Home Sellers On the Hook for Failing to Disclose Defects

This week the Nebraska Court of Appeals affirmed a trial court’s decision to award damages, costs, and attorney fees to the purchasers due to the sellers’ failure to disclose defects in a Seller Property Condition Disclosure Statement. Hutchison v. Kula, 27 Neb. App. 96 (2019). Nebraska law requires sellers of real property to complete the disclosure statement, which lists aspects and defects of a property where the sellers mark “yes,” “no,” “working,” “not working,” etc. The purchasers sued due to problems with the purchase of the property including water intrusion, a leaking window, a defective refrigerator fan and garage door keypad, and a dead tree. On the disclosure statement, the sellers, after owning the property for 7 years, marked the box for “working” by the refrigerator, garage door keypad, and the sump pump. They admitted some water had intruded into the basement during the “heavy rains” of “2014” due to “a neighbor’s failed sump pump,” but indicated they added a drain system. They marked “no” for questions about “diseased or dead trees,” leaking or windows with broken seals, and “flooding, drainage, or grading problems.”

After moving in, the purchasers found long-term water damage to the basement, mold under the carpet, and a non-functioning drain tile system. And that the water intrusion of 2014 was not caused by the neighbor, but happened whenever it rained. Repairs and remedial actions were estimated at $16,774. A mechanical engineer providing investigative engineering services for insurance claim cases, including property losses due to water infiltration, testified to the long-term existence of the basement water intrusion problems, and the lack of accuracy of the statements by the sellers in the disclosure statement. The sellers testified they were truthful to their knowledge.

To prove a claim related to a disclosure statement, a buyer has to “…prove either that the seller failed to provide a disclosure statement or that the statement contained knowingly false disclosures by the seller.” Bohm v. DMA Partnership, 8 Neb. App. 1069, 1078-79 (2000). A seller is not liable for “any error, inaccuracy, or omission of any information in a disclosure statement if the error, inaccuracy, or omission was not within the personal knowledge of the seller.” Neb. Rev. Stat. § 76-2,120(8). Proving actual knowledge is difficult, however the trial court found the evidence “established that there was a steady stream of leaking along the entire top of one of the basement windows,” the leaking and other problems happened shortly after occupancy by the purchasers, and the expert testimony supported the purchasers’ claims.

The successful buyers were entitled to attorney fees. “If a conveyance of real property is not made in compliance with this section, the purchaser shall have a cause of action against the seller and may recover the actual damages, court costs, and reasonable attorney’s fees.” Neb. Rev. Stat. § 76-2,120(12). Here, they sought an additional $11,670.25, on appeal. The court affirmed the trial court’s award of $10,000 in attorney fees saying what constitutes “reasonable attorney fees remained discretionary to the district court” and they found no abuse of discretion in the award.  The lesson? Fully disclose ALL knowledge on disclosure statements. If you’re dealing with a real estate dispute and need help resolving it, please give us a call.