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This lawsuit involved claims that are not uncommon in
the real estate industry. The Buyer
purchased a house in Scottsdale and about a year later claimed to have
discovered latent defects with the home’s roof and other moisture related
issues. What makes the case interesting is what the courts had to say about the
forms used in the transaction.
The Facts
The Sellers purchased the
house two years after it was built and owned it for 26 years. The Sellers completed a Seller's Property
Disclosure (“SPDS”), which the Listing Agent uploaded into the Multiple Listing
Service (“MLS”). The “Public Remarks” section of the MLS listing stated:
“Second owners of this home, this abode has been lovingly maintained” and
“[t]his home has newer A/C units and a roof, which should provide for low
maintenance in years to come.”
The Buyer and Sellers entered into a purchase contract for the sale of the home for the price of $432,000. The Buyer began his inspections and due diligence.
The Buyer and the Buyer’s Agent attended the home inspection, along with the Sellers. The Buyer asked about the condition of the roof and expressed concerns about the moisture in the home. The Buyer inquired about a potential leak in the garage roof, which the Seller said, “was taken care of.” The Buyer climbed on the roof with the inspector to discuss roof issues. The “Extended Home Inspection Report,” highlighted various roof-related issues and “recommend[ed] monitoring these areas during and after periods of heavy rainfall.”
The Buyer submitted the Buyer's Inspection Notice and Seller's Response (“BINSR”) and sought a credit or repair for roofing and other moisture related issues. The Sellers responded to the BINSR to “provide Buyer [a] $ 1,000 credit toward [his] closing costs, escrow costs and/or lender fees, in lieu of all repairs on BINSR.” The Buyer accepted the BINSR and the parties signed an addendum to the purchase contract. The Buyer conducted a final walkthrough and escrow closed.
The Buyer began renovating the house within a week after escrow closed with extensive repairs and remodeling. The Buyer claims he discovered roof problems almost a year later, after heavy rainfall caused “paint and caulking ... to peel and crack,” water leaks and mold in the walls and water pooling in front of the home. The Buyer sued all the parties associated with the transaction, except for the home inspector.
The Seller, Listing Agent and Buyer’s Agent defendants all moved for summary judgment, which the trial court granted, dismissing the Buyer’s claims. The Buyer appealed the trial court’s decision to the Court of Appeals.
The Court of Appeals Decision
In deciding the Buyer’s claims against the Seller, the
Court discussed in detail the language in several of the forms used in the
transaction, many of which the Buyer had initialed.
·
The Purchase Contract: The Buyer initialed the “BUYER
ACKNOWLEDGEMENT” written in bold and all capital letters, where he
“recognize[d], acknowledge[d], and agree[d]” that the Listing Agent and Buyer’s
Agent “are not qualified, nor licensed, to conduct due diligence with
respect to the premises or the surrounding area.”
·
The Buyer Advisory: The Buyer acknowledged receipt of the Buyer Advisory.
The Advisory explained that real estate agents are “generally not qualified to
discover defects or evaluate the physical condition” of the house; emphasized
the limited duties of Buyer’s Agent to Buyer, which do not include “verifying
the accuracy of” the SPDS or MLS listing; warned that Buyer “is responsible
for” conducting due diligence prior to purchase; and cautioned that MLS
listings are “similar to an advertisement” and Buyer “should verify any
important information contained in the MLS.”
·
The SPDS: The Buyer acknowledged receipt of the SPDS with
his electronic initials on each page and an electronic signature at the end. In
response to questions about roof issues, the Sellers disclosed their awareness
of past roof leaks, water damage and roof repairs. The Sellers said the leaks
“were identified and corrected” but otherwise, the Sellers were not aware of
“any interior wall/ceiling/door/window/floor problems,” “any cracks or settling
involving foundation, exterior walls or slabs,” or “any past or present mold
growth.”
o The SPDS also included an acknowledgement from Buyer “that the information contained herein is based only on the Seller's actual knowledge and is not a warranty of any kind. Buyer acknowledges Buyer's obligation to investigate any material (important) facts in regard to the Property. Buyer is encouraged to obtain Property inspections by professional independent third parties and to consider obtaining a home warranty protection plan.”
·
The BINSR: The Buyer electronically signed the BINSR,
indicating he had “completed all desired [i]nspection[s]” and “verified all
information deemed important [from the] MLS or listing information,” and “acknowledg[ing]”
the Listing Agent and Buyer’s Agent “assume no responsibility for any
deficiencies or errors made” by the inspector and “neither the Seller nor
Broker(s) are experts at detecting or repairing physical defects in the
Premises.”
·
The Final Walkthrough Form: The Buyer acknowledged with his signature
that “the property [is] as represented at the time the purchase contract was
accepted by the parties, and any subsequent repairs that were agreed to ...
have been completed to the satisfaction of [Buyer].”
Based upon the evidence, the Court found that the Buyer had failed to create a genuine issue of material fact that the Sellers knew about the alleged defects and had misrepresented or concealed them. Further, the Buyer understood he had imperfect information. The Court stated:
“The undisputed facts
indicate that Buyer had notice of roof-related issues from the Sellers and
his home inspector, and he was repeatedly advised that he was responsible
for conducting due diligence and warned to verify material information (in his
counteroffer, the Buyer Advisory, the SPDS and BINSR).
He was instructed to hire
a professional roofer, to verify the roof's condition and to further explore
roof-related issues. He acknowledged the warnings and verified that he
completed all desired inspections. Yet Buyer did not hire a roofer to take
a closer look and instead opted to complete the transaction with limited
knowledge.” (Emphasis added).
The Court rejected the Buyer’s assertion that the Sellers
“did not completely or truthfully represent the actual condition of the
property being sold” due to three affirmative statements from the MLS listing
and sales brochure: “lovingly maintained,” “beautifully remodeled,” and “newer
A/C units and a roof.” The Court held the “beautifully remodeled” and “lovingly
maintained” statements represented mere sales puffery, which is not actionable
as fraud or misrepresentation. “These are not concrete representations of fact;
they are inexact opinions of an adverb-laden sales pitch.” Regarding the MLS description of a “newer”
roof, the Court found that “newer” is a relative adjective that derives its
meaning from comparing two or more items; the term has no concrete meaning
standing alone.
In deciding the case against the Listing Agent and the
Buyer’s Agent the Court noted that the trial court granted both summary
judgment motions based on, among other things, the absence of expert testimony
to establish a professional duty and breach of that duty. The Court recognized
that expert testimony was indispensable - both to establish the
professional standard of care for licensed real estate agents and agencies, and
to demonstrate that defendants breached the standard.
The Court stated that an “expert opinion was
especially critical here, where Buyer sued seven different real estate
professionals and agencies representing different parties with different
interests and different relationships; Buyer has contracts with some and no
contracts with others; and he signed various documents, guides and disclosures
during the transaction which implicate and address the duties and
responsibilities of distinct parties.”
Therefore, the Court upheld the dismissal of the Buyer’s
claims against all parties.
Case Lessons:
- The proper
use of the Arizona REALTORS® forms is one of the best risk management practices.
- Always obtain
the party’s signature or initials on the forms where prompted.
- The language
in the Arizona REALTORS® forms does matter.
2019
WL 2152666
NOTICE:
NOT FOR OFFICIAL PUBLICATION.
UNDER
ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND
MAY BE CITED ONLY AS AUTHORIZED BY RULE.
Court
of Appeals of Arizona, Division 1.
No.
1 CA-CV 18-0261
FILED
5/16/2019AMENDED PER ORDER FILED 7/8/2019
Review
Denied November 19, 2019
K. Michelle
Lind, Esq. is an attorney who currently serves Of Counsel to the Arizona
REALTORS®. She is also the author
of the book - Arizona Real Estate: A Professional's Guide to Law
and Practice (3rd Ed.). Watch for the Fourth Edition, which should be
available soon.
For more real estate related articles, visit
Michelle’s Blog at Arizona Real Estate – A Professional’s Guide to Law
& Practice. (arizonarealestateprofessionalguide.blogspot.com)
This article is
of a general nature and may not be updated or revised for accuracy as statutory
or case law changes following the date of first publication. Further, this
article reflects only the opinion of the author, is not intended as definitive
legal advice and you should not act upon it without seeking independent legal
counsel. 8/2/23
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