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SELLERS’ OBLIGATIONS

So what are the Sellers’ legal responsibilities? The easy answer is to simply “Tell the Truth”. The legal answer is to disclose according to the standard in the Texas Property Code:

(d) The notice shall be completed to the best of seller's belief and knowledge as of the date the notice is completed and signed by the seller.

§5.008(d). Texas Property Code. In fact the mandatory boldfaced, all capitals typeface preamble of the SELLER'S DISCLOSURE of PROPERTY CONDITION says the following:

THIS NOTICE IS A DISCLOSURE OF SELLER'S KNOWLEDGE OF THE CONDITION OF THE PROPERTY AS OF THE DATE SIGNED BY SELLER AND IS NOT A SUBSTITUTE FOR ANY INSPECTIONS OR WARRANTIES THE PURCHASER MAY WISH TO OBTAIN. IT IS NOT A WARRANTY OF ANY KIND BY SELLER OR SELLER'S AGENTS.

Property Code, §5.008(b). The key words are the following:

A disclosure of SELLER'S KNOWLEDGE of the CONDITION of the property as of the DATE SIGNED

So the Seller has to disclose only what he or she knows at the time of preparing the SELLER'S DISCLOSURE of PROPERTY CONDITION. The Seller is not responsible for latent conditions he or she has no knowledge of when the Property Condition form is prepared. For example:

Seller prepares a Sellers’ Disclosure of Property Condition answering “NO” to previous termite infestation and previous termite damage. Buyer moves in and while remodeling, opens a wall and finds termite damage which is symbiotic with a previous termite infestation. Is the Seller liable? Did he have knowledge? What if the infestation occurred years before his purchase? Was any of this disclosed to him when he bought the house? Clearly, there are multiples of questions to ask.

SELLER’S KNOWLEDGE IRRELEVANT IN DTPA

If an action is brought against the Seller in contract or in negligence, then their knowledge of the condition is paramount to recovery. If the action is brought under the Texas Deceptive Trade Practices Act, then their knowledge of the falsity of the condition is no longer an issue.

Consider what the Courts have upheld on DTPA claims:

When a seller makes representations to a buyer, it is under a duty to know if the representations are true. Robinson v. Preston Chrysler-Plymouth, Inc., 633 S.W.2d 500, 502 (Tex.1982). Similarly, the seller's agent is liable for affirmative misrepresentations, notwithstanding the agent's lack of knowledge or notice of the falsity thereof. Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535, 540--41 (Tex.1981); see also Canada v. Kearns, 624 S.W.2d 755, 756 (Tex.App.---Beaumont 1981, no writ).

Henry S. Miller Co. v. Bynum, 797 S.W.2d 51 (Tex. App.—Houston [1st Dist.] 1990) aff’d, 836 S.W.2d 160 (Tex. 1992)., no Without question, a DTPA claim can be brought against a seller regardless of the limitations found in §5.008 of the Property Code. Under the DTPA, if the Seller represents that the house has no termite infestation when in fact it does, he is now subject to liability under the Texas Deceptive Trade Practices Act.

Consider this opinion from the Texas Supreme Court on a seller’s obligations regarding misrepresentations of fact regardless of knowledge, scienter, intent or any other factor:

We cannot hold that § 17.46(b) is unconstitutionally vague because it extends to misrepresentations made without knowledge of their falsity or to acts done without intent to deceive. Section 17.46(b) by its own terms extends to certain specified acts, not just to those acts done knowingly or with intent to deceive. The terms used are not so vague or indefinite as to violate due process, and we will not read into them an intent requirement merely to restrict the scope of their coverage. Pennington v. Singleton, 606 S.W.2d 682, 690 (Tex.1980). Subdivisions (5) and (7) are designed to ensure the accuracy of descriptions of goods and services, and covers both general and specific descriptions. Id. Thus, misrepresentations which do not necessarily constitute common law fraud may be actionable under the DTPA. See Smith v. Baldwin, 611 S.W.2d 611, 616 (Tex.1980) (noting that a primary purpose of the DTPA was "to provide consumers a cause of action for deceptive trade practices without the burden of proof and numerous defenses encountered in a common law fraud or breach of warranty suit")

Eagle Properties, Ltd. v. Scharbauer, 807 S.W.2d 714 (Tex. 1991). Consequently, once you discover inconsistencies that amount to representations that the house had “qualities and characteristics” that it ultimately did not have, you can proceed against the Seller regardless of their “intent or knowledge”, since Sellers generally do not acknowledge that they have misrepresented conditions in the house.

NO “YES” OR “NO”

What if the Seller just left some of the items in Section 3 blank? He simply did not answer “YES” or “NO”. This may seem highly unlikely, but there have been numerous sales and subsequent litigation over this very practice. The SELLER'S DISCLOSURE of PROPERTY CONDITION requires only a YES or NO answer. (They can answer that the “information is unknown” to them about a condition on the notice itself and be in compliance. Tex. Prop. Code §5.008(d). This usually only happens when the house is sold by a relocation company, bank or some other non-occupant seller.)

A blank answer is not an option. The seller must do one or the other and the absence of either is highly suspicious. Usually, the blank answers are in Section 3 and they usually pertain to whatever the client’s problems are. If you review the remainder of the form, you will probably find that every thing else is in order and that this is not the result of some momentary oversight. If a problem condition exists on the property that coincides with a blank answer, this can be some evidence of fraud.

For example, if the Seller answers “NO” to the Water Penetration item and it later turns out that there is some defect like a drainage problem that is leading to the problem, the Seller can still maintain he was unaware. If he fails to answer “YES” or “NO”, then he has deliberately disregarded the instructions on the form in a material area with the only reasonable conclusion is that he did so to induce your client into purchasing the house.

BUYER’S RESPONSIBILITY

What is the Buyer’s responsibility when the SELLER'S DISCLOSURE of PROPERTY CONDITION form has items left blank? If he proceeds to closing without asking any questions about the unanswered condition, it can be argued that he or she was content to rely on the form in its incomplete state. If the buyers are unsophisticated first or second time buyers working with their own realtor, this may become a fact question for the jury on the Buyer’s reliance. This should not be a legal preclusion to bringing suit, but rather a fact question indicating that the Buyer relied on the form as a whole and believed that the absent item was in satisfactory condition.

SELLER’S DUTY TO DISCLOSE/NONDISCLOSURE

Silence and nondisclosure on a material matter is actionable and a Defendant’s defense of reliance if the Buyer fails to inquire on the item does not relieve the Seller of its legal duty. In Marshall v. Kusch, 84S.W.3d 781 (Tex. Civ. App. – Corpus Christi 2002) the Court espoused:

“In Texas, a seller of real estate is under a duty to disclose material facts that would not be discoverable by the exercise of ordinary care and diligence on the part of the purchaser, or that a reasonable investigation and inquiry would not uncover.”

There is no distinction of new or used home. There is no concern with whether the real estate in Texas is improved or undeveloped. There is only the solitary duty to disclose material facts not known by the buyer. This is, of course, an extension of the general caselaw upholding fraud by concealment and failure to disclose. This was established by the Texas Supreme Court as to real estate in Smith v. National Resort Communities, 585 S.W.2d 655 (Tex. 1979):

A seller of real estate is under a duty of disclosing material facts which would not be discoverable by the exercise of ordinary care.

Id at 658. Fraud by non-disclosure is defined in Swanson v. Schlumberger, 895 S.W.2d 719 (Tex. Civ. App.- Texarkana 1994):

Fraud by non-dislcosure occurs when a party makes a partial disclosure which is not the whole truth or if the defendant knows that the victim is ignorant of a material fact and does not have an equal opportunity to discover it.

Id at 732. And the duty to disclose material facts is applied to the DTPA as well:

“The duty not to make misrepresentations or to make certain disclosures during the contract formation stage is imposed by law independent of a contract, and thus, is actionable under the DTPA.”

CMC Steel Fabricators v. Harrop, 131 F. Supp. 882 (S.D. Texas 2000). Citing Howell Crude Oil Company v. Donna Refinery Partners, Ltd., 928 S.W.2d 100 (Tex. Civ. App. – [14th Dist.] Houston 1996).

 

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