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Purchasing a home is one of the largest investments an individual makes in his lifetime.  In order to make a sound investment, he should thus inquire into anything that may objectively and subjectively affect his decision to purchase the property.

A recent decision handed down by the Pennsylvania Court of Common Pleas for Beaver County in Bukoskey v. Palombo shows how imperative it is for an interested homebuyer to ask the right questions prior to signing an agreement of sale.

BACKGROUND

In Bukoskey, the property owner had committed suicide and the property was being sold by her estate.  At no time during the marketing of the property did the estate or the real estate agents involved with the real estate transaction mention that the property owner died after she shot herself in the master bedroom of the house.

When the subsequent purchaser visited the property prior to signing the agreement of sale, the master bedroom was filled with furniture and the floor was obstructed from view.

On the day of closing, the purchaser arranged for a final walk-through of the property.  At the time of the walk-through, the furniture in the master bedroom had been removed and a piece of carpeting that was of the same color and material as the carpeting in the master bedroom was covering the bloodstained floor.

The day after the closing the now new property owner learned about the suicide through a neighbor and then discovered the bloodstain on the carpeting in the master bedroom.  Soon thereafter, he hired a company to professionally clean the carpeting in the master bedroom in an effort to remove the bloodstain.  When he was informed that the bloodstain could not be so removed, he sought to void the sales agreement.

When the estate refused to do so, the new property owner filed suit against the estate as well as the real estate agents representing both the estate and him.  The estate and the real estate agents then filed preliminary objections to the complaint.

CLAIMS AGAINST THE ESTATE

The new property owner claimed that the former owner’s suicide in the house was a material defect in the property that required disclosure by the estate under Pennsylvania’s Real Estate Seller Disclosure Law, or RESD.

Under the RESD, an owner listing a property for sale must disclose known material defects of the physical aspects of the property which may affect title or otherwise interfere with the use and enjoyment of the property.

In order to determine if a suicide requires mandatory disclosure under the RESD, the Court looked to Superior Court of Pennsylvania’s ruling in Colaizzi v. Beck for guidance.

In Colaizzi, after the closing, the new property owner realized that he lived across the street from a home for mentally challenged adults.  The Superior Court held that the new property owner was not entitled to recovery under the RESD because the disclosure requirements do not extend beyond the property which is subject to the transfer.

The Superior Court in Colaizzi also refused to hold the former property owner liable simply for failing to mention the existence of the group home to the new property owner prior to the closing.

In Pennsylvania, a seller or his agent may be responsible for concealing the existence of an imperfection in the property which is known to be material to the purchase.  In Colaizzi, the Superior Court noted that there was no evidence that the real estate agent or the former property owner were aware that the new property owner did not want to live near a group home.

Applying the Superior Court’s line of reasoning in Colaizzi, the trial court in Bukoskey found that a suicide did not amount to a material defect under the RESD which had to be disclosed.

Furthermore, the trial court in Bukoskey pointed out that the new property owner could not establish that the estate knew that the former property owner’s cause of death was material to his decision to proceed forward with real estate transaction.

The trial court actually admonished the new property owner for not inquiring into the cause of death in light of the involvement of an estate as part of the property transfer.

CLAIMS AGAINST THE REAL ESTATE AGENTS

The new property owner also believed that the real estate agents were aware of or should have been aware of the former property owner’s suicide and should have thus disclosed that information to him prior to the purchase.

The trial court disagreed based upon the same reasoning enunciated in its dismissal of the RESD claim against the estate.

The trial court then addressed the merits of the intentional misrepresentation and concealment claims.  In Pennsylvania, a real estate agent may be liable if he intentionally fails to disclose latent defects with a residential property or intentionally prevents the prospective purchaser from acquiring material information about the property.

The trial court concluded that neither of those claims could survive because they were based upon the flawed premise that the suicide (or the lack thereof) was a material factor in the new property owner’s decision to purchase the house in the first place.

Next, the trial court considered the new property owner’s claim that his real estate agent breached its warranty for not upholding the “100% money back guarantee.”  Because the new owner failed to provide any factual basis to demonstrate that any specific promises regarding a guarantee made by the real estate agent became the basis of the bargain for the real estate transaction, and since he failed to expressly plead the existence of this guarantee in the complaint itself, the trial court allowed him to amend the complaint accordingly.

The trial court finally determined the merits of the Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, or UTPCPL, claim.  In the complaint, the new property owner alleged that the real estate agents engaged in unfair trade practices by purposely concealing the bloodstain on the carpeting, for not disclosing the manner of death under the RESD, and for failing to honor the “100% money back guarantee.”

Under the UTPCPL, an individual who purchases a residential property may bring a private action to recover damages caused by “another’s act or practice declared unlawful by the” UTPCPL.

The trial court reiterated that, since the estate did not have a duty to disclose the prior property owner’s suicide, neither did the real estate agents.

As for the carpeting, the trial court noted that covering up a bloodstain does not rise to the level of representing that the house itself was “of a certain standard, quality or grade”, as alleged in the complaint, and that the carpeting could be replaced.

Citing the Superior Court’s ruling in Sewak v. Lockhart, the trial court stated that the new property owner failed to set forth elements demonstrating a prima facie case for common law fraud and thus could not recover under the “catchall” provision of the UTPCPL as he attempted to do in the complaint.

This portion of the trial court’s ruling may be problematic for the real estate agents, in that the Sewak decision was rendered prior to the enactment of the amendments to the UTPCPL.  Since then, the scope of the “catchall” provision has been expanded to prohibit “fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.”  The cited language clearly demonstrates a lower standard of proof than common law fraud.  Several federal district courts interpreting the cited statutory provision have similarly found that a plaintiff is not required to establish the elements for common law fraud.  In a footnote in Bukoskey, the trial court asserted that “until the Superior Court changes the rule, we are bound to follow it.”

LESSONS LEARNED

The trial court’s ruling in Bukoskey just reiterates the earlier point – a purchaser of real estate must perform due diligence by asking the right questions prior to signing on the dotted line.

With the existence of the estate, the purchaser in Bukoskey was clearly placed on notice that the former property owner had died.  The purchaser thus had little excuse not to ask the cause of death prior to executing the agreement of sale.  If that would have happened, he could have made an informed decision whether or not to proceed forward with the real estate transaction at all or to perhaps place a lower offer with the estate as a result of the personal discomfort of living in a house where a suicide took place.

Reprinted with permission from the August 25, 2008 edition of The Legal Intelligencer © 2008 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.

Alan Nochumson