By: Rick Davis
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Seller Disclosure Omissions: The Seller
You recently moved into your new home. Prior to closing, you had an inspection performed and reviewed the Seller Disclosure. However, after the first rain storm you realize there are numerous leaks in the windows in the living room causing water to pour into the walls and the carpet. You hire someone to make the repairs and he discovers the damage is more extensive than you imagined. Moreover, the contractor informs you that there is evidence that someone tried to hide these issues using make-shift repairs. Over the next week, while talking with your neighbors you learn that the previous home owner told your neighbor about the issues around six months ago. At this point you are mad. You feel the previous owner lied to you and maybe blame your real estate agent, the inspector or others. You don’t know for sure who is responsible but you feel someone should pay for these repairs to the home.
You are not alone. New clients walk in to my office with similar situations every week. In a previous video posting, I discussed what you can do when you are in these situations. This post is going to take a slightly different turn and will discuss what it takes to establish homeowner liability for omissions from the Seller Disclosure. In the coming posts, I will discuss the liability of other parties, such as the buyer and seller’s real estate agent and the home inspector who missed the issues during the inspection.
If we are going to talk about liability for undisclosed defects, there is no better place to start than with the homeowner. After all it is the homeowner that should have the best understanding of the issues with the home. Moreover, it is the homeowner that completes the Seller Disclosure form that is intended to inform the buyer of potential issues with the home. As such, you would think it would be clear the Seller is liable for omissions from the Seller Disclosure, right? Unfortunately, as will be discussed below, the answer is not quite that simple.
Knowledge of Omissions from the Seller Disclosure
When attempting to establish liability for a homeowner for issues not disclosed in the Seller Disclosure, the first step is to show that the seller had knowledge of the undisclosed issues. Although there are different versions of the Seller Disclosure form, almost all forms begin by stating that it is a disclosure of all issues known by the seller at the time they completed the form.(1) Because the form is only a statement of issues the seller is aware of, they can not be held liable for issues for which they had no knowledge. Therefore, this is the first thing to look at when determining if a homeowner may be liable.
There are many facts that can be used to establish that the seller had previous knowledge. For example, did the seller previously hire someone to investigate or repair issues related to the undisclosed defect? What about conversations with a third party, such as a neighbor, regarding the issues? Did the homeowner personally remodel or build the section of the home where the issues were present? The most egregious example might be from the Kansas Supreme Court case of Jason Osterhaus v. Jean Betty Toth that will be discussed more in the next section.(2) In that case, the seller was previously under contract to sell the home to another buyer. That sale fell through when the buyer discovered issues related to a leaky basement. However, the seller did not disclose the existence of the issues or previous contract to the new buyer.
Duty to Inspect the Property
A major issue in the Osterhaus v. Toth case mentioned above was whether the seller can be held liable when the sales contract states that the buyer is responsible for inspecting the property. Osterhaus, a first-time home buyer, discovered water seeping into the carpet in a finished portion of the basement in the house. As the leakage issues were not included in the Seller Disclosure, Osterhaus brought suit against Toth for intentional misrepresentation and fraud under the Kansas Consumer Protection Act. The seller, Toth, denied liability by pointing to the terms in the seller disclosure that stated that Toth had a duty to verify all information contained in the disclosure.(3)
After reviewing a series of previous cases in the issue, the Court found that Osterhaus did have a duty to inspect the property and that the seller is not responsible for issues that should have been discovered during a reasonable inspection. However, the Court further found that the seller does remain liable for any undisclosed defects that could not have been found during a reasonable inspection. Although this case was in Kansas, Missouri courts have reached similar decisions absolving homeowner’s from liability for latent defects that could have been discovered through a reasonable inspection.(4) Determining if a reasonable inspection would have disclosed an issue can be a complicated determination. In reaching that determination, the courts will look at factors such as if the seller attempted to conceal the issue or if the defect was hidden by walls or other immovable objects. The testimony of a reputable home inspector will often be necessary to establish that the defects would not have been discovered during a reasonable inspection.
This decision creates an interesting dichotomy wherein there can usually only be liability against either the seller of the home or the home inspector. If the inspection of the home was reasonable, the seller may be responsible for not disclosing the issues. On the flip side, if the inspection was not reasonable and a reasonable inspection would have uncovered the issues, the inspector may be liable. However, the seller will not be liable. The potential liability of home inspectors will be discussed in more detail in a later blog post, but this interesting contrasting liability was worthy of a mention in this discussion.
The last important element to discuss when analyzing seller liability for undisclosed issues is the time frame in which you have to bring your claims against the seller. In Kansas, a seller has only two years to bring an action for fraudulent concealment against another party.(5) However, there are factors that may extend this deadline. The most common of these is the date of discovery. If you do not discover the issue for three years, you can not be expected to have brought your claim within two years as you did not know about it. Therefore, Kansas Courts generally allow for the “tolling” or extension of beginning of any time limits until such time as the issue has been discovered. However, there are limitations on this. If it is determined that the defect was “reasonable ascertainable” at a prior time, the court may find that the time limit began when the defect was reasonably ascertainable not when you discovered it.(6) Moreover, there is an absolute deadline of ten years, regardless of when it was discovered.(7)
Claims against the seller for omissions on the Seller Disclosure can be successful. However, it is important to understand all of the factors that must be proved at trial. This includes proving that the seller was aware of the issues and that the defects could not have been discovered through a reasonable inspection. An experienced real estate attorney should be able to discuss these factors in more detail with you and provide guidance of your likelihood of success. In coming posts, I will discuss the liability of other parties to the real estate transaction, such as the real estate agents and the home inspector. If you have any questions about these issues or would like me to review your specific situation, give me a call at 913-210-1847.
(1) Osterhaus v. Haus, 249 P. 3d 888 (Kansas 2011). Link to Case on the Kansas Supreme Court website
(2) See example disclosure form on the Kansas City Regional Association of Realtors Website. (“This is a disclosure of SELLER’S knowledge of the Property as of the date signed by SELLER and is not a substitute for any inspections or warranties that BUYER may wish to obtain.)
(3) The buyer’s acknowledgment at the end of the Seller Disclosure stated: “1. I understand and agree that the information in this form is limited to information of which SELLER has actual knowledge and that SELLER need only make an earnest effort at fully revealing the information requested. 2. This property is being sold to me without warranties or guaranties of any kind by SELLER or BROKER(S) or agents concerning the condition or value of the Property. 3. I agree to verify any of the above information, and any other important information provided by SELLER or BROKER (including any information obtained through the multiple listing service) by an independent investigation of my own. I have been specifically advised to have the property examined by professional inspectors. 4. I acknowledge that neither SELLER nor BROKER is an expert at detecting or repairing physical defects in the property.”
(4) See Droz v. Trump, 965 S.W.2d 436 (Mo. Ct. App. 1998).
(5) Kan. Stat. 60-513(a)(3). Link to Statute
(6) See Gilger v. Lee Constr., Inc., 249 Kan. 307 (1991).
(7) Kan. Stat. 60-513(b). Link to Statute