2009

Non-disclosure

Posted on February 23, 2009 at 10:57 am in

Federal and state laws now require sellers of residential properties to provide a disclosure of all know defects afflicting the property. In addition, if the home was built before 1978, the seller must also provide a disclosure about any know lead-based paint hazards. The seller of residential properties is legally obligated to disclose all known defects, which would not be readily apparent with a standard inspection. Failure to do so may not be fraud in the strictest of terms, but it would
be grounds for damages or a rescission of the transaction. For example, Warren’s home is in unincorporated McHenry County, Illinois, and must use a septic tank. The septic tank needs to be replaced, due to lack of maintenance; but the damage is invisible from the surface. Warren sells his home to Lana without
disclosing the problem with the septic tank. After moving in, Lana has to spend about $5,000 to repair the septic tank. Lana can sue Warren for damages, if not rescission.

Many jurisdictions now recognize that undesirable history that is not revealed to the buyer may also be grounds for damages or rescission. For example,
properties that were the scene of vicious crimes (such as murder) may be subject to rescission of the sale, if that history is not revealed to the buyer.

This requirement for disclosure is balanced somewhat by the buyer’s responsibility to do some due diligence. The basic rule is that if the information is readily available to the buyer, the buyer may not be able to sue the seller for misrepresentation or nondisclosure. For example, a tour of the property reveals water stains
on the basement walls. Those were obviously caused by flood or water damage. The buyer decides to skip on the cost of an inspection, and the buyer does not ask questions about the water stains. This buyer may have a difficult time winning a suit for damages or rescission, because the damage was apparent and the buyer did not make any attempts to ascertain the facts.

Fraud issues is not limited to the condition of the property. In fact, most fraud suits revolve around problems with the title.

Real Estate Fraud

Posted on February 23, 2009 at 10:53 am in

Caveat emptor, let the buyer beware. Because of the large amounts involved with real estate, however, courts and the government have offered buyers some measure of relief. In fact, the trend in the courts has been away from the “caveat emptor” approach. Property buyers have two lawsuit options if and when they feel they have been defrauded by the seller (or the seller’s agent):

  • Sue for damages. The buyer can keep the newly purchased property but sue the seller for damages incurred from the fraud. For example, if the furnace is not working as warranted by the seller, the buyer can sue the seller for the cost of the replacement or repair-after the purchase closing has already been consummated.
  • Sue to set aside the sale. The buyer can also try to get the whole transaction rescinded. If the buyer is successful in the lawsuit, the property is returned to the seller and the funds are returned to the buyer.

The two tactics require different level of proofs from the buyer initiating the suit. To win a suit for damages, the buyer has to prove that the seller intentionally lied about the issue behind the damage. To win a ruling to set aside the sale, the buyer only needs to demonstrate a material fact; the buyer does not need to show that the seller intentionally lied.

Fraud committed by the seller’s agent is basically fraud committed in the seller’s name. The seller will still be liable. There are three basic ways in which sellers can commit fraud:

  • Misrepresentation
  • Conduct
  • Non-disclosure

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