to prove, they are not.

Remember, a non-disclosure claim deals with facts that materially affect the value of residential real property and are NOT readily observable. The use of the language “readily observable” has been found to mean:

“[I]nformation [that] is within the diligent attention of any buyer. To exercise diligent attention…a buyer would be required to investigate any information furnished by the seller that a reasonable person in the buyer’s position would investigate and take reasonable steps to ascertain the material facts relating to the property and to discovery them—if, of course, they are reasonably ascertainable.”

Lorber, supra, quoting Nelson v. Wiggs, 699 So.2d 258, 260-61 (Fla. 3d DCA 1997) (internal quotations and citations omitted).

When a buyer asserts a non-disclosure claim, the buyer should also consider adding a negligent misrepresentation claim. “[E]ven when a defect can probably be discovered through the exercise of diligent attention, the requisite level of diligent attention is of less importance in claims involving misrepresentations – especially those involving fraud.” Lorber, supra. The issue appears to be one that involves comparative negligence and despite readily observable defects, a buyer is entitled to rely on a seller’s representations. Id.

Lorber provides a good discussion of a residential real property non-disclosure claim and related claims for a seller’s misrepresentation.

In this case, a buyer did not move through with closing because he smelled an odor in the house and learned, right before closing, the home had experienced substantial water damage/ a prior flood event. The buyer claimed this was never disclosed by the seller, was not readily observable, and materially affected the value of the property.

The seller sued the buyer for failing to close and the buyer countersued for breach of contract, fraudulent inducement, and negligent misrepresentation.

During the course of litigation, the seller moved for summary judgment. Testimony established that the buyer knew there was a musty odor when he first stepped foot in the house and asked about the odor. The buyer was told by the seller’s agent it was due to the air conditioning being off but acknowledged the odor might be mold. Moreover, the buyer’s real estate agent testified the odor was similar to other properties he had seen that had water intrusion; although, the agent testified he did not inform the buyer that water intrusion was possible. Based on this testimony, the seller argued the water intrusion and mold was readily observable thereby defeating a non-disclosure claim. The buyer argued that while he was not denying he smelled the odor from the get-go, the seller’s real estate agent dismissed the odor and there was nothing readily observable that connected the odor to a prior flood, as supported by the seller’s disclosure form which indicated the property suffered no water intrusion or flood damage. In other words, the buyer claimed how could he investigate a flooding condition he did not know existed and was not disclosed to him, and how could he have knowledge the odor’s existence was related to a past flood event.

The trial court granted summary judgment in favor of the seller. The trial court held the fact that the buyer smelled the musty odor that could be mold made the fact there was a prior water intrusion event readily observable. The Fourth District Court of Appeal disagreed.

Buyer’s Breach of Contract Claim

The buyer’s breach of contract claim against the seller was a non-disclosure claim. Thus, the buyer’s failure to exercise diligent attention would be fatal to a non-disclosure claim because the facts would be readily observable. In this regard, the Fourth District Court of Appeal noted that if the buyer’s claim was premised on mold, his non-disclosure claim would fail because he observed the musty odor.

However, the buyer’s claim was not predicated on the existence of mold, but on the existence of a past flood event/damage; the buyer testified “he was unaware of any steps he could have taken to investigate a prior flood about which he was never informed, and he had no knowledge that the mold’s existence was in any way related to a prior water intrusion event.” For this reason, the Fourth District found that there was a genuine issue of material fact as to whether the prior flood event was readily observable. There was also an issue of material fact as to whether the flood event/damage materially impacted the value of the property as the buyer testified the home was worth much less after having suffered a flood.

Buyer’s Fraudulent Inducement Claim

As to the buyer’s fraudulent inducement claim, the Fourth District Court of Appeal held there was a genuine issue of material fact as to whether the seller knew its representations concerning the property were false with the intent to induce the buyer to enter into the purchase-sale agreement.

While a party cannot recover for fraud that is contradicted or covered by the actual contract, the sale of residential real property creates an exception. “The inclusion of an ‘as is’ clause in a contract for the sale of residential real property does not waive the duty imposed upon a seller under Johnson [v. Davis].” Lorber, supra (citation omitted).

Buyer’s Negligent Misrepresentation Claim

As to the buyer’s negligent misrepresentation claim, the Fourth District Court of Appeal held that the “issue was one of comparative negligence.” Lorber, supra. Genuine issues of material fact remained “as to whether Seller knew or should have known about the Disclosure Form’s falsity, whether Seller intended to induce Buyer to rely on the Disclosure Form, and whether Buyer acted in justifiable reliance upon the Disclosure Form, in conjunction with seller’s agent’s statement that the smell was attributable solely to the air conditioning being off.” Id.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

FRAUDULENT NONDISCLOSURE / CONCEALMENT AND RESIDENTIAL PURCHASE-SALE CONTRACTS

Posted on March 17, 2016November 8, 2024 by Edward Garber

When it comes to residential purchase-sale contracts, sellers are required to disclose known defective items / facts that materially affect the value of the property. Such residential contracts routinely include language that the “Seller knows of no facts materially affecting the value of the Real Property which are not readily observable and which have not been disclosed to the Buyer.” If such fact is not disclosed to the buyer, the buyer may have what is commonly referred to as a fraudulent nondisclosure or concealment claim against the seller (former owner) or a Johnson v. Davis claim named after the Florida Supreme Court opinion that recognized fraudulent nondisclosure claims.

Many sellers try to hang their hat on the fact that the residential contract contains an “as is” provision such that they are selling the property “as is”. Certainly, this is good language. However, an “as is” provision in a residential purchase-sale contract will not waive the duty imposed on the seller to disclose known items / facts that materially affect the value of the property and which are not readily observable. Solorzano v. First Union Mortgage Corp., 896 So.2d 847, 849 (Fla. 4^th DCA 2005).

A buyer (current owner) asserting a fraudulent nondisclosure claim against the seller (former owner) must prove four elements:

1. The seller must have knowledge of a defect [fact] in the property;

2. The defect [fact] must materially affect the value of the property;

3. the defect [fact] must be not readily observable and must be unknown to the buyer;

4. the buyer must establish that the seller failed to disclose the defect to the buyer.

Jensen v. Bailey, 76 So.3d 980, 983 (Fla. 2d DCA 2012).

The first element, “the seller must have knowledge of a defect” is the most challenging for the buyer to prove because the burden requires the buyer to “prove the seller’s actual knowledge of an undisclosed material defect.” See Jensen, 76 So.3d at 983; accord Eiman v. Sullivan, 173 So.3d 994 (Fla. 2d DCA 2015). Keep in mind, though, that this element does not require the buyer to prove the seller’s intent, only that the seller knew of a defect / fact that materially affected the value of the property and failed to disclose the defect / fact to the buyer. To prove actual knowledge, the buyer may need to put on circumstantial evidence establishing the seller knew of the defect / fact (but is perhaps lying about his or her actual knowledge today). See Jensen, 76 So.3d 980; see also Bowman v. Barker, 172 So.3d 1013, 1016 (Fla. 1^st DCA 2015) (“This evidence raises a question of fact about the appellees’ [seller] knowledge, as well as questions about their credibility and the plausibility of their denying knowledge of the property’s substantial defects and what repairs it needed.”) (For more on this case, click here.)

If you believe you have a fraudulent nondisclosure claim, consult a lawyer that can best assist you in (a) proving your claim based on the required elements and (b) understanding your damages associated with the nondisclosure. Typically, this will require engaging an expert to testify as to the costs to repair the undisclosed defect(s) / fact(s) that materially impacts the value of the property.

DID I JUST BUY THE MONEY PIT?

Posted on September 12, 2015November 8, 2024 by Edward Garber

You bought a house. Congratulations! You are all excited. You move in, get settled, and then the dreadful happens. You discover that the new house you bought contains water intrusion or other significant construction defects. You begin to think about the money pit you just bought; hilarious movie, by the way, so I digress with a funny scene from the movie:

Back to the issue. What do you do with the perceived money pit that you know or anticipate will cost you substantial sums to repair. First, assuming this was not new construction, you pull up the seller’s disclosure to see whether the seller (former owner) disclosed any of the water intrusion or construction defects. The seller did not. You believe the seller knew or reasonably should have known of these construction defects. How could they not? So you consult a lawyer (always a good first step) to explore what is known as the Johnson v. Davis line of cases that stand for the proposition that a seller has a duty to disclose known defects with the house they are selling. See Johnson v. Davis, 480 So.2d 625 (Fla. 1985).

A new case, Bowman v. Barker, 40 Fla. L. Weekly D2091b (Fla. 1^st DCA 2015), bolsters a buyer’s claims against a seller for not disclosing known defects in their house. In this case, the sellers apparently purchased a dilapidated house (cheaply) and renovated the house with the intent on flipping the house to another buyer. The house was sold. Defects were not disclosed. After the sale, the buyer discovered numerous construction defects. The buyer sued the seller, amongst others, for failing to disclose these defects that the buyer contended the seller knew about or should have reasonably known about.

The First District explained:

The duty to disclose known defects under Johnson v. Daviscontinues to exist for a home sold “as is.” The sellers do not dispute this principle. Despite selling this house “as is,” the sellers had a duty to disclose what they knew about its condition, and they undertook to make disclosures to Appellant [buyer] about the condition of the house. The record demonstrates triable issues of fact about what that condition was, what the sellers knew about it, what disclosures were made, and whether those disclosures were accurate.

This means the buyer is able to let the trier of fact (jury or judge) determine the issue of whether the seller knew of the construction defects but failed to disclose them to the buyer. This is a good case for a buyer since it supports the argument that these are issues to be determined by the trier of fact, putting pressure on the seller based on how the trier of facts may interpret the facts knowing the house they just sold contains numerous construction defects. For instance, in this case, the First District noted: “This evidence raises a question of fact about the appellees’ [seller’s] knowledge, as well as questions about their credibility and the plausibility of their denying knowledge of the property’s substantial defects and what repairs it needed.”

Consult an attorney if you purchase a house and discover construction defects, especially if you believe you just bought a money pit. An attorney can assist you with potential recourse under the law.