Trusting Real Estate Disclosure Forms Unwise

Many states require that home sellers disclose material defects in the property to the seller prior to purchase in the form of signed disclosure statements. While sellers should …

Many states require that home sellers disclose material defects in the property to the seller prior to purchase in the form of signed disclosure statements. While sellers should not overlook acquiring these documents, they should not solely rely on them. A couple in Minneapolis, Minnesota, recently bought a home for $4.1 million they subsequently found was ruined by mold and water damage. Fortunately, the courts agreed with them in their action against the seller and awarded damages, but the real lesson is that no one should put their faith in disclosure statements, regardless of the type of property or reputation of the seller. For more on this continue reading the following article from JDSupra.

Imagine saving all your life to buy your dream house in the country, only to find the walls and beams were rotted out with mold, costing hundreds of thousands of dollars in repairs. That was the nightmare scenario facing a couple in Minneapolis, who earlier this month finally resolved two years of litigation with an award of $732,250 upheld against the seller of the house.

  • Llama farm sold for $4.1 million
  • Seller filed disclosure claiming no mold or water damage
  • Seller had performed repairs to cover up mold and water damage

Faulty Disclosure

Alan and Cynthia Roers just wanted a place to raise horses. They thought they had found their spot on a 60-acre llama farm in a Minneapolis suburb, complete with nine outbuildings useful for their equine aspirations, and purchased the house and property for $4.1 million in 2006.

Problems popped up immediately. To begin with, the Roers had unwittingly only bought 40 acres and six sheds, instead of 60 acres and nine sheds. Oops. They won a judgment of $522,000 for fraudulent misrepresentation against the seller, Michael Pierce, and realtor Robert Hare for that little “miscommunication.”

But the size of the property wasn’t the only instance in which the seller had fudged the details. In Minnesota, people selling their homes have to fill out a disclosure statement to alert potential buyers to any problems with the house. Pierce’s statement claimed, among other things, there there was no hail damage, the structure had not been altered, there had been no flooding, leakage or seepage, no roof repairs had been done, and there was no known mold in the house.

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Like Gumbo Soup

Problem was, within months of moving in during the dead of Minnesota winter, the Roers noticed water coming in through the walls. They also found a squeegee in the basement, a curious tool to keep in a house if there hadn’t been any previous water entry. Then, a contractor they hired to remodel the kitchen discovered that the walls were “mushy with mold and rot.

“It was like gumbo soup,” says attorney Lee Hutton, who represented the Roers in their suit. “It was so waterlogged you could actually push your hand through the wall.”

Mold can be a dirty, costly job to remove, and can also lead to health problems, especially for asthmatics. Due to the extensive structural damage the rot had caused, the Roers had to sink nearly $250,000 in repairs into their house to get it in livable condition.

Could it have been an innocent oversight on the seller’s part? Not likely. The Roers discovered that Pierce had actually pulled the house off the market for a time to replace several windows in the dining room in a poorly conceived effort to cover up the mold damage. A house cleaner said she had alerted Pierce to visible mold inside the house, which he had painted over. Over 10 feet of water had been pumped out of the basement through a sump pump. And Pierce had put in a claim of $90,000 to repair the roof in 2001 because of hail damage. In short, the disclosure statement had been a lie from start to finish.

“The house was literally falling apart,” Hutton says. The court agreed and awarded the Roers $732,250. Based on a series of technicalities in Minnesota law, the defendants appealed the judgment, but this month the appeals court upheld the award.

Precious Investment

For Hutton, the litigation showed the importance of honest disclosure when selling a house. “For most Americans, a house is probably by far the most precious and largest investment an individual can make in a lifetime,” the attorney says. “We’re dealing with a house of $4.1 million. My clients dipped into their entire savings to get their dream house.”

Buyers certainly have a right to know what they’re spending money on, which is the reason Minnesota requires disclosure forms on the part of the seller. “For someone to willfully disregard their obligations under the law, this is the reason we took this case all the way to trial,” Hutton says. The lesson? For starters, don’t lie on the disclosure form, and when in doubt, err on the side of over-disclosure. 

At least in this case, the duped buyers got a happy ending out of the whole affair. “The horses are up. Everything’s fine,” Hutton says. “They’re back in the position they should have been prior to purchasing the home.”

This article was republished with permission from JDSupra.


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