Superior Court Expands Disclosure Requirements Under RESDL In ‘Medlock’

In Medlock v. Chilmark Inspections, 2018 Pa. Super. LEXIS 952 (Aug. 31, 2018), the Superior Court of Pennsylvania recently expanded the disclosure requirements for sellers under the RESDL.

In Medlock, Glenn and Jane Gitomer elected to sell their house in Lower Merion Township, the opinion said.

Jane Gitomer, a real estate agent with Long & Foster Real Estate, Inc., served in the dual capacity as the seller and the listing agent for the attempted sale, the opinion said.

The Gitomers eventually entered into a written agreement to sell their house to George and Alicia Medlock, the opinion said.

At the time of the execution of the agreement of sale, the Gitomers provided the Medlocks with a completed seller’s property disclosure statement form promulgated by the Pennsylvania Association of Realtors, the opinion said.

According to the opinion, in the seller’s property disclosure statement, the Gitomers checked “yes” next to the following questions: “Are you aware of any water leakage accumulation or dampness within the basement or crawl space?” and “Do you know of any repairs or other attempts to control any water or dampness problems in the basement or crawl space?” In doing so, the Gitomers did not further elaborate on their answers to the questions in the seller’s property disclosure statement, the opinion said.

The seller’s property disclosure statement also included the following question: “Have any additions, structural changes or other alterations been made to the property during your ownership? Itemize and date all additions/alterations below.”

In response to that question contained in the seller’s property disclosure statement, the Gitomers listed 10 such additions and alterations they performed on their house since owning it in 1989, the opinion said.

However, the Gitomers did not include some renovations they performed on the basement of their house in 2004.

According to the opinion, the Gitomers stated that, in the basement of their house, they added drywall to three of the walls, recessed lighting, and a new heating system.

The agreement of sale between the parties also included a home inspection contingency clause and the Medlocks retained the services of Chilmark Home Inspections, LLC to conduct the home inspection.

During the home inspection, some issues were discovered, including a reference to the basement of the home experiencing “moisture penetration,” as evidenced by staining next to an access panel located in the basement, the opinion said.

During the home inspection, according to the Medlocks, the home inspector did not attempt to remove the access panel to determine if there were any discoverable issues related to the noted moisture penetration. The Medlocks ultimately proceeded forward with settlement and purchased the house, the opinion said.

After living in the house for approximately seven months, the Medlocks discovered a brown water stain forming around one of the recessed lights in the finished basement, the opinion said.

In an effort to discover the source of the leak, the Medlocks removed a readily accessible panel located in the basement wall, and they discovered large sections of wet, rotten wood and mold growth that could be viewed from the access panel, the opinion said.

The contractor retained by the Medlocks to address the situation noted that the wall containing the access panel had “newer looking studs that framed that wall” as compared to the rest of the walls in the basement and that it appeared as if someone put up a frame to support the rotten beams, and there was new wood and drywall attached to the rotten beams, the opinion said.

Ultimately, the Medlocks paid almost $76,000 to remediate the situation.

The Medlocks blamed Chilmark, the individual who performed the home inspection on behalf of Chilmark, and the owner of Chilmark.

The Medlocks contended that the home inspector identified a stain next to the readily openable access panel, but he failed to open the panel as part of the inspection. According to the Medlocks, if the home inspector had opened the access panel, the damage would have been readily observable prior to purchase and the Medlocks would not have purchased the house.

The Medlocks subsequently filed suit against Chilmark, the individual who performed the property inspection on behalf of Chilmark, as well as the owner of Chilmark, alleging that they detrimentally relied upon the incomplete results of the home inspection.

The Chilmark parties then filed a joinder complaint against the Gitomers as well as Long & Foster, the real estate broker which listed and marketed the property for sale, seeking contribution and indemnification from them.

The Medlocks then entered into a settlement with the Chilmark parties where they assigned their rights to them and, thereafter, the Chilmark parties raised, as the Medlocks’ assignee, claims against the Gitomers and Long & Foster, including violations of the RESDL.

Long & Foster and Jane Gitomer, in her capacity as the real estate agent, entered into a settlement with the Chilmark parties.

A bench trial ensued with the Chilmark parties and the Gitomers.

At trial, Jane Gitomer stated that they did not disclose in the seller’s property disclosure statement that work had been done in the basement because “she considered the work to be ‘cosmetic.’”

Both of the Gitomers denied at trial that they attempted to conceal any water damage in the basement and that they had no knowledge of the situation.

At the conclusion of the trial, the trial court judge found in favor of the Gitomers and against the Chilmark parties.

The trial court judge concluded that the Chilmark parties “did not sufficiently prove the Gitomers knew or should have known about the ceiling water damage behind the access panel.”

In doing so, the trial court judge also emphasized that the Gitomers, as sellers, only had a duty to disclose “known” material defects with the property and that the failure of the Gitomers to disclose the existence of the renovations performed to the basement in 2004 was not itself a violation under the RESDL.

The Chilmark parties appealed the trial court judge’s ruling to the Superior Court.

On appeal, the Chilmark parties alleged that the trial court judge erred in its interpretation of the RESDL.

Among other things, they contended the trial court judge erred in concluding the Gitomers’ failure to disclose the known basement renovations in the seller’s property disclosure statement was not actionable as a violation under the RESDL.

Agreeing with the Chilmark parties, the Superior Court noted that the Gitomers had a duty to disclose the known basement renovations in the seller’s property disclosure statement issued to the Medlocks, citing to Sections 7304 and 7308 of the RESDL.

Section 7304 provides that “a form of property disclosure statement that satisfies the requirements of this chapter shall be promulgated by the State Real Estate Commission” and that “the form of property disclosure statement … shall call for disclosures with respect to,” among other things, “additions, remodeling and structural changes to the property.”

Under Section 7308, “while the seller is not obligated by this chapter to make any specific investigation or inquiry in an effort to complete the property disclosure statement,” “in completing the property disclosure statement, the seller shall not make any representations that the seller … knows or has reason to know are false, deceptive or misleading and shall not fail to disclose a known material defect.”

The Superior Court emphasized that the duty of disclosure imposed on a seller under Section 7308 is not limited to disclose “known material defects,” but “rather, by its plain, unambiguous language, Section 7308 also affirmatively requires the seller, in completing the property disclosure statement, to ‘not make any representations that the seller … knows or has reason to know are false, deceptive or misleading.’”

Since the seller’s property disclosure statement, in accordance with Section 7304, called for the disclosure of “additions/alterations,” and the Gitomers failed to disclose the known renovations to the basement, the Superior Court found that the Gitomers committed a violation of the RESDL.

Notwithstanding the foregoing, the Superior Court upheld the judgment in favor of the Gitomers and against the Chilmark parties since it did not believe that the Chilmark parties established actual damages as a result of this violation.

Lessons Learned

The Superior Court’s ruling in Medlock clarifies the disclosure requirements under the RESDL. Not only must a seller disclose any known material defects with the property, but, as illustrated in Medlock, there is a list of other items the seller must disclose pursuant to the RESDL.

The factual circumstances of Medlock are not too uncommon when residential real estate is transferred.

Gleaning the opinion, it seems like the Gitomers provided partial disclosures about issues with the property regarding the water intrusion in the basement. From my vantage point, it was incumbent on the Medlocks and the real estate agent representing the Medlocks to identify these issues and better understand what remedial measures, if any, took place to address them. By failing to do so, the Medlocks unwittingly purchased a house without performing adequate due diligence on the condition of the property at the time of purchase.

Furthermore, Jane Gitomer served in a dual capacity as the owner and real estate agent for this real estate transaction. In doing so, she placed her real estate broker at risk, since her knowledge about the condition of the property was imputed on her real estate broker. Time and time again, I see real estate agents who own real estate represent themselves in the sale of that real estate. In doing so, the seller unnecessarily places the real estate broker in the crosshairs of a lawsuit. As such, real estate brokers should be wary of allowing their agents to sell their own real estate by way of the real estate broker.

Reprinted with permission from the October 16, 2018 edition of The Legal Intelligencer © 2018 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com.