You are a happy seller of New York real property. You receive a market value offer for the sale of your property and you gladly accept. You are required under the New York Code, Article 14, the Property Condition Disclosure Act (PCDA) §462, to complete a Property condition Disclosure Statement (PCDS) detailing your actual knowledge...
of the condition of the property from environmental to structural and mechanical. You answer to the best of your actual knowledge. You close on your sale and move on with your life. Six years later you are served with legal papers for breach of contract, fraud and intentional misrepresentation, negligent misrepresentation and for failing to disclose water damage in providing the PCDS in violation of Article 14 of the Real property law.
The above summarizes the experience of Defendant, Jeffrey M. Wasyln, a seller of a Broome County residence. Seller listed his house for sale in August 2008 and provided the buyer with a completed property condition disclosure as per RPP §462. Plaintiff, Purchaser, conducted a home inspection of the property, which revealed no concerns of water infiltration, signed a contract to buy the property. Sometime in the early part of 2009, months after the purchase, the Plaintiff noticed water permeating into the basement of the home.
More than three years later in September of 2011, there was a severe flood in the Southern tier regional area of New York, including Broome County where the property was located. During that flood, Plaintiff experienced water gushing into the basement, after which mold and damage was uncovered. It appeared that those defects had existed for some time. Two plus years later in 2014, Plaintiff brought the above described suit against Defendant. The allegation is that there were material defects that Defendant knew or should have known, denied knowledge, of and failed to disclose in the PCDS.
Defendant Seller moved for Summary judgment. The trial court granted Plaintiffs Summary judgment motion and the appellate court affirmed, in January of this year, due to the fact Plaintiff could not prove that Defendant had actual knowledge of any material defects. Under that Act, Seller must have actual knowledge and must willfully fail to comply; meaning actively conceal a known, materiel defect.[i]Similar offers of proof were required for the remaining causes of action.[ii] Defendant had testified that he had experienced water damage in the past, due to a previous severe flood. Defendant repaired the damage and made corrective measures to prevent future water infiltration and or damage. Defendant answered the disclosure no and unknown to questions regarding the current condition of the foundation, water infiltration, and standing water, which was truthful according to his knowledge since he had taken corrective measures.[iii]A false statement in a disclosure statement could be considered active concealment.[iv]The required disclosures are based on actual knowledge only[v], not constructive notice, as the claims in the Kazmark Plaintiff would imply.
What is the PCDS? The PCDS is a required disclosure under the PCDA, which was intended to provide buyers with a greater ability to get the information they need to make informed decisions about purchasing property.[vi] Real Property Law §462 provides as follows:
every seller of residential real property pursuant to a real estate purchase contract shall complete and sign a property condition disclosure statement as prescribed by subdivision two of this section…
Real Property Law §462(2) provides the exact language of the disclosure form and explains:
the property condition disclosure act requires the seller of residential real property to cause this disclosure statement or a copy thereof to be delivered to a buyer or buyer’s agent prior to the signing by the buyer of a binding contract of sale. This is a statement of certain conditions and information concerning the property knownto the seller.[vii]
Why should an attorney advise their client to violate the PCDA and deal with the consequences?
If seller fails to provide the disclosure prior to signing the contract of sale, seller must give buyer a whopping $500 credit at closing.[viii]It also provides that if seller does comply and provides the completed disclosure or fails to provide a revised disclosure, should seller’s knowledge change, seller will be liable for a willful and intentional failure to comply and actual damages.[ix]
PCDA was enacted in 2002.
Prior to the enactment of PCDA the full risk was on the buyer under the common law doctrine of caveat emptor. Caveat emptor being Latin for “let the buyer beware” (or take care), basically left the buyer as the sole judge to discover the actual condition of the property being purchased. It allows seller to avoid liability for failing to disclose defects in premises when each party is acting in its own interest and/or seller is not willfully or actively hiding a defect.[x]Caveat emptor does not require seller to disclose according to seller’s knowledge unless those defects are not readily discoverable upon reasonable inspection.
It is unclear in the Kazmark case, why the Seller opted to give the disclosure rather than the credit.
Counsel should caution sellers that providing the credit does not override the seller’s responsibility under caveat emptor to disclose latent defects known to seller that cannot be discovered by reasonable inspection. Sellers with a fiduciary duty or relationship of trust are also obligated to disclose not just latent defects, but also known defects. Additionally, seller also has the responsibility to disclose under federal law, its knowledge regarding lead-based paint on the property.[xi] Note: Sabine K. Franco, Esq. is the principal attorney at Franco Law Firm, P.C., located in Hempstead New York. Ms. Franco focuses her practice on real estate and business transactions.