While the slogan for purchasing residential real estate may be “location, location, location,” the watchword for a seller of a home in Washington state is “disclose, disclose, disclose.” The days of caveat emptor (“buyer beware”) are long behind us. When I am asked by a potential client what they should do about a problem that they have experienced while they lived in their residence, I encourage them to disclose that the problem existed and that they have fixed it, if that is possible. The last position that people want to find themselves in as a seller is as a defendant in a fraud and/or negligent misrepresentation lawsuit after they have sold their home and moved on to a new home.
The Seller’s Disclosure Statement, of Form 17, as it is commonly known amongst brokers, is the vehicle that the Washington State Legislature established to easily enable sellers to disclose the defects that the seller is aware of to potential buyers. This form requires sellers to indicate that they do or do not have knowledge about problems with the various systems and governance issues related to their property. It also provides for a “Don’t Know” answer. Certain transactions are exempt from the requirement of completing and provision of the Form 17, such as property transferred by an estate.
Elements of negligent misrepresentation and fraud (intentional misrepresentation).
If you believe that a seller has either unintentionally or intentionally misrepresented a condition of a residence to a buyer, or you are a seller who is deciding whether to disclose certain issues to prospective buyers, consider these following legal standards:
To prevail on a claim for negligent misrepresentation, a plaintiff must prove the following elements by clear, cogent, and convincing evidence: (1) the defendant supplied information for the guidance of others in their business transactions that was false; (2) the defendant knew or should have known that the information was supplied to guide the plaintiff in business transactions; (3) the defendant was negligent in obtaining or communicating the false information; (4) the plaintiff relied on the false information supplied by the defendant; (5) the plaintiff’s reliance on the false information supplied by the defendant was justified (that is, reliance was reasonable under the surrounding circumstances); and (6) the false information was the proximate cause of damages to the plaintiff.
Borish v. Russell, 155 Wash.App. 892, 906, 230 P.3d 646 (2010), review denied, 170 Wash.2d 1024, 249 P.3d 183 (2011).
A plaintiff claiming fraud must prove each of the following nine elements: “(1) representation of an existing fact, (2) materiality, (3) falsity, (4) the speaker’s knowledge of its falsity, (5) intent of the speaker that it should be acted upon by the plaintiff, (6) plaintiff’s ignorance of its falsity, (7) plaintiff’s reliance on the truth of the representation, (8) plaintiff’s right to rely upon it, and (9) damages suffered by the plaintiff.”
Stieneke v. Russi, 145 Wash.App. 544, 563, 190 P.3d 60 (2008) (quoting Stiley v. Block, 130 Wash.2d 486, 505, 925 P.2d 194 (1996).
Defects Fall into May Grey Areas
There are certain issues that straddle the line between a full-on defect and an annoyance. The basic decision regarding whether to disclose a defect is whether the buyer would find the information relevant in pricing an offer to purchase the property or in deciding whether to purchase the property or not. Situations such as a neighbor’s rooster in an urban neighborhood that crows every morning at dawn or the neighbor who every other week cooks very pungent food upstairs in your condominium complex (and which aromas intrude into your unit) are among those grey areas. The advice I would give would be to over-disclose rather than risk being sued for a defect that someone discovers after the purchase closes. Ultimately, you have to determine what level of disclosure to make outside of clearly obvious, unrepaired facilities and structural elements.
I have seen a great deal of misrepresentation and outright fraud over the years. One home had its kitchen sink disposal unconnected to any pipes, and just ran out under the home. Another residence had a recent water intrusion that had flooded the lower level. Rather than disclose this problem that would recur the following winter, the seller had new drywall installed and sold the home in the dry months of the summer. Cutting into the drywall after the flood the following winter (by an expert witness that we hired) disclosed the date of that drywall, which was installed the previous summer, and the case quickly settled. The list just goes on.
One element of the process that becomes very dictated by the real estate market is whether the buyer is having a pre-purchase inspection conducted by a qualified home inspector. If that inspection is waived by a buyer during a hot real estate market, the chances increase that there could be a problem that could have been detected. However, there are many latent (hidden) defects that cannot be detected without invasive testing. If a buyer is informed about the potential defects that exist and then fails to investigate further, the buyer becomes the party who takes on the risk of buying the problem.
How to thread the line between too much disclosure and too little disclosure is a very difficult decision to make for an upstanding seller who wants to meet the standards set for the sale of real estate. This is, of course, likely one of the most expensive sales or purchases you are ever going to make. The Form 17 is, under the best circumstances, a document that can be ambiguously interpreted when a seller is attempting to complete it, and a buyer is attempting to understand the information that has been provided. I recommend that you speak with a knowledgeable attorney when you are getting ready to list a residence for sale so that you can disclose properly and limit your opportunity to regret the extent of your disclosures, or you are evaluating whether to purchase the home that looks sweet on the outside, but has some issues that you don’t clearly understand. Don’t be the seller who didn’t disclose, disclose, disclose, or the buyer who puts their head in the sand when something sounds a bit better than it looks.