A Kansas homebuyer was notified of foundation issues by his inspector but apparently believed the problem to be fixable. When summer rains caused consistent flooding in his basement, he sued the seller and real estate broker, claiming they concealed the problems. Would a disclosure statement release the broker and previous owner from liability? Read on.
An interested homebuyer in Kansas was told the property he was considering purchasing had a major crack in the foundation. He believed the issue was repairable and bought the home, but sued the seller and real estate broker when the basement repeatedly flooded.
The defendants were granted summary judgment on nearly every claim filed against them. That changed on July 3, when the Court of Appeals of Kansas found several issues of material fact needed to be addressed, and reversed the lower court’s judgment.
The matter began when defendant Jean Betty Toth, looking to buy a home, viewed an Overland Park home owned by Mark and Cathy Ross in early 2001. Mark Ross discussed with Toth the fact that the foundation walls had moved, and showed her cracks in the basement walls. He also allegedly discussed with her repairs that had been made.
Toth said she planned to have the property inspected, and made an offer shortly after leaving the property. She had the home inspected a few days later, and apparently was satisfied with the report. The sale closed in May 2001. The Rosses had completed a seller’s disclosure form which indicated movement of foundation or walls and water leakage in the basement.
Patching up some problems
In the months after she bought the home, Toth allegedly called the Rosses several times to seek assistance or ask questions about the property. After a period of heavy rain in September 2001, Toth told the sellers she found water in the basement. She called an inspector who discovered the west foundation wall had buckled. Allegedly at Mark Ross’ suggestion, Toth bought dirt and Ross placed it around the outside of the foundation.
Toth entered into a contract in July 2002 to sell the house with defendant Jeffery Schunk, owner of TopPros Real Estate Inc. Toth signed a disclosure statement on July 12, 2002 which noted the seller would disclose all defects and conditions which could materially affect the property’s value. Toth answered “no” to several questions about wall and foundation shifting, cracks or water leakage.
Schunk did a walk-through but did not conduct a thorough inspection of the home. He also said he didn’t look over the seller’s disclosure form with Toth, and allegedly assumed all of her responses were accurate. Toth allegedly did not mention any water problems in the basement.
David Tomlinson offered to buy the property on July 18, 2002. He hired an inspector who discovered a large crack in a piece of sheetrock, and allegedly explained that the crack was due to movement of a foundation wall. Tomlinson cancelled the contract.
When Schunk learned of the contract cancellation and received notice of Tomlinson’s inspection report, he viewed the west wall in the basement and told Toth to have the crack repaired. Marsee and Son Foundation Repair Inc. placed epoxy in about 18 feet of cracks in the west wall.
Finding another prospective buyer
Two days after Tomlinson’s cancellation, the real estate agent for plaintiff Jason L. Osterhaus, Ronda Lenci, expressed an interest in the property. Schunk allegedly provided Lenci with a copy of Tomlinson’s inspection report and notified her that an earlier contract had been cancelled due to foundation problems that were going to be fixed. Lenci testified that she didn’t recall being told about Tomlinson’s inspection report, the contract cancellation or the foundation problems.
Osterhaus made an offer on the home and signed the “buyer acknowledgement and agreement” of Toth’s seller disclosure form on July 26, 2002. Toth made a counteroffer the following day. Osterhaus hired an inspector and was present for most of the inspection. He claimed he noticed no cracks during previous tours of the house because shelves and appliances concealed the cracked sheetrock. During the Aug. 3, 2002 inspection, however, he saw a crack in the basement that had been sealed.
The inspection report noted “major cracking” and that repairs had been made. It also said it appeared “serviceable.” Osterhaus received the report prior to buying the home.
Foundation flaws become apparent
During the spring of 2004, Osterhaus noticed water seeping into the carpet in a finished area of the basement, and found that the water was coming through the foundation wall behind the sheetrock. He claimed he found leaks nearly every time it rained by the summer of 2004, leading to “substantial amounts” of mold behind the walls. He estimated it would cost $80,000 to cover the repairs.
Osterhaus sued Schunk, TopPros and Toth on causes of action for violations of the Kansas Consumer Protection Act (KCPA), fraud, fraud by silence, negligent misrepresentation and breach of contract. The defendants filed motions for summary judgment.
Johnson District Court granted summary judgment to the defendants, finding that Osterhaus had an independent inspection and was aware there was major cracking in the basement wall. Osterhaus appealed.
The appellate court said that entering into a disclosure statement does not permit a party to be dishonest and not be held liable.
“A seller of real property has an affirmative duty to be honest on its disclosure statement. When a seller is untruthful about material facts in its disclosure statement, the material fact is not discoverable in a reasonable inspection, and the seller does not correct the untruth before closing, the buyer’s signature on the disclosure statement does not constitute a waiver of the seller’s untruths,” the appellate court stated. “The grant of summary judgment was in error.”
Since Osterhaus’ signature on the buyer’s agreement was considered by the appellate court to not be a waiver of Toth’s allegedly untruths and omissions, it also found that the district court erred when it determined the buyer could not be aggrieved by Toth’s alleged violations of the KCPA. Summary judgment on that claim was therefore also reversed.
Osterhaus’ claim that Schunk, Toth and TopPros violated the Brokerage Relationships in Real Estate Transactions Act (BRRETA) was based on the allegation that the defendants failed to disclose Tomlinson’s inspection report and that epoxy had been placed in the foundation cracks only two days prior to Osterhaus’ inspection.
The appellate court acknowledged that Schunk had been aware that Toth was not truthful in the disclosure statement, the question was which facts he knew were inaccurate, when he discovered them and whether the facts were considered material. The district court had found Schunk had no duty to disclose major cracking since Osterhaus’ inspector disclosed this fact, but the court did not address Toth’s lack of truthfulness or the nondisclosure of Tomlinson’s inspection report. The appellate court considered the district court to be in error on its granting summary judgment on the matter, and remanded the claim for further proceedings.
Silence not always golden
Osterhaus had also sought a claim of fraud by silence against the defendants. Noting that Osterhaus’ real estate agent testified that she was never provided with a copy of Tomlinson’s inspection report, the appellate court found that there were disputed, material issues of fact regarding fraud that should have been put before a jury rather than determined by summary judgment. The fraud by silence claim was thus remanded for further proceedings as well.
There was also disputed material issues of fact related to Toth’s competency, the appellate court said. There was a document on record from Sept. 23, 2002 which states Toth lacked the ability to handle her financial affairs, signed by a physician. Toth allegedly argued in her motion for summary judgment that she suffered from mild to moderate dementia. If this were the case, the appellate court noted, she would not have the capacity to enter into the contract. This matter was also reversed and remanded to district court.
The only ruling the appellate court affirmed was the finding that Osterhaus had not been denied equal protection of the law. The buyer claimed the court had disregarded the express contractual provisions of the contract, thereby depriving him of his equal protection rights because the court allegedly “arbitrarily enforced” implied contractual rights while ignoring others that were expressed in the contract.
In Osterhaus’ case, the appellate court said it struggled to see how a concept of equal protection would apply.
“There is no state actor, no statute and no government entity involved in this private real estate transaction. There is no equal protection violation, and the district court’s decision on this issue is affirmed,” the appellate court ruled.
Since all of the other claims were reversed, the complaint was remanded for further proceedings in district court.
Jason L. Osterhaus v. Jean Betty Toth, et al. and Jeffery S. Schunk and TopPros Real Estate Inc.