Thomas Bennett Real Estate Lawyer Boston MA

Wednesday, June 27, 2012

What a Seller is Required to Disclose in the Sale of Real Estate



by 
Thomas V. Bennett

A decision of the Supreme Judicial Court decision (the Commonwealth's highest court of appeal) clarifies what a seller of real estate is required to disclose to the buyer. This particular case involved suit by the purchaser of a condominium residential unit against a bank which was the seller. The purchaser claimed that the bank failed to disclose certain environmental conditions existing in the area in which the condominium was located, charging that the bank engaged in fraud and deceit and violated consumer protection laws in that failure to disclose.
 
On the way to the decision, the court paused to review what a seller is required to disclose. The court noted that a seller of property is not under any obligation to disclose defects to the buyer in absence of a fiduciary duty. Silence does not constitute a basis for claiming fraud or misrepresentation, even when the seller may have knowledge of some weakness in the subject of the sale and fails to disclose it. Such non- disclosure does not amount to fraud and is not a conventional tort at any kind. The court held that the bank owed the purchaser no duty under common law to disclose the minimum amount of information it knew and as a matter of law, was not liable for fraud or misrepresentation.
 
Since the seller was a bank, it would be subject to the more stringent requirements of M.G.L. c.93A, since it is engaged in a trade or business. That normally does not apply to the ordinary seller of a residential piece of property where it's their home. The claim of violation was that the bank had failed to disclose to the buyer a fact, the disclosure of which would have influenced the buyer not to enter the transaction. The court noted that although there are a series of cases where a seller has been held liable under G.L. c.93A for non-disclosure of actual defects existing on or directly affecting the property, the plaintiffs claim by contrast concerned an off site problem that no longer existed.
 
The lower court judge characterized the plaintiff's claim as an assertion that "they bought into a bad neighborhood and there was a vague undocumented possibility that TCE may somehow seep into their property in the future." The court found that the bank was not liable for the failure to disclose. The court noted that the case did not turn exclusively on the fact that the alleged problem was off site, although that was a factor to be considered. The court noted in appropriate circumstances, off site physical conditions known to a seller who is subject to G.L. c.93A may require disclosure if the conditions are unknown and not readily observable by the buyer and if the existence of those conditions is of sufficient materiality to affect the habitability, use or enjoyment of the property and therefore render the property substantially less desirable or valuable to an objectively reasonable buyer. Examples involve cases where a subdivision was near a highly toxic, active and hazardous waste dump site and where a developer failed to disclose to a buyer that it had previously arranged with a local conservation commission to release a conservation restriction on an adjoining parcel of land.
 
In this case, the remediation had been completed and the court held the bank was not liable based on the limited state of knowledge possessed by the bank, the past nature of the condition and the fact that it had not affected the condominium at all.
 
Although there are certain disclosures that a seller is required to give with respect to residential property, for instance, the existence of the lead paint law and the right to inspection and the requirement to disclose the presence or absence of urea formaldehyde foam insulation, the seller would not otherwise be required to disclose anything unless the buyer asks a question and the seller makes a representation or answer with respect to such question. This case may also be helpful to brokers, who are subject to G.L. c.93A, since the case makes it clear that only facts which are material and known to the seller and broker but not known to the buyer would give rise to liability.

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