October 28, 2010
Yesterday, the Indiana Court of Appeals addressed an issue of first impression in
Hizer v. Holt, 937 N.E.2d 1 (Ind. Ct. App. 2010), Case No. 71A03-1002-PL-127. At issue was whether
I.C. Chapter 32-21-5 abrogates the common law rule of
caveat emptor with regard to representations made in a statutorily required Sales Disclosure Form. The Court held that it did.
less..
The Hizers bought a home from the Holts that the Holts had built. In the agreement, the Hizers reserved the right to conduct an inspection of the property. Prior to closing, the Hizers hired an inspection of the septic system, the outside portion of the well, and a VA appraisal. However, they did not conduct an independent inspection of the home itself. In the Sales Disclosure Form required by
I.C. § 32-21-5-7, the Holts stated that the plumbing and well were not defective, that there were no hazardous conditions on the property, including no mold, and that there were no moisture and/or water problems in the basement.
After the closing, the Hizers discovered several undisclosed problems with the home and filed a complaint against the Holts. The trial court granted summary judgment to the Holts and the Hizers appealed.
The Holts argued that the Hizers had no right to rely on representations by the Holts because the Hizers had a reasonable opportunity to inspect the property, and an inspection would have revealed the alleged defects. The Court disagreed, noting that no previous decision had addressed the impact of I.C. Chapter 32-21-5 on the
caveat emptor doctrine.
We cannot conceive of any reason that the General Assembly would require sellers to complete the Sales Disclosure Form if sellers cannot be held liable for fraudulently misrepresenting the condition of the property on the form. Importantly, sellers "must complete and sign a disclosure form and submit the form to the prospective buyer before an offer for the sale of the residential real estate is accepted." We believe that the General Assembly intended for a prospective buyer to rely on the seller‟s disclosure of known defects on the property when making his or her offer to purchase the property.
Furthermore, section 32-21-5-11 provides that sellers are not liable for errors, inaccuracies or omissions on the Sales Disclosure Form under certain, limited circumstances, including a lack of actual knowledge of the defect. By implication, therefore, the General Assembly contemplated that sellers can be held liable for errors, inaccuracies, or omissions on the Sales Disclosure Form if the seller has actual knowledge of the defect. For all of these reasons, we conclude that Indiana Code chapter 32-21-5 abrogates any interpretation of the common law that might allow sellers to make written misrepresentations with impunity regarding the items that must be disclosed to the buyer on the Sales Disclosure Form pursuant to section 32-21-5-7(1).
Lessons:
- A seller of a home can be liable for any misrepresentations in the Sales Disclosure Form required by I.C. § 32-21-5-7.
UPDATE
On November 15, 2010, another panel of the Indiana Court of Appeals issued a decision addressing this same issue in
Vanderwier v. Baker, Case No. 45A03-1003-CC-129, which adopted the
Hizer opinion in its entirety.
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