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Seller of Real Estate and the Broker Liable for Defrauding the Buyer?

On Behalf of | Jul 16, 2022 | Uncategorized

Sometimes buyers of real property are unpleasantly surprised by the condition of the property that they just purchased. Often times a buyer will see or inspect the property on less than four occasions before the closing. One such person discovered that the condominium unit and the common areas of the condominium unit they had purchased were plagued by water infiltration and mold, another discovered that the attic of the home that they had purchased had a seasonal infestation by a colony of bats, while another learned that their country home with sweeping vistas of rolling hills would soon be in the shadows of a series of wind turbines to be built on an adjacent parcel. There is no substitute for performing thorough due diligence, but what if the seller or the seller’s agent, take steps to conceal the offending condition or make statements that are false or misleading about the condition, or make no statements at all? There is a remedy for the unsuspecting buyer in these instances. The general rule in New York State (caveat emptor) is that sellers of real property and their agents are under no duty to disclose information regarding the property when the parties are dealing at arms length. The exception to this rule is that the sellers and their agents cannot actively conceal information which, in essence, thwarts the purchasers efforts to fulfill its obligations to learn all that there is to know about the property before the closing. Upon a finding of active concealment the Courts impose a duty upon the offending party to disclose that which was hidden and the buyer will be awarded damages and in some instances rescission- or a complete unwinding of the transaction. The Courts in all instances will look to the acts of concealment that the sellers and the broker(s) undertook to conceal the condition, and the due diligence performed by the buyer. The Second Department, in April of 2018, refused to dismiss a purchasers’ lawsuit where mold and water infiltration were hidden by the sellers. The complaint alleged that the sellers claimed to have lost the keys to the storage area in the cellar, and removed and replaced damaged sheetrock in the ceiling of the cellar and parking area- all areas that would have clearly revealed that there was a pervasive water and mold problem. The Court reasoned the pleadings alleged facts that if true may have thwarted the buyers efforts to fulfill its responsibilities imposed by the duty to ascertain and to learn (caveat emptor).

The Third Department denied summary judgment to sellers of real property finding that questions of fact were raised concerning whether the sellers knew about the proposed wind turbine project on the adjacent parcel when they placed their home on market and whether they thereafter made material misrepresentations which deceived the buyers and induced them to purchase property. The Court further held that there was also question of fact as to whether the buyer could have discovered plans to construct the wind turbine project prior to closing.

As a take away, best practices dictate that buyers should document or memorialize the due diligence they perform and document representations made to them by sellers, review all board minutes and public filings on a property, including zoning documents, building applications, and permits.