Picture this: Mr. and Ms. Smith just bought their dream home, a two-story house with enough bedrooms for their kids, a fenced in backyard for Fido, and close enough to restaurants and shops to walk but far enough away to still be quiet. As they move in, everything seems perfect. However, the first big rain in their new home reveals a major problem: there is a leak into the upstairs bedroom! The seller never mentioned anything about a leak!?
Now picture the other side: Ms. Johnson just sold her home to a new family, and moved across the state closer to her grandchildren. When she filled out the purchase agreement for this house, she diligently went through the disclosure forms and disclosed everything she knew was wrong with the property. Now, though, she has received a letter from an attorney who represents the buyers, saying there is a leak in the upstairs bedroom that it will cost $15,000 to fix… and they’re demanding that she pay for it!
Both of these hypothetical people are caught in the beginnings of a potential undisclosed defect dispute. What are the legal options for the Smith family and Ms. Johnson?
The law of home sale disclosures
Before we can answer that question, though, we have to understand the law of what needs to be disclosed. The main law in play is the Minnesota Disclosure Statute, encoded at Sections 513.52 to 513.61.
According to Minnesota Statutes Section 513.55, sellers of all residential real estate have a duty to disclose, in writing, “all material facts of which the seller is aware that could adversely and significantly affect: (1) an ordinary buyer’s use and enjoyment of the property; or (2) any intended use of the property of which the seller is aware.” The disclosure must be made in good faith and based on the seller’s best knowledge.
Basically, this statute means that it is the seller’s duty to disclose in writing everything they know that might negatively affect the buyer’s experience living in the home. This ranges from that weird smell in the porch that never really goes away to cracks in the foundation, and everything in between. It also includes past problems, such as animal infestations or problems that have already been fixed. If you are selling a home, it is better to over-disclose everything you know than it is to under-disclose. Even if disclosing might reduce the sale price of your home, it is still required by law, and proper disclosure can save you major headaches down the line.
The use of inspectors can change the requirements. According to Section 513.56, a seller does not have to disclose information they know of if the defect is shown on a “qualified third party” inspection report. It is important to carefully read the reports, though, because the seller has the duty to disclose anything they know that was missed on the report!
As with any law, though, there are exceptions. Section 513.54 specifically excepts transfers between family members, forced sales (such as foreclosure and court ordered sales), probate transfers, transfers of new-build homes, and several other transfers from the disclosure requirements. Additionally, section 513.56 also specifies several conditions that do not need to be disclosed: the presence of group homes and nursing homes in the neighborhood, whether someone with HIV lived on the property, whether there were any deaths, murders, or suicides on the property, and whether the property is thought to be haunted.
What happens if there is an undisclosed defect?
Now that we know the law, we can answer the questions posed at the beginning of the article: what can these fictional buyers and sellers do? There are several causes of action available to buyers, and multiple defenses for sellers accused of nondisclosure.
The main cause of action available to home buyers is also contained in the Minnesota Disclosure Statute. Section 513.57 allows a buyer to sue a seller who is aware of defects with the home and fails to make a required disclosure. Such a seller is liable to the buyer for all damages of the nondisclosure (generally, the cost to the buyer of fixing the defect) and may be subject to equitable relief (up to and including rescinding the home sale). However, the statute is clear that “a seller is not liable for any error, inaccuracy, or omission of any information … if the error, inaccuracy, or omission was not within the personal knowledge of the seller, or was based entirely on information provided by [an inspector], and ordinary care was exercised in transmitting the information.”
The problem with this statutory remedy is that it can be difficult to prove what the seller knew about the house when they sold the property. However, it can be proven by evidence such as prior repair bills or estimates, admissions by the seller that they knew about an issue, or by pointing out an obvious defect that it is unlikely the sellers did not know about. In addition to this statutory remedy, buyers also have general common-law causes of action such as misrepresentation (negligent and intentional), breach of warranty, and even fraud.
What defenses do the sellers have? Ultimately, it comes down to the seller’s knowledge of the alleged defect. In many cases, the seller had no idea there was a problem. This is a complete defense to the statutory cause of action, meaning that the seller will not be liable for not disclosing defects they didn’t know about. It is also the best defense to intentional misrepresentation and fraud claims. For breach of warranty and negligent misrepresentation claims, though, there may be liability for damage you did not know about, but reasonably should have known about. Additionally, you may not be liable for issues you did not know about that the buyer’s inspector also missed. Finally, there are ways to mitigate liability even if you knew of a defect and did not disclose it.
What do I do now?
Whether these causes of action or defenses are viable will depend on the individual circumstances of the case. Factors can include the specific wording of your purchase agreement and written disclosures, communications between the buyer and seller, the quality of the evidence on each side, and many other factors. Therefore, it is best to discuss your situation with an attorney to determine what your options are, and the best way to rectify the situation you find yourself in.
No matter the situation, though, it is important to act quickly. For buyers, you have two years after you close the sale or complete the transfer to file a claim under the Minnesota Disclosure Statute, and it is best practice to give the seller a chance to inspect the property before you make repairs. For sellers, many buyers put short timeframes to allow inspections before they proceed to fix the property, so it is best to consult an attorney quickly to ascertain your rights and potentially prevent a lawsuit being filed against you.
Here at Rinke Noonan our attorneys are experienced in real estate law, and we have extensive experience with nondisclosure disputes, representing both buyers and sellers. Use the form below to get in touch with an experienced attorney to discuss your case and how we can be of help to you!
Disclaimer: This article provides general information, and does not provide legal advice or opinion. If anything in this article makes you think you need an attorney, please contact one immediately.
Written by Jake Petersen, Litigation Attorney at Rinke Noonan