Introduction

Buying and selling a house can be one of the most important events of your life and for many people will be the largest financial transactions they ever participate in . Buyers and sellers should have a basic understanding of the law related to transferring residential property and most importantly Michigan Seller's Disclosure Act (SDA), which imposes legal requirements on sellers to disclose specific information that they know about a home. This article will provide an outline of the SDA, including how it applies when buying or selling a home.

Overview of the Seller's Disclosure Act

Under the SDA, the home seller must make certain disclosures to potential and actual buyers or tenants about the property. The Seller's Disclosure Act, found at MCL 565.951 through 565.966, provides the statutory framework for such disclosures. Except for a few exceptions, the SDA applies to most transfers of residential real estate in Michigan. In general, the SDA requires a seller, before signing a binding purchase agreement, to provide a potential buyer with a written statement containing information based on the seller's knowledge about the condition of the property. The SDA provides the specific form for the Seller's Disclosure Statement (SDS) in MCL 565.957, and sellers are required by law to use this form.

The Basics of a Seller's Disclosure Statement

The SDS provides potential buyers detailed information concerning the condition of the property. The specific covered items includes the condition of appliances, electrical systems, plumbing, heating, and cooling systems. In addition, the SDS requires the seller to detail the existing conditions, improvements, and structural aspects of the property as well as specific information about water problems, insect infestation, and the presence of potential environmental hazards.

The Scope of the Seller's Duty to Disclose

The language of the SDA does not expressly state the scope of a seller's duty to make an effort to discover possible defects with the property in putting together the Seller's Disclosure Statement. In Bergen v Baker, the Court of Appeals stated that while a "seller has not violated the act where undisclosed and unknown information could be obtained only through inspection or observation of inaccessible areas of the home or could only be discovered by a person with expertise beyond the knowledge of the seller;" a seller does violate the SDA when he or she fails to disclose a defect that the seller should have known about by exercising ordinary care.[1]

However, in Roberts v Saffell, the Court of Appeals rejected the notion that the SDA imposes a duty of ordinary care on a seller to discover defects in putting together a disclosure statement, stating: "we find nothing in the plain terms of the [Seller Disclosure Act] that requires a transferor of property covered by the act to exercise ordinary care to discover defects in the property being transferred."[2] Ultimately, in Roberts, the Court summed up a seller's obligation under the Seller's Disclosure Act: "The SDA only imposes a duty on the transferor of real estate covered by the act to honestly disclose items about which the transferor actually knows. See MCL 565.955(1) ("within the personal knowledge of the transferor"); MCL 565.956 ("and known to the transferor"); MCL 565.957 ("known by the seller"); and MCL 565.960 (requiring " 'good faith' mean[ing] honesty in fact")."[3] Therefore, the Seller must complete the SDS and make all disclosures in "good faith," which mean honesty in fact in the conduct of the transaction based on the best information available and actually known to the seller. MCL 565.960.

The Consequences of Non-Compliance and Buyer's Rights

Failure to comply with the SDA's disclosure requirement has serious consequences. A seller who forgets to give a prospective buyer the signed SDS grants prospective buyers the right to terminate the purchase agreement prior to closing. However, once the sale has closed, the buyer forfeits the right to terminate the purchase agreement. While the SDA does not provide other remedies for a seller's failure to comply, an injured buyer may still have a claim under various common-law theories of fraud or negligence based on the information or lack of information in the seller's SDS. Michigan recognizes a few theories of fraud as exceptions to the common-law rule of caveat emptor ("let the buyer beware") in real estate transactions: (1) traditional common-law fraud and (2) silent fraud.

Common-Law Fraud

In general, an action in common-law fraud (otherwise known as fraudulent misrepresentation) consists of the following elements:

1. The defendant made a material representation.
2. The representation was false.
3. The defendant knew the representation was false when it was made 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 on it.
5. The plaintiff acted on it.
6. The plaintiff suffered damage.[4]

Silent Fraud

Under the silent fraud doctrine, a cause of action "is established when there is a suppression of material facts and there is a legal or equitable duty of disclosure."[5] However, a mere nondisclosure is not enough to establish a claim of silent fraud, rather silent fraud involves the suppression or concealment of the truth with the intent to deceive. Silent fraud is based on the suppression of a material fact that one was legally obligated to disclose, rather than on making an affirmative misrepresentation.[6] In addition, there must be circumstances establishing a legal duty to disclose, such as when a buyer directly inquires or expresses a particular concern.[7] A misleadingly incomplete response to an inquiry can constitute silent fraud.[8]

Conclusion

Failure to comply with the Michigan Seller's Disclosure Act can have significant consequences. When in doubt, buyers and sellers should contact an experienced real estate attorney to advise and represent them. The lawyers at Lachman PLC would be happy to assist you.

[1] 264 Mich App 376, 385-390; 691 N.W.2d 770 (2004).

[2] 280 Mich App 397, 408; 760 N.W.2d 715 (2008).

[3] Id. at 406 n. 2.

[4] Bergen v Baker, 264 Mich. App. 376, 383; 691 N.W.2d 770 (2004).

[5] M&D, Inc v McConkey, 231 Mich. App. 22, 35-36; 585 N.W.2d 33 (1998).

[6] Alfieri v Bertorelli, 295 Mich.App. 189, 193; 813 N.W.2d 772 (2012)

[7] Id.

[8] Id.