01/18/2023
BUYING A HOUSE: BEWARE!
Ah! The joy of buying a home!
Georgia is a buyer beware (caveat emptor) state. One must do his DUE DILIGENCE. But that does not mean one can still not be misled (defrauded) about the condition of a house. This is the claim the buyers, William Napier, Jr. and Katherine Napier, made against Paul Kearney (hereafter Paul), the seller.
It was August, 2015 when they moved into the home they bought from him, but it was not until January 2016 that they “found that the floor and subfloor in the dining were wet and had experienced significant water intrusion, (not to mention) significant pooling of water in the rear of the backyard.” Yet, they waited until October to send Paul a rescission letter(Take back the house and give us our money!) to which Paul did not respond. He was calling their bluff, which is not always a good idea. They sued for RESCISSION and, alternatively, DAMAGES for FRAUD, NEGLIGENT MISREPRESENTATION and BREACH OF CONTRACT.
When they purchased the house in July 2015, Paul gave them a disclosure statement based on his knowledge and belief at the time that there had been no water intrusion nor “any flooding.” The Napiers had the house inspected, and no water intrusion or flooding was discovered.
Let’s start with FRAUDULENT INDUCEMENT (one of their claims) to enter into a contract. If one alleges this, one has two options: [1] affirm the contract and sue for damages for the fraud or breach or [2] promptly rescind the contract and sue in tort for fraud. If one is going to seek rescission, they (the Napiers) “must act promptly…as soon as the facts supporting the claim for rescission are discovered.”
Yet, the Napiers waited TEN months. Was this a waiver of their right to rescind? YES! They blamed it on their insurance carrier, which took a long time to deny their claim. The court found that to be immaterial. In other words, that excuse just doesn’t cut it. Rescission was out; they simply waited too long.
In FRAUDULENT CONCEALMENT, they had to prove justifiable reliance, one of the elements of fraud. This means they had to show “they could not have discovered the alleged defect in the exercise of due diligence.” In other , they were diligent in inspecting the house.
So, what were the Napiers really claiming Paul did or didn’t do?
[1] Rugs: They claimed the placement of the rugs inside the house during the sales process concealed water intrusion. Paul knew something was wrong and was trying to hide the problem from them. Aha!!!
[2] Refrigerator: It had been moved to hide water intrusion. Ditto!!!
Paul did not dispute that there was evidence of water under the fridge and rugs. He just claimed that the location was due to “routine home design choices.” The Court seemed to argue that the Napiers “could have moved these items during the home inspection” and, by not doing so, they showed a lack of due diligence. (That seems a bit of a stretch. What prospective buyers move rugs and fridges to check for water damage? Honey, help me move the oven. Let’s see if they ever had a fire back there.)
However, there was evidence that Paul moved things around in an “attempt to conceal water intrusion.” But the Court concluded that the Napiers by not moving stuff cannot be said to have failed to exercise due diligence as a matter of law. These are all fact issues for a jury to decide. The judge does not decide facts. The case goes back to the trial juge.
Courts look to precedent in deciding cases. That means they look at previous cases with similar facts to see how previous courts ruled and what laws were applied. They want consistency and uniformity to the extent that there are such things in the law.
The Court looked at the Conway case, which was decided in 2001. The Conways bought a house from the Romarions, who were cat owners and did not tell the Conways about the cat urination and defecation in the house. One month after the closing and after moving in and turning off the air-conditioning (The Romarions kept the house cold when the Conways visited, which oddly kept odors from surfacing.), the Conways “began to notice the odor of cat urine.” They discovered numerous defects and promptly wrote the sellers that “they wished to rescind the parties’ purchase and sale agreement.”
Did the Conways exercise due diligence or lack thereof? There was nothing to put them on notice that there was something wrong? Yet, the lower court had ruled for the Romarions. The appellate court reversed (It found that the lower court was wrong.) and sent the case back. (We represented the Conways in this case. We visited the smelly house.)
So, in 2018 Stefanie Wohgelmuth (hereafter Stef) comes along and purchases a home from Rodney and Bernadette Dennis (hereafter Rod and Bernie) in Gwinnett County. In 2019 Stef discovers significant structural issues. THE COST OF REPAIRS IS MORE THAN SHE PAID FOR THE HOUSE. WOW! She sought to rescind the sale. Void the contract. Take back the house. Give me my money. That almost never works, because that means Rod and Bernie have to buy back the house and give Stef the money she paid and most likely they used the money from the sale to buy the house therein or spent it on who knows what. A trip to Machu Picchu? Stock in Twitter? But they do not have the money!
Stef sued, and she added their real estate agent and the broker as defendants. The more the merrier. She had all kinds of claims such as breach of contract, fraud, negligence, and violations of BRRETA, which is the Brokerage Relationships in Real Estate Transactions Act. It sets out certain duties agents and brokers owe to a buyer as well as a seller.
When Bernie and Rod met with their real estate agent about selling their house, she suggested a pre-listing inspection. The inspector found a whole bunch of problems. He suggested repairs. They hired a handyman, who they thought corrected the problems, and they put their house on the market.
Along comes Stef and makes an offer. They enter into a Purchase and Sale Agreement. Rod and Bernie provided a disclosure statement. They noted the various repairs that had been made. Nevertheless, Stef got her own home inspector. She did not give him their disclosure statement. What? He noted “water staining on the frames and main beams.” He found “cracking and settling.” He pointed out that “additional structural pier supports had been installed.” He told Stef to “consult with seller about the nature of this, monitor and repair as needed.” He took pictures. Stef did not discuss this report with her inspector. Oh, Stef! She only asked the sellers to make some minor repairs. This is not looking good.
A massive water leak caused “significant damage and rotting under the kitchen sink” about eight months after the closing. Stef discovered some of the repair work had not been done properly. Building codes were violated. Stef sued!
She claimed Bernie, Rod, and the hapless agent “concealed and failed to disclose the extent of the structural damage….” She claimed misrepresentation about the repair work. She claimed they failed to disclose the pre-listing inspection report.
The agent claimed she did not have any actual knowledge of any defect beyond what was identified in the disclosure and Stef cannot establish justifiable reliance as a MATTER OF LAW.
As noted, fraud has five elements and one is justifiable reliance. (Due diligence) The Court found there was no evidence from which a jury could find that Stef justifiably relied on any statement or omission by the agent. Stef admitted she never spoke to the agent about the condition of the house. She admitted that the Agreement had terms that she was not relying on any statement or omission by the agent.
As for Stef’s claim against the agent under BRRETA, the agent claimed she was “only obligated to report defects of which she was aware and that could not be discovered by the home inspector.” The court agreed, and this claim failed as well.
Stef was put on notice by the sellers’ disclosure and Stef’s own inspector’s report. While she claimed concealment, that is not the facts. “The law does not afford relief to one who suffers by not using the ordinary means of information, whether the neglect is due to indifference or credulity.”
In respect to her fraud claim against Bernie and Rod, the Court found that they told her what they had done. Her inspector told her what he found. And she went ahead and bought the house without having additional inspections made. No due diligence! No justifiable reliance!
Stef also claimed breach of contract. The Court ruled: “The only evidence in the record confirms that Bernie and Rod identified the defects and they believed the defects had been repaired. Accordingly, and in conjunction with our conclusions that there is no breach of contract or fraud claim, (Stef loses).”
[We have given you the modified version of these cases just to give you some idea of how involved and complicated they can be. If you want to read the entire cases, let us know.]
Atlanta Partners Realty, LLC v. Wohlgemuth (2022)
Lessons:
[1] Read the contract.
[2] Read the disclosure statement.
[3] Read all inspection reports.
[4] Hire your own home inspector.
[5] If defects are found, get an additional inspection made by an expert.
[6] Amend the contract if necessary to cover any defect issues.
[7] You may need to exercise the right to terminate the contract if the repairs are significant or too expensive and just find another house.
[8] Comply with the time periods in the contract.
[9] Hire an attorney to work with you. You are making a major financial commitment.
