We wrote earlier about a Charlottesville case in which the court analyzed the duty to disclose for a seller of residential real estate. Although Virginia follows the general rule of caveat emptor, the court ruled that the seller, who was also a licensed real estate agent, may have violated a duty to disclose material adverse facts.

The purchasers alleged two other counts, alleging that the seller failed “to disclose the adjacent drain problems and history of flooding, constituting both fraudulent misrepresentation and constructive fraud.” The court dismissed those claims while providing a nice, succinct history of the law of fraud in the sale of a home. This blog post reviews the general rules of fraudulent misrepresentations in residential real estate sales.

Generally speaking, the rule of caveat emptor requires the prospective purchaser to exercise “ordinary care” when inspecting the condition of property he intends to purchase. That’s one reason why a real estate lawyer would encourage purchasers to require a professional to perform a home inspection before obligating themselves to close on the real estate contract.

However, it is an exception to the rule of caveat emptor if the seller attempted to “divert” the purchaser’s attention away from problem areas. As the Charlottesville Circuit Court noted, the rule of “diversion” has been applied and fraud found when “the sellers took affirmative steps to conceal problems by rearranging furniture, hiding smells, or lying in response to questions.” For example, in the case of Armentrout v. French, the Virginia Supreme Court held that seller’s misrepresentations regarding the condition of the septic system diverted the purchasers from further inquiry. In Ware v. Scott, the purchasers specifically asked if the house they were interested in had any water problems and were told by the sellers that it did not. In fact, a drainpipe outside the house had overflowed. The Supreme Court held that because “the purchasers had made a specific inquiry as to water problems,” the sellers’ comments fraudulently induced performance of the contract.

In the Charlottesville case, however, the purchasers never alleged that the sellers attempted to divert their attention from the history of flooding. Furthermore, the purchasers never specifically asked the purchasers whether there was a history of flooding. Consequently, the Court dismissed the claims of fraud.

Although the rules for disclosure appear to be clear, each case and each set of facts are different. As a seller, if you are concerned about fraud and your duty to disclose, discuss your questions with an experienced real estate attorney. You will spend far less in time, aggravation and money, than if you are forced to defend a lawsuit alleging fraudulent misrepresentation.

^{Tarley Robinson, PLC,  Williamsburg, VA – Attorneys and Counsellors at Law}

John Tarley

John is the firm's managing partner and chairs the firm's small business, zoning, and litigation practice areas.

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