On August 27, 2015, the Appellate Division issued an unpublished opinion relating to a real estate agent’s obligation to disclose physical conditions of a property to a potential buyer in Petrosino v. Ventrice , et als., (App Div 8/27/15). The upshot of this opinion is: When in doubt, DISCLOSE.
Alexandra and Louis Petrosino were potential buyers of a house which featured an elevator. The listing agent and the sellers, Kevin and Grace Ventrice, all knew that nine years earlier, two little girls had died after getting trapped between the cab and the wall of the elevator shaft. Prior to listing the house, the listing agent asked her broker whether she needed to disclose the deaths to potential buyers, and was told by her broker that no disclosure was necessary.
During a showing, Mr. Petrosino specifically asked the listing agent and Kevin Ventrice whether the elevator was safe, as he had four children between the ages of two and eight. Mr. Ventrice stated that the elevator was safe, and demonstrated its operation. The listing agent stood by and said nothing. The Petrosinos then purchased the property.
Six days after closing, buyers’ agent called the Petrosinos and said he had just learned of the tragedy involving the elevator. The buyers then filed a lawsuit against the sellers, the listing agent and listing broker, and the selling agent and selling broker, alleging misrepresentation, fraud, and civil conspiracy to commit fraud. The sellers also alleged violations of the Consumer Fraud Act, unjust enrichment, and breach of the covenant of good faith and fair dealing against all the agents and brokers.
The Appellate Court held that affirmative action disclosure regarding the fatal elevator accident was necessary and could not be avoided under the “social condition” and “psychological impairment” clauses. Rather,
“the issue is not only that two children perished on the property but that they died by being crushed in the malfunctioning elevator. It is simply impossible to imagine that a reasonable buyer would not attach importance to the existence of that fact. . . . As the history of the elevator’s dangerously defective operation is information concerning the physical condition of the property . . . we hold the broker defendants had a duty to disclose the information to the [sellers].”
There are a few lessons learned from this case. First, the selling agent and broker were named in the lawsuit and were kept in the suit by both the trial court and the appellate court, even though the selling agent and broker claim they had no specific knowledge of the condition of the elevator prior to closing. The Appellate Court made a point to note that the deaths of the children had been widely publicized at the time of the tragedy, hinting that the selling agent and broker may have turned a blind eye to the condition of the elevator. A selling agent doesn’t have a duty to investigate a property to discover unknown conditions; but a prudent selling agent may want to invest ten minutes in a google search of a house about to be shown, in order to avoid even the suggestion that the selling agent knew, or should have known about a condition of the house.
Second, keep in mind the distinction between a physical condition of the property, which is required to be disclosed, and a “psychological” condition of the property, which is not required to be disclosed. So while the fact that children died in the house did not have to be disclosed (or any deaths in any house, for that matter), it is the fact that a physical condition of the property caused the deaths that required disclosure. A tragedy such as a murder or suicide is not required to be disclosed, but a faulty deck that resulted in a fatality would need to be disclosed, even if the deck has been repaired.
Finally, when in doubt, disclose, disclose, disclose. If you know something about the physical condition of a property, you must tell potential buyers, even if you don’t want to, even if you think it will “tank” the sale. Better to address it upfront and find the right buyer for the house, rather than cross your fingers that they don’t find out later and have it cause a problem.
The entire opinion can be found here.