Here is a summary of a case that was recently decided by the Michigan Court of Appeals relating to the liability of real estate professionals for representations made during the purchase/sale of a home. Stout v. Christina Withrow, Carol Williams-Nakoneczny and Century 21 Real Estate 217, No. 271632, 2008 WL 400695 (Mich. Ct. App., decided Feb. 14, 2008).
Plaintiff Sandra Stout was looking to purchase a new home. To help with her search, she met with defendant Carol Williams-Nakoneczny (“Agent”), who was a licensed real estate agent with defendant Century 21 Real Estate 217. Agent showed plaintiff an old farmhouse in Millington, Michigan, which was owned by defendant Christina Withrow (“Seller”). Agent and Seller were friends. Agent listed Seller’s farmhouse previously, and when Agent contacted Seller regarding showing the house to plaintiff, Seller re-listed the house with her again.
Plaintiff executed a purchase agreement that contained a Property Inspection Clause in which plaintiff agreed to purchase the property “[a]s is, with no warranties expressed, written or implied by seller or realtor.” The same clause also included language recommending that plaintiff have the house inspected, but noted that “BUYER [plaintiff] waives a home inspection.” Plaintiff asserted during her deposition and at trial that when she asked Agent whether she needed to have a home inspection, Agent responded in the negative, advising her not to waste her money on a home inspection because she was friends with the owner of the house, the house was in “top-notch” condition, everything was new, and there had been previous inspections of the home.
Before the closing on plaintiff’s purchase of the farmhouse, Agent sought plaintiff’s signature on a Disclosure Regarding Real Estate Agency Relationship form. This agency disclosure form, which plaintiff signed, disclosed that defendant Agent was serving as the Seller’s agent and that Agent would “not be representing the buyer unless otherwise agreed in writing.” Plaintiff did not sign a buyer’s agency agreement with Agent, and plaintiff did not assert that she and defendant entered into a written agreement regarding this agent representing her.
At closing, plaintiff also signed a release that she examined the property and accepted it in its present condition. She also agreed to hold harmless defendant Century 21 Real Estate 217 (“Broker’) and its representatives, including regarding issues involving sewer, septic, well and plumbing. Plaintiff stated that she had read it, understood it and acted voluntarily. She also signed two Seller’s Disclosure Statements that stated: “The following are representations made solely by the Seller and are not the representations of the Seller’s Agent(s), if any.” Both Seller’s Disclosure Statements also advised prospective buyers: “BUYER SHOULD OBTAIN PROFESSIONAL ADVICE AND INSPECTIONS OF THE PROPERTY TO MORE FULLY DETERMINE THE CONDITION OF THE PROPERTY.” Plaintiff did not have the house inspected.
After plaintiff moved into the house, she discovered that there were problems with the septic system (e.g., sewage backed up into the bathtub and toilet). The toilet would not flush. If plaintiff plunged the toilet, more sewage backed up into the bathtub, etc. The conditions persisted until plaintiff moved out of the house for good.
Plaintiff filed suit against defendant Agent Williams-Nakoneczny, defendant Broker Century 21 Real Estate 217, and defendant Seller Withrow, claiming intentional misrepresentation, violation of the Michigan Consumer Protection Act, and negligence. The case went to trial on plaintiffs intentional misrepresentation claim. The jury determined that defendant Agent knowingly or recklessly made a false representation of material fact and that plaintiff relied upon the representation and incurred damages as a result. The jury returned a verdict for plaintiff in the amount of $120,659.32, plus costs and interest. Defendants appealed and the Michigan Court of Appeals affirmed the jury’s verdict.
The Michigan Court of Appeals agreed that defendant Agent Williams-Nakoneczny’s fraudulent conduct related to the condition of the property. And defendant Agent’s misrepresentations about the condition of the property helped to secure the release. The court also agreed that the plaintiff proved all of the elements of intentional or fraudulent misrepresentation: (1) the defendant made a material representation, (2) the representation was false, (3) when making the representation, the defendant knew that it was false or made it recklessly, without knowledge of its truth as a positive assertion, (4) the defendant made the representation with the intention that the plaintiff would act upon it, (5) the plaintiff acted in reliance on the representation, and (6) the plaintiff suffered damages
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