Prior to 1985, sellers of residential real property had little responsibility to disclose known defects to buyers of real property and the doctrine of buyer beware reigned supreme. The duty to diligently inspect the property rested on a buyer’s shoulders.
Then, along came the landmark case of Johnson v. Davis, changing the landscape surrounding seller disclosures. In Johnson, buyer beware was nullified holding that sellers of residential property have a duty to disclose any facts known to sellers materially affecting the value of the property, if those facts are not readily observable by buyers. What may be referred to as a Johnson nondisclosure action requires a victim of nondisclosure (e.g., a buyer) to show only that the seller knew of latent, material defect(s), and failed to disclose same, causing damages to the buyer. Undisclosed facts must materially affect the value of the property. The materiality of a fact is determined objectively, focusing on the relationship between the undisclosed fact and the value of the property. Whether a buyer would have decided to purchase property had the fact been known is not considered, and the focus is not whether seller was forgetful or deceitful. A seller may be liable if the fact materially affects the value of the property.
Additionally, disclosure obligations must be based on seller’s actual knowledge rather than on what they should have known. The disclosure obligations imposed by Johnson cannot be contracted away by using a broad as is contract clause. Johnson applies to all local contracts. Local contracts typically have a Seller’s Real Property Disclosure Statement designed to assist a seller in complying with disclosure requirements and to help a buyer evaluate the property. Disclosure statements are not a warranty of any kind by a seller or an inspection or warranty substitute the parties obtain. Seller’s actual knowledge controls. Buyers must ascertain material facts relating to the property and to discover them. If facts are reasonably ascertainable or known to a buyer, buyer may have no claim against seller for nondisclosure or misrepresentation.
Buyers are not obligated to investigate every representation of a seller but are responsible for making inquiries into representations that a reasonable person would be expected to investigate. A cause of action can accrue against a seller for nondisclosure; however, a seller may always set forth a comparative negligence defense that a buyer failed to make reasonable inquiry. A seller should be aware that partial disclosure does not relieve a seller of the duty to disclose under Johnson. If a seller undertakes to disclose any facts, he or she must disclose the whole truth. When a seller has undertaken to disclose some, but not all facts, seller has by definition failed to disclose others.
The best advice for a seller is to disclose all known defects materially affecting the value of your property, and for buyers to inspect the home and contractually provide for any monetary, repair or other modifications needed prior to closing. Nondisclosure can result in the imposition of damages or rescission of the entire transaction, or buyer being stuck with defective conditions that could have been addressed.
The information contained in this article is provided for educational and informational purposes only. The content of this article is not and should not be construed as legal advice, an offer to perform legal services on any matter, and should not be construed to form an attorney-client relationship. This article should not be construed as a legal opinion on any specific facts or circumstances. The information contained in this article is intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have.