Failure to disclose known defects when selling real estate could cost you.
Last month, the Iowa Court of Appeals issued an opinion in the case of Robinson v. Welp, which serves as an important reminder to sellers to disclose all known problems affecting a home or face the potentially expensive consequences.
In this case, the buyers initiated a lawsuit against the sellers, alleging the sellers failed to disclose known problems with the home, including an issue with snakes within the house and an in-ground pool leak.
The buyers had discovered two snakes soon after they moved in and eventually uncovered a large snake infestation, with nearly two dozen bull snakes and snake skins found throughout their home, including within and behind the walls.
At trial, the sellers testified that while they had seen a handful of snakes within their house in their 32 years living there, they had not seen any snakes in the home in the last 14 years. Thus, they did not believe the house had a current snake problem when they listed the house and completed the Sellers Disclosure Statement.
At trial, the court ruled against the sellers, holding that they had a duty to disclose the snake problem pursuant to Iowa Code Chapter 558A (2018) and the purchase agreement. The ruling was upheld on appeal.
The trial court specifically concluded that, while the sellers may not have known the extent of the snake problem, they did have actual knowledge that a snake problem had existed and had undertaken efforts throughout the years to minimize or stop any further snake problem. In particular, the appellate court emphasized that Iowa law required a seller to disclose not only known current conditions but also previously existing conditions, so long as the condition is material.
Conversely, the court concluded that the sellers did not have a duty to disclose the pool leak as they were justified in relying upon their maintenance person’s representation that the pool was in good working order at the time the house was sold.
The sellers’ failure to disclose known information regarding the snake problem was costly, as it resulted in a $64,000 judgment against them, plus another $55,000 in an attorney fees/costs award, with additional appellate fees being considered as of the date of this blog.
Accordingly, the sellers’ simple decision to answer “No” to the Seller’s Disclosure Form question of, “Is there a problem with mice, bats, snakes, spiders, roaches, etc.?” will cost the sellers at least $110,000, in addition to their own attorney fees incurred at trial and on appeal of the matter. It appears likely that the sellers’ judgment against them and litigation expenses/costs will exceed the $185,000 sale price of the home.
This decision serves as an important reminder to sellers to disclose all known problems when selling a home, as required under Iowa law. In particular, Iowa Code section 558A requires the disclosure statement to “include information relating to the condition and important characteristics of the property and structures located on the property, including significant defects in the structural integrity of the structure,” along with other requirements as set forth in rules adopted by the Iowa real estate commission, which can include, but is not limited to, zoning information, the presence of pests, and the condition of plumbing, heating, and electrical systems. Section 558A also requires the disclosures be made in good faith and that they are amended if the information disclosed becomes inaccurate or misleading.
Please note that the mandatory Sellers Disclosure Form and other disclosure requirements under Iowa Code Ch. 558A only apply to the transfer of real estate (of between 1 to 4 dwelling units), and not personal property. Thus, in regard to manufactured/mobile homes, so long as such home is personal property, and not part of and taxed as real estate, these legal requirements do not apply.