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FRAUD DURING THE SALE OF A HOME

Written by Alex Reuter on November 19, 2019 Category: Civil Litigation

Imagine yourself having just purchased a house. You and your family are excited, stressed, and eager all at the same time. You move all of your belongings into your new home and begin to settle in. A couple of months go by, the snow melts, and as the season changes you notice the roof is starting to leak every time it rains.

You quickly refer back to the documents from when you bought the house and see that the seller never mentioned anything about a leaking roof. However, when your roof-repairman arrives, he immediately informs you he had been there just one year prior to patch the very same leak – which of course was before you bought the house from the seller.

Now you are standing in front of your new home with a massive repair bill in your hands and anger in your eyes. What can you do?

For starters, this unfortunate scenario is all too common in Michigan and I have represented many homebuyers who have been in those very same shoes. Regardless of the nature of the undisclosed preexisting issue (whether it’s a leaking roof, a flooding basement, a break in the foundation, or even a boundary line discrepancy with the neighboring property), if the seller had, or should have had, prior knowledge of it when the house was sold, you will likely have a legal claim for fraud against the seller for their  failure to tell you about the issue.

The source for the fraud claim can be found in a little known, but highly relevant, Michigan law called the Seller Disclosure Act, codified at MCL 565.951, et seq.  Under this Act, a seller of residential real estate (not just a house) is required to make specific disclosures about the property being sold to a buyer. Specifically, the Act requires the seller to provide a written statement to the buyer that discloses the seller’s personal knowledge concerning the condition of the property.

The Act prescribes a particular form for the seller to use (called the seller’s disclosure statement) and it covers everything from the condition of appliances to issues with the plumbing, among many other things. The seller’s disclosure statement is required to be delivered to the buyer or its agent prior to a purchase agreement being signed. As a result, a buyer is considered to rely on the disclosure statement in agreeing to purchase the property, and so if there are any intentional errors, inaccuracies, or omissions in the disclosure statement, the buyer may be able to pursue a claim against the seller for fraudulent misrepresentation and collect damages therefrom.

However, it is important to note that the Act and Michigan courts have emphasized that a seller need only disclose what it actually had personal knowledge of, or would have had personal knowledge of through the exercise of ordinary care. This means that a seller will not be liable for failing to disclose defects that could have only been discovered, for example, through an inspection of inaccessible portions of the real estate – unless the seller actually knew about such defects.

In addition to representing many buyers in cases of fraud under the Act, I have also represented multiple sellers wrongly accused of such claims, and the “personal knowledge” limitation inherent within the Act has been the cornerstone of each of those successfully defended cases.

Whether you’re a homebuyer experiencing the harm of being defrauded, or a seller being falsely accused, the team at Dalton & Tomich has significant experience successfully resolving fraud cases in the context of real estate transactions.

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