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When Can a Buyer Sue a Seller for Failure to Disclose?

New York imposes very little in the way of disclosure requirements for sellers. Sellers have numerous ways to avoid or limit liability for a property’s poor condition. 

In fact, in many cases it is highly disadvantageous for sellers to disclose any information beyond the bare minimum.

All this means that if you’re a Long Island buyer you need to do a lot more due diligence, when purchasing a property, than “hiring an inspector.”

Renkas v. Sweers

In the 2005 case Renaks v. Sweers, the Supreme Court of New York made it clear that the 48-question Property Condition Disclosure Statement, or PCDS, sellers are required to fill out is not a substitute for the buyer’s own due diligence.

“The disclosure statement is not a warranty of any kind by the seller or any agent representing the seller in this transaction. It is not a substitute for any inspections or tests, and the buyer is encouraged to obtain his or her own independent professional inspections or environmental tests, and is also encouraged to check public records pertaining to the property.”

It doesn’t matter if you, the Buyer, purchase the property while relying on something in the PCDS only to have to make a million dollars worth of repairs later. The courts expect you to conduct your own investigations.

Sellers Are Not Permitted to Commit Fraud

The law still protects buyers in cases where the seller commits some form of misrepresentation fraud while attempting to sell the property. The courts have established a four-prong test for when a seller’s representations become actually fraudulent.

  1. The seller made a misrepresentation or an omission of material fact which was false, and was known to be false, by the defendant.
  2. The misrepresentation was made for the purpose of inducing the plaintiff to rely upon it.
  3. There was justifiable reliance on the part of the plaintiff on the misrepresentation or material omission.
  4. The omission caused an injury.

“Justifiable reliance” is the very hardest point to prove. In fact, in order for the courts to agree you were justified in relying on some point made by the seller, two things must be true:

  1. The seller made some active concealment of a fact. “Active concealment is some conduct, more than mere silence, that may create a duty to disclose information concerning the property.”
  2. The buyer must show the seller or seller’s agents actively thwarted the buyer’s efforts to fulfill their responsibilities to the “doctrine of caveat emptor.” 

We see this notion of active concealment showing up again in the 2017 case, Gallagher v. Ruzzine, wherein the Appellate Division dismissed a buyer’s case because they were not in any way prohibited from making any inspections they wished to make.

The $500 Deterrent

Even the most honest and forthright seller in the world has plenty of incentive to avoid disclosing. The law allows sellers to make a written statement refusing to provide details of any defects they know about. This will limit their liability to $500 even if you discover a much more expensive defect. As long as they did not lie on the PCDS they can simply write a check and avoid most court actions or settlements.

This is the prudent move, since if they make a mistake on the statement they could vastly increase their liability or open themselves up to accusations of fraud. 

This does not mean buyers don’t ever win cases, nor does it mean that sellers are always free from expensive liabilities. It does mean that buyers must be especially vigilant, and should consider every avenue they can find for uncovering potential problems in a property before they purchase it. 

See also: 

4 Things to Know About Purchasing Commercial Real Estate

To Disclose or Not to Disclose: What’s the Smarter Move? 

What Are The Most Common Property Disputes During a Purchase?