Real Estate Agent's Duty To Disclose Alleged Defective Conditions Of Property Under New Jersey's Consumer Fraud Act: Actual Notice Required
January, 2012
One of the issues in Holt v. Laube, App. Div., A-1331-10T2 (2011), was whether a seller's real estate agent can be held liable under New Jersey's Consumer Fraud Act, N.J.S.A. 56:8-1 to -20 ("CFA"), for alleged misrepresentations made in the Seller's Disclosure Statement ("SDS"). Plaintiff argued that the SDS contained inconsistent statements, that seller's agent had a duty to investigate those inconsistencies, and that the inconsistencies constituted affirmative material misrepresentations by seller's agent when it exchanged the SDS with the buyers.
Following their purchase of residential real estate, Plaintiffs/buyers sued sellers, seller's agent and various others allegedly involved with defectively constructed retaining walls on the subject property. According to Plaintiffs, following their purchase of the property, the retaining walls began to collapse. Following an inspection by a licensed engineer, Plaintiffs were advised that the retaining walls were constructed defectively and needed to be completely replaced.
Plaintiffs' suit claimed that sellers made material misrepresentations on the SDS regarding the original construction of the retaining walls. In the section of the SDS entitled "Additions/Remodels," sellers responded "No" to the question "Have you made any additions, structural changes, or other alterations to the property?" Because they answered "No" to that question, sellers did not respond to the questions that followed, which required them to state whether they had obtained "all necessary permits and approvals" and whether "all work [was] in compliance with building codes[.]" Plaintiffs alleged that the sellers constructed the retaining walls without any permits or approval, and that the construction was noncompliant with applicable building codes.
The trial court granted seller's agent's motion for summary judgment and dismissed Plaintiffs' CFA claims against it. On appeal, Plaintiffs' argued that seller's agent had a duty to investigate statements contained in the SDS because the statements were inherently inconsistent. Plaintiffs also argued that the inconsistent statements constituted affirmative material misrepresentations by seller's agent that should sustain Plaintiffs' CFA claims.
The Appellate Court was not persuaded by Plaintiffs' arguments and upheld the dismissal. The Court focused on an important distinction where a claim under the CFA is based upon an "omission" rather than an "affirmative act." The Court stated, that where a "... CFA claim is based on an affirmative misrepresentation, plaintiffs must show that the statement was material to the transaction and was made to induce the purchase." Id. citing Gennari v. Weichert Realtors, 288 N.J. Super. 504, 535 (App. Div. 1996), aff'd as modified, 148 N.J. 582, 607 (1997). However, were a CFA claim "... is based on an omission, the plaintiffs must show that the defendant had actual knowledge of the material fact and acted knowingly with an intent to deceive." Id. citing Cox, 138 N.J. at 18. Since there was no evidence that the seller's agent had "actual notice" of any problem with the retaining wall and/or acted to conceal it, the Court found that dismissal was warranted and upheld the trial court's decision.
Learning Point
The Holt decision is particularly important to New Jersey real estate agents who conduct business in today's market. Following the real estate recession and resulting spike in real estate litigation, agents have grown increasingly cognizant and concerned of their potential liability, and have sought clear and definitive guidance from counsel regarding their disclosure requirements. The Holt decision clearly defines agent's liability under the CFA to those situations where an agent actually knew of the problem and actively concealed it. It also appears that the Holt Court refused to adopt a more expansive view that requires agents to investigate inconsistent disclosure statements.
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