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Tuesday, July 31, 2012

Ind. Decisions - "Appeals court requires honest home sale disclosures"

Today's NWI Times includes a story by Dan Carden on yesterday's Court of Appeals Not-for-Publication decision in the case of Johnson v. Wysocki:

INDIANAPOLIS | For the fourth time in three years, the Indiana Court of Appeals has ignored a state Supreme Court precedent and ruled a home seller must honestly disclose any known major problems with the property to a buyer.

Indiana has traditionally followed a "buyer beware" rule that says so long as a buyer has a chance to examine a property prior to purchase, the seller is free to make any claims he or she wants about its quality — even fraudulent claims. The rule stems from an 1881 Indiana Supreme Court decision known as Cagney v. Cuson.

Despite the controlling high court precedent, the appeals court on Monday again ruled a 1993 state law requiring a home seller complete a disclosure form attesting to the condition of a home's foundation, mechanical systems, roof, structure and plumbing bars a seller from knowingly misrepresenting the condition of those features.

"A seller may be liable for any misrepresentation on the sales disclosure form if the seller had actual knowledge of that misrepresentation at the time the form was completed," wrote Senior Judge Betty Barteau in a case involving the sale of a Crown Point home.

Judge Nancy Vaidik, a Porter County native, first declared the law demands honest disclosure in her dissent to the 2009 appeals court ruling in Dickerson v. Strand/German, which followed the Cagney precedent.

Since then the appeals court has adopted the principles of Vaidik's dissent as its majority ruling four times.

Vaidik said the Legislature intended to protect buyers, in limited circumstances, when they purchase a home — usually their largest and most important asset. Allowing sellers to knowingly lie on the disclosure form contradicts the Legislature's intent, she said.

Here is yesterday's NFP Court of Appeals opinion: Barbara A. Johnson and William T. Johnson, both individually and as trustees of the Barbara A. Johnson Living Trust Dated 12-17-1996 v. Joseph Wysocki and M. Carmen Wysocki (NFP).

Sr. Judge Barteau writes:

Our courts have long followed the rule that a purchaser has no right to rely upon the representations of the seller as to the quality of the property, where he or she has a reasonable opportunity of examining the property and judging its qualities for himself or herself. See Cagney v. Cuson, 77 Ind. 494, 497 (1881); Dickerson v. Strand, 904 N.E.2d 711, 715 (Ind. Ct. App. 2009). Nevertheless, in some cases where the buyer makes inquiries about a condition on, the qualities of, or the characteristics of the property, the seller has a duty to disclose material facts about the property. Wise v. Hays, 943 N.E.2d 835, 840 (Ind. Ct. App. 2011). Once the seller undertakes to disclose facts within his or her knowledge, the seller must disclose the whole truth. Id.

In 1993 our legislature created a statutory obligation, now codified as Indiana Code chapter 32-21-5, for sellers of certain residential real estate to complete disclosure forms informing prospective buyers of certain types of defects in the property. The disclosure form must be completed and signed and then submitted to a prospective buyer before an offer is accepted. See Ind. Code § 32-21-5-10(a) (2002). This chapter also knowledge of defect at time form is completed); Vanderwier, 937 N.E.2d at 401 (rejecting holding of Dickerson and adopting Hizer opinion in its entirety); and Wise, 943 N.E.2d at 841-42 (agreeing with Dickerson dissent, Hizer, and Vanderwier and holding that for transactions covered by Indiana Code chapter 32-21-5, seller may be liable for any misrepresentation on sales disclosure form if seller had actual knowledge of misrepresentation at time form was completed). Likewise, we agree that for transactions covered by Indiana Code chapter 32-21-5, a seller may be liable for any misrepresentation on the sales disclosure form if the seller had actual knowledge of that misrepresentation at the time the form was completed. * * *

Based upon the foregoing discussion and authorities, we conclude the evidence was insufficient to show, and the trial court did not find, that the Johnsons had actual knowledge of the defects at the time the sales disclosure form was completed. Therefore, we reverse the trial court’s judgment in favor of the Wysockis on their claim of fraudulent misrepresentation and direct the court to enter judgment in favor of the Johnsons. In addition, we affirm the trial court’s denial of the Wysockis’ request for attorney’s fees and costs pursuant to the Crime Victims Relief Act.

Affirmed in part and reversed in part.
NAJAM, J., and BROWN, J., concur.

Read Judge Vaidik's 5-page dissent in Dickerson here, beginning on p. 8. At p. 12:
Thus, for transactions covered by § 32-21-5-1, Indiana's disclosure form statute abrogates the common law rule that buyers cannot rely upon sellers' representations regarding the absence of defects in those things included in Indiana Code § 32-21-5-7(1) and places the onus on a seller to refrain from knowingly making misrepresentations about those conditions. * * *

From my reading of Indiana Code §§ 32-21-5-1 to -13, I agree with Reum, 817 N.E.2d at 1272, and Verrall, 810 N.E.2d at 1162-64, that the relevant question now is whether the seller of covered residential real estate actually knew about the property's defects when filling out the disclosure form. Pursuant to the plain language of Indiana Code § 32-21-5-11, this should be the relevant inquiry in evaluating the sellers' liability in the case before us. A contrary reading of Indiana Code § 32-21-5-11 would contradict the Legislature's intent to protect buyers, in limited circumstances, as they purchase what is typically one's largest and most important asset: a home.

See also Judge Vaidik's Feb. 15, 2011 opinion in Deborah J. Wise v. David T. Hays, et al, beginning at the bottom of p. 9.

Posted by Marcia Oddi on July 31, 2012 09:07 AM
Posted to Ind. App.Ct. Decisions