The biggest fear many people have when buying a home (or other real estate) is they will find something wrong with the property after they have already closed the deal. If that happens, it is often too late to do anything about it legally. New York law can make it difficult to recover damages against a seller who sells defective real property.
Caveat Emptor vs. Active Concealment
Historically, New York has adhered to the common law rule of “caveat emptor”—Latin for “let the buyer beware”—which holds there is no implied warranty when a homeowner sells the property to a buyer. Many real estate contracts are “as-is,” meaning there is also no express warranty of any kind. In these cases, the buyer is expected to perform due diligence and inspect the property for any defects before signing the contract.
But over the years, New York law has evolved to increase the seller's liability risk. As the Appellate Division, Second Department, explained in a recent decision, the caveat emptor rule does not protect a seller who engages in “active concealment,” that is he or she “thwarted the buyer's efforts to fulfill the buyer's responsibilities fixed by the doctrine of caveat emptor.”
For example, in a 2011 case, the Second Department allowed a buyer to sue a seller who allegedly “took several steps to hide the existence” of water leaks in the skylights of a house. The buyer said she did not learn of the skylight defects until after moving into the home, after which the leaking caused substantial damage. In and of itself, this would not permit the buyer to sue in New York courts. But she also claimed the seller had “actively concealed” the problem, among other things, placing large pans above drop-ceiling tiles so the buyer would not discover the leak. This allegation allowed her lawsuit to proceed.
In addition to the active concealment exception to the caveat emptor rule, New York law also requires sellers (or their agents) to give the buyer a “Disclosure Statement” regarding the condition of any real property sold. This statement must disclose certain environmental, structural or mechanical system defects.
It is important to note this Disclosure Statement is not a warranty. If a seller presents a false disclosure statement, it may constitute proof of “active concealment,” but it does not independently create a cause of action. The caveat emptor rule still applies, meaning the buyer is still expected to perform due diligence before purchasing the property. There is also little penalty for a seller who fails to file a Disclosure Statement, beyond a mandatory $500 credit against the purchase price.
This is just a brief summary of some of the legal issues involved in real property sales. Whether you are buying or selling a home, it is always a good idea to work with an experienced New York real estate attorney who can advise you of specific legal requirements and help avoid post-sale litigation. Contact our offices today if you would like to speak with someone right away.