In a recent case, we defended a couple who were being sued by the buyers of their former home; alleging that my clients had engaged in fraud in completing the residential disclosure form. As has been discussed in previous blog posts here and here, Ohio law requires that the seller of residential property complete a disclosure form relating to potentially issues – chief among them water intrusion.
Our clients completed the disclosure form noting that they had experienced a water intrusion event when the sump pump failed; and that they hired a local water remediation firm for the clean-up.
Shortly after closing, Greater Cincinnati experienced record precipitation, and the basement flooded. The buyers filed suit claiming that the sellers had lied on the disclosure form.
Necessity of Justifiable Reliance
A claim for fraud requires that the plaintiff actually relied on the supposedly fraudulent misrepresentation, and that she was justified in so doing. This means that for instance, if the buyers were skeptical of the sellers’ disclosure form, or found their own evidence that contradicted the disclosure form, the buyers cannot be said to be “relying” or that their reliance is “justified.”
Additionally, in this instance our clients did disclose what they knew and therefore did not make any fraudulent misrepresentations at all. But simply disputing the allegations is not enough to win the day in court. We sought evidence to undercut all of the allegations.
Text Messages Undo the Buyers’ Claims
After the filing of the lawsuit, we conducted discovery, including requesting copies of text messages and emails between the buyers and their real estate agent. The text messages revealed that prior to even making an offer on the home, the buyers told their agent that they knew that water intrusion and mold was an issue. Indeed, the buyers “priced the risk into their offer.” In one text message the buyer stated: “A little concerned with the basement and flooding. They have had issues. Not sure it isn’t why these people are selling.” and “We love it. Just not for $300k . . . Especially with water damage . . . Don’t want to end up upside down or having to fix water damage etc.” And, true to their word, the buyers did not pay $300,000; they paid $275,000 for the home, pricing the potential cost of the anticipated water damage.
At one point the buyers asked their agent for a copy of the documents from the water remediation company the sellers had used. Unfortunately, the buyers’ agent never followed up and asked the sellers for those documents.
After signing the contract, the buyers hired an inspector and instructed him to conduct a mold test. For whatever reason, the inspector did not conduct a mold test, and the buyers did not follow up.
Armed with the buyers’ communications with their agent, and the disclosure form, we filed a motion for summary judgment. We argued that the disclosure form was accurate and put the buyers were on notice of water intrusion. Additionally we argued that the buyers’ communications with their agent proved that they were skeptical about the information the sellers provided (meaning they were not relying on the disclosure form) and priced the question into the purchase price.
The court agreed with our argument; “The [buyers’] personal notes and text messages with their real estate agent evince that they had ongoing, multiple concerns about water damage and mold based on the Disclosure Form and their own observations in inspecting the basement.” “Accordingly, the court finds that the [buyers] could not have justifiably relied on any fraudulent misrepresentation or concealment by the [sellers]. As such, their claim for fraud must fail, and summary judgment is appropriate as a matter of law.”
For attorneys defending these cases the lesson is clear, make ample use of discovery. Turn over every stone.
For the plaintiff’s attorney, ask more questions up front. Conduct your own “discovery” on your client, ask for those text messages before the defense attorney does. Don’t let your client waste your time litigating a bad claim.
For home sellers, make sure you complete the disclosure form to the best of your ability; knowing that there are brazen people out there who will file suit even though you disclosed issues and even when the are going to have to turn over the evidence that sinks their own case.
For buyers, remember in Ohio caveat emptor is the law. Make sure you get all the information you asked your agent to get you. Make sure your inspector conducts all of the inspections you asked for. And, when trouble arises in your new home (as it inevitably will) be honest with yourself about what you knew when you bought the house. Don’t bring lawsuits that are doomed to fail hoping the other side will roll over. Our civil litigation system only works when people do not abuse it.