Selling your home? Beware of potential liability when filling out your Seller’s Disclosure Statement.

The seller’s disclosure statement is a form required by law that a seller must fill out when selling their home. MCL 565.957(1). The statement is meant to provide the buyer with information about the property, including whether there are any known defects. However, the statement is not meant to act as a replacement for other inspections or warranties a buyer wishes to obtain. A recent case from the Michigan Court of Appeals discusses causes of action against the seller arising from the disclosure statement. 

On December 17, 2020, the Michigan Court of Appeals reviewed the decision of a lower court in Julia Ann Pilcher v. James J. Benoit, Donna J. Benoit, Dan Rosehom, and Energetics Home Inspection, unpublished per curiam opinion of the Michigan Court of Appeals, issued December 17, 2020, Docket No. 351151. At the center of the Court’s review was whether the seller perpetrated fraud or silent fraud by failing to disclose information about the home’s faulty septic tank covering in the seller’s disclosure statement. The issue arose after buyer purchased the home and was working in the backyard. While weeding, the buyer stepped onto what appeared to be part of the lawn covered in weeds. Unfortunately for the buyer, she actually stepped onto a flimsy wooden covering for the septic tank, breaking through and falling into the tank below. Upset about the condition of the septic tank covering and the injuries she sustained during the fall, the buyer filed suit against the seller and the inspection company who performed a home inspection on buyer’s behalf.

The lawsuit alleged fraud against the seller and negligence on part of the inspection company. The Court of Appeals dismissed the negligence action based on the terms of the contract between the buyer and the inspection company but considered the fraud claims against the seller at length. The fraud claims were based on the notion that seller knew about the defective condition of the septic tank covering and intentionally omitted that information from the seller’s disclosure statement.

 First, a few general rules of liability in real property law. Typically, “as is” clauses and the property law maxim, caveat emptor (“buyer beware”), often preclude liability in the seller. However, sellers still have a duty to disclose known dangerous conditions. In other words, failure to disclose known defects may give rise liability. This principle extends to sellers’ disclosure statements as well but is limited in application to instances where the seller intentionally misleads the buyer by act or omission. Innocent misrepresentation is not a cause of action under the Seller’s Disclosure Act. There are two kinds of fraud actions that may be brought on the basis of a seller disclosure statement: common law fraud (often referred to as fraudulent misrepresentation) and silent fraud. 

To be successful with a claim of fraud a party must show, (1) the defendant made a material representation; (2) the representation was false; (3) when the representation was made, the defendant knew that it was false, or made it recklessly, without knowledge of its truth, and as a positive assertion; (4) the defendant made it with the intention that the plaintiff should act upon it; (5) the plaintiff acted in reliance upon the representation; and (6) the plaintiff thereby suffered injury. Roberts v Saffell, 280 Mich App 397, 403; 760 NW2d 715 (2008). To prove silent fraud, the seller must first have a legal or equitable duty of disclosure, and the plaintiff must prove the seller intentionally failed to disclose a known defect by making a false or misleading representation, by words or actions, with the intent to deceive the buyer. Id.

In the case of the faulty septic tank covering, the Court of Appeals determined that there was a question of fact about whether the seller knew of the faulty septic tank covering at the time the seller’s disclosure statement was filled out. The seller’s deposition testimony indicated that the septic tank cover was made of poured cement. However, a former tenant of the seller who lived in the home provided conflicting testimony which tended to suggest that the seller was aware of the dangerous condition of the septic tank cover. Finding that reasonable minds could differ about whether the seller was aware of the condition of the septic tank cover at the time the seller’s disclosure statement was filled out and provided to buyer, the Court of Appeals reversed and remanded the issue for further proceedings in the lower court.

What does this mean for homebuyers and sellers going forward? It means a couple of things. For one, this case is a signal to litigants that Courts may start considering the contents of seller’s disclosure statements as the basis for actions sounding in fraud. Sellers beware! Take your time when filling out the disclosure statement. Be deliberate with your answers, but above all, be truthful. Answer each item to the best of your knowledge and if you are uncertain about the extent of your knowledge related to a specific item, qualify your answer by including “to the best of my knowledge.” As a buyer, keep track of the seller’s disclosure statement and if an issue presents itself seek the opinion of an attorney in your area. You may have a viable cause of action against the seller.

In short, when you are buying or selling a home, pay attention to what is in the seller’s disclosure statement. Careful attention to detail could protect buyers who purchase a lemon, or save a seller from liability in the event they are named as a defendant in a lawsuit.

Thanks to Keanen Armour of Parker Harvey for assisting in this article.