When it comes to purchasing real estate in New York, the rule of caveat emptor—let the buyer beware—applies in most cases. This means that in an arms-length transaction, the seller has no legal duty to disclose any information regarding the property. It is the buyer's responsibility to inspect the property and discover any potential defects. There are cases, however, where a seller's “active concealment” of the property's condition may give rise to a fraud claim.
Seller Not Responsible for Failing to Disclose Evidence of Prior Termite Damage
Active concealment can be difficult to prove, as arecent decision by the Appellate Division, Second Department, illustrates. In this case, the buyers purchased a home in Orange County. The sales contract included a clause in which the buyers certified they were “fully aware of the physical condition and state of repair of the Premises” and they inspected the property before signing said contract. The contract was also contingent on the buyers hiring an architect or engineer to inspect the property for any structural damage.
The buyers failed to exercise that right of inspection. After moving into the house, they subsequently “discovered evidence of extensive mold and termite damage.” The buyers then sued the seller, accusing her of fraud by active concealment.
More specifically, the buyers said the seller knew there was prior termite damage. During a deposition, the seller testified about two years before the sale, she had repair work done on the house, at which time “mold damage and evidence of previous termite activity was observed.” The seller said she then had an exterminator inspect the property, and it found there was “no live activity” at that time.
The buyers argued the seller committed fraud by failing to disclose this information to them. They pointed to a “Wood Insect Destroying Insect Inspection Report” prepared before the parties signed their sales contract. This inspection report said there was “no visible evidence of wood destroying insects.”
The Second Department said despite the inspection report, the buyers failed to make a case for active concealment. Even if the seller misled the buyers, the court said there was no evidence the buyers “justifiably relied on such misrepresentation.” Indeed, the court noted, the buyers “undertook no further efforts to investigate the condition of the property, even though the contract of sale specifically provided that it was contingent upon an inspection and certification by a licensed architect or engineer that the property was free from termite infestation.”
Accordingly, the Second Department dismissed the buyers' lawsuit.
Need Help with a Real Estate Closing?As the case above illustrates, it is imperative to inspect and address any maintenance issues before closing on a property. New York law expects buyers to perform their due diligence, and it is often too late once you have moved into a new house to hold the seller accountable for any problems. This is also why you should work with an experienced New York real estate attorney. Contact the offices of Waldhauser & Nisar if you need to speak with someone today.