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Fraud in Real Estate Transactions and “As Is” Clauses

Written by Adel Nucho on February 22, 2021 Category: Civil Litigation, Fraud, Seller Disclosure Act

 

In Michigan, an “as is” clause in a contract for the sale of a home shields the seller from liability for unknown defects, even if the defect should have been reasonably discovered by conducting an inspection.

The Court of Appeals reiterated recently, in Pilcher v. Benoit, that an “as is” clause will not protect the seller if he or she makes fraudulent misrepresentations before entering into the agreement. For example, a seller is always under a duty to disclose hidden, dangerous conditions in the home. The seller, in other words, can not just stay silent.

In litigation, the clause makes a difference in the nature of the evidence that must be produced. It is not enough for the buyer to show that the seller “should have” reasonably discovered the defect, but that the seller actually knew of the defect.

In Pilcher, for example, the buyer claimed that the sellers failed to disclose a hidden, dangerous, and faulty septic tank covering that the buyer fell into and almost lost her life. Although the buyer’s other claims were dismissed, the Court found that the plaintiff produced enough evidence to create a question of fact.

Specifically, the buyer had text messages between herself and a former resident of the property. According to the former resident, the sellers knew about the defect when he lived there but did not fix it because “the health dept” will require parts of the system to be changed.

That text message created a question of fact as to the sellers’ knowledge of the defect. Indeed, a jury may, based on the evidence, conclude the sellers knew the septic tank covering was not safe, and that it was concealed, but failed to disclose it.

The Pilcher case reminds us that (1) while beneficial for sellers, an “as is” clause does will absolve the seller from the duty to disclose a concealed defect which involves an unreasonable danger, and (2) the evidence to overcome the “as is” clause must be sufficient for a reasonable person to find that the seller knew of the defect.

 

This blog is for informational purposes only. It is not intended as legal advice. 

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