Real Estate Seller Disclosure Law Update
Neighborhood Group Home Is
Not Necessarily a Defect
of the Property
In March of this year the Superior Court of Pennsylvania further defined the reach and meaning of Pennsylvania’s Real Estate Seller Disclosure Law (“RESDL”) in an important case involving a group home for mentally challenged adults located next to the property that was sold. In the case of Colaizzi v. Beck, et al, the plaintiff/buyer, Colaizzi, purchased a home from the Becks and subsequently discovered the existence of a group home directly adjacent to his new home. Colaizzi filed suit against the Seller alleging breach of contract and violation of the RESDL. Colaizzi additionally sued the Seller and the Listing Agent for common law fraud and violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). The trial court dismissed Colaizzi’s entire claim with prejudice, and the Superior Court affirmed this dismissal.
The trial court specifically held, and the Superior Court agreed, that “the existence of a nearby group home for mentally challenged adults is not a condition or material fact that must be disclosed under the RESDL.” On appeal, the Plaintiff had attempted to define the existence of the group home as a “legal issue(s) affecting title or that would interfere with the use and enjoyment of the property.” The Superior Court specifically found that the group home’s existence and location did not qualify as a legal issue affecting the Plaintiff’s ability to use or enjoy his property. In addition, and perhaps more important to the general practice of real estate, the Superior Court found no legal authority to support extending the reach of the RESDL beyond the property being sold to include neighboring properties.
The Superior Court also agreed with the trial court that Plaintiff’s claims of fraud and violation of the UTPCPL should be dismissed as a matter of law. In this case, the Plaintiff failed to allege that either the Seller or his Listing Agent affirmatively misrepresented a material fact related to the transaction. Such a misrepresentation is a required element of both common law fraud and the “catch-all” provision of the UTPCPL, under which Plaintiff filed suit. Lacking an affirmative misrepresentation, Plaintiff could not prove, based on the Court’s interpretation of the RESDL, an affirmative duty of either the Seller or Listing Agent to disclose the existence of the group home to the Plaintiff. The Plaintiff likewise failed to claim that he informed either the Seller or Listing Agent, in advance of the sale, that he was opposed to living near a group home.
Although the Court did not directly address this issue, it implied that a seller or licensee who fails to honestly respond to a buyer’s question about a neighboring property may, in some cases, be a sufficient misrepresentation to support a claim for fraud. However, the Court did not address in any way the public policy concerns that answering such a question in the Colaizzi case might pose. If Colaizzi had actively inquired of the Seller and/or Listing Agent whether any group homes existed in the neighborhood they could have answered in the affirmative or refused to answer. In our opinion, prudent REALTORS® should become concerned any time an inquiry is made by a consumer which concerns the presence of a class of persons protected from discrimination under the law, such as persons with disabilities in the Colaizzi case, and should appropriately advise their clients to be cautious, including seeking legal counsel if desired, in responding to such inquiries.
Buyer agents should also be aware of the inverse implications of Colaizzi. If your buyer client has made it clear to you that the existence of a certain neighborhood condition, such as the proximity of a landfill, would be material to his decision of whether to purchase a property, you should make inquiry on his behalf or point him in the direction of resources that can provide him with the information he desires. To avoid having to respond to an inappropriate inquiry as might arise in a case similar to Colaizzi, you should make clear to each buyer clients, at the inception of the agency relationship, that you will not aid them in choosing where to purchase property based on the presence or absence of any protected class of persons in a neighborhood, community or other locale.
What other lessons can be taken from Colaizzi for practical use by REALTORS®? Foremost, the case confirms that the RESDL is limited to conditions “of the property” being sold. In some cases Colaizzi will be instructive on this point, but not definitive. The court did not address whether a Seller would need to disclose a condition of a neighboring property in a case where the condition had a direct effect on the property being sold. Imagine a local incinerator whose smokestack discharges soot that occasionally covers the property being sold with fine black ash. Would the Colaizzi decision excuse the Seller and/or Listing Agent from a duty to disclose this kind of condition? In any case where a REALTOR® has actual knowledge of a condition that might require disclosure under the RESDL hhe should discuss whether to disclose the condition with their client and possibly recommend involving legal counsel to provide an opinion on the necessity of disclosure.
Ray Michalowski, Esq, is an attorney with Caldwell & Kearns. He serves as associate general counsel to PAR. Mr. Michalowski represents and defends real estate agents and brokers in all types of civil law suits and licensing claims across the Commonwealth. He is also one of the voices of the Legal Hotline.