In Michigan, the seller of a residential property has an obligation to disclose certain information to the buyer of the property in what is commonly referred to as a “Seller’s Disclosure Statement.” The Seller Disclosure Act, MCL 565.951, et seq. imposes a legal duty on sellers to disclose to buyers the existence of certain known conditions affecting the house.
Understanding Mandatory Disclosures in Michigan
While not exhaustive, examples of mandatory disclosures in Michigan include the following:
- The existence of certain appliances, including oven, dishwasher, refrigerator, hood/fan, disposal, TV antenna, TV rotor and controls, electrical system, garage door opener and remote control, alarm system, intercom, central vacuum, attic van, pool heater, wall liner and equipment, microwave, trash compactor, ceiling fan, sauna/hot tub, washer, dryer, lawn sprinkler system, water heater, plumbing system, water softener/conditioner, well and pump, septic tank and drain field, sump pump, city water system, city sewer system, central air conditioning, central heating system, wall furnace, humidifier, electronic air filter, solar heating system, fireplace and chimney and wood burning system.
- Any evidence of water in the basement or crawl space.
- Any roof leaks.
- Type of well, if any, its depth/diameter, age and repair history and whether the water has been tested.
- The condition of any septic tanks/drain fields.
- The type and approximate age of any heating system.
- The type of plumbing system and whether there are any known problems.
- The electrical system and whether there are any known problems.
- Any history of infestation such as termites or carpenter ants.
- Any environmental problems including asbestos, radon gas, formaldehyde, lead-based paint, fuel or chemical storage tanks and contaminated soil on the property.
- Whether the property has flood insurance.
- Whether the seller owns the mineral rights.
- Any shared features of the property with a neighbor such as walls, fences, roads and driveways or other features whose use or responsibility for maintenance may have an effect on the property.
- Any encroachments, easements, zoning violations or nonconforming uses.
- Any common areas or a homeowner’s association that has authority over the property.
- Any structural modifications or repairs made without necessary permits or licensed contractors.
- Any settling, flooding, drainage, structural or grading problems.
- Any major damage to the property from fire, wind, floods or landslides.
- Any underground storage tanks.
- Any farm or farm operation in the vicinity.
- Any proximity to a landfill, airport, shooting range, etc.
- Any outstanding utility assessments or fees, including any natural gas main extension surcharge.
- Any outstanding municipal assessments or fees.
- Any pending litigation that could affect the property or the seller’s right to convey the property.
In addition to the requirements above, the Seller Disclosure Act also permits a city, township or county to require additional disclosures under MCL 559.959. Thus, the examples above may not be exhaustive for your particular home. When a seller makes its disclosures to the buyer, the seller is required to act in good faith, which the statute defines as “honesty in fact in the conduct of the transaction.” See MCL 559.960.
Given the lengthy disclosures required above, most often the seller provides the Seller’s Disclosure Statement, the parties enter in a purchase agreement, the buyer has the home inspected, the parties close on the sale of the home and then weeks or months later the buyer discovers water damage, structural damage, concealment of issues by fresh paint or new walls, etc. that the buyer would not otherwise have known about or be able to investigate. When this happens, the buyer can be upset, emotional and feel taken advantage of.
Most often, the buyer will first blame their home inspector. Unfortunately, the home inspector’s contract with the buyer likely limits the home inspector’s potential liability. Next, most buyers want to pursue the seller for breach of contract, unjust enrichment, fraud or fraudulent concealment, innocent misrepresentation, silent fraud, rescission of the contract, or similar claims.
“As is” Clause and Fraudulent Misrepresentation in Michigan
Unfortunately, as with most purchase agreements in Michigan, there is an “as is” clause that normally states that the buyer has had an opportunity to inspect the premises and that the premises is being sold “as is.” When this happens, a buyer may legitimately believe that the buyer has no remedy in the situation. However, an “as is” clause in the purchase agreement does not preclude liability on the basis of fraud. M & D, Inc v McConkey, 231 Mich App 22, 32; 585 NW2d 33 (1998). Thus, there may be a basis to pursue the seller if there is fraud involved. To establish fraudulent misrepresentation, a party must show:
- a material representation was made by the defendant;
- the representation was false;
- the defendant knew the representation was false when made, or made the representation recklessly, without knowledge of its truth and as a positive assertion;
- the representation was made by defendant with the intention that the plaintiff would act in reliance upon it; (5) the plaintiff did act in reliance upon it; and
- as a result, the plaintiff suffered an injury.
Hord v Environmental Research Institute of Mich, 463 Mich 399, 404; 617 NW2d 543 (2000). Thus, the buyer may have the ability to pursue the seller even though there is an ‘as is’ clause in the purchase agreement.
Recent Michigan Court of Appeals Cases
The Michigan Court of Appeals has recently reviewed two cases addressing claims of fraud related to the Seller’s Disclosure Act. In Sellers v. Adams, Unpublished Per Curiam Opinion of the Michigan Court of Appeals, Case No. 351575 (issued November 19, 2020), the Michigan Court of Appeals held that mere passing allegations of fraud without any specificity or citations to record evidence is insufficient for the buyer to win. In that case, the sellers disclosed that there was major damage from fire, wind, floods or landslides, however the explanatory statement following the line item was “whited out.” The buyers had an inspection of the home and the parties closed on the home. At closing, the buyers signed a release and an acknowledgement that the property was being purchased “as is.” Two months after closing, plaintiffs had a second inspection performed on the residence that allegedly revealed hidden water damage, improper repairs, mold, and evidence of narcotic use or manufacture throughout the residence. The buyers sued the sellers claiming fraud and misrepresentation. The Michigan Court of Appeals held:
Here, it is uncontroverted that plaintiffs were given an opportunity, and did inspect the residence prior to the closing, indicating their complete satisfaction and desire to move in immediately. Further, it is uncontroverted that plaintiffs released defendants “from all liability” and did so without any evidence of fraud, duress or coercion by defendants or anyone acting on their behalf. Hence, on this record, we conclude that the trial court properly granted summary disposition to defendants.
The takeaway from the Sellers v. Adams case is that pleading fraud or misrepresentation requires more than just mere allegations. The case may have come out differently if there was more information “on this record” for the Court of Appeals to analyze whether there was sufficient information of fraud or misrepresentation.
In a second recent Michigan Court of Appeals opinion, Lancaster v. Cosmopolitan Homes, Unpublished Per Curiam Opinion of the Michigan Court of Appeals, Case No. 347678 (issued December 29, 2020), Cletis Nichols, the son-in-law of the persons who sold the property to Cosmopolitan Homes provided an affidavit where he indicated that he personally informed Cosmopolitan Homes’ principal Dan Wicker, about water damage at the home. In Mr. Nichols’ affidavit, he also described the physical signs of water damage that were present when Wicker took possession of the home from Nichols’ in-laws. Cosmopolitan Homes then sold the home to the Lancasters and claimed in the Seller’s Disclosure Statement that there was “no known history of water in the home’s basement.” A few months later, the Lancasters discovered that the walls in the basement leaked. In that case, even though Mr. Nichols had an affidavit stating that he informed Cosmopolitan Homes about the water issues, the trial court refused an emergency motion to delay trial by two days to allow Mr. Nichols to testify. The trial court then granted a directed verdict in favor of Cosmopolitan Homes and Dan Wicker. The Michigan Court of Appeals reversed and remanded the matter to the trial court for a new trial and held:
…because the record demonstrates that Nichols’s proposed testimony could have established a question of fact with regard to plaintiffs’ claims of fraud, innocent misrepresentation, silent fraud, and violation of the [Seller Disclosure Act], we reverse and remand for a new trial with respect to those claims.
Thus, the takeaway from these two cases is that a buyer discovering a potential disclosure violation needs to take immediate action to investigate, locate, discover, and document, etc. any information the buyer can find that may support a potential claim for fraud or misrepresentation. This process typically includes speaking with prior owners, contacting previous renters, asking neighbors about the history of the home, checking with the local municipality, hiring a contractor to determine damages, investigating whether there were any prior insurance claims or lawsuits, etc. Further, the buyer will want to take immediate action to have an attorney review the matter, determine where the seller is currently located and whether a demand letter or litigation is appropriate, desirable or necessary. Overall, it is much better to discover these issues before closing on the home, but all too often issues are only discovered weeks, months or even years after the sale of the home.
Joe Wloszek focuses his practice on residential and commercial real estate disputes, condominium and homeowner’s association law, commercial litigation, large contractual disputes, and related real estate matters. Mr. Wloszek has been named a Super Lawyers Rising Star in Real Estate Law from 2013-2021, an award given to only 2.5% of the attorneys in Michigan each year. He was also named a Top Lawyer in commercial law by DBusiness Magazine in 2014, a Michigan Top Lawyer in real estate law by Michigan Top Lawyers in 2016 and the Pro Bono Volunteer Attorney of the Year in 2014 by Michigan Community Resources. He is also a Certified Real Estate Continuing Education Instructor through the State of Michigan and the former Chair of the Oakland County Bar Association Real Estate Committee. He can be reached at (248) 480-8704 or firstname.lastname@example.org.