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Real Estate Fraud & Caveat Emptor

Real Estate Fraud & Caveat Emptor

If you are a buyer or seller of used residential real estate in Virginia, then please read this post carefully. Have you as either a buyer or seller of used residential real estate in Virginia ever found yourself in one of the following situations:

  1. The seller has concealed/hidden massive amounts of mold on the property by painting over it, so as to prevent the buyer from discovering this defect before the sale;
  2. The seller has concealed serious foundation defects with the property, and drywalled and painted over the cracks and fractures before the sale;
  3. Buyer buys a property to later discovery that seller concealed substantial evidence of termite infestation on the property;
  4. Buyer discovers after the purchase that the roof of the property is leaking, and is now causing water to flood inside the home.

These are just some of the nightmare scenarios that buyers and sellers of used residential real estate are often confronted with in Virginia. Please also read our extensive blog analysis on these issues, particularly a more detailed analysis of Caveat Emptor and the Virginia Residential Property Disclosure Act, Va. Code § 55.1-700 et seq.

 CAVEAT EMPTOR – BUYER BEWARE

 Virginia is a caveat emptor (buyer beware) state. This means that the responsibility for conducting a thorough inspection of the property that is contemplated to be purchased is on the Buyer. In other words, absent any fraud or concealment of defects with the Property by the seller, the buyer is usually responsible for defects that are uncovered with the property after the settlement date, that is, after the property has been purchased. To put this standard differently, a seller of real estate in Virginia generally has no duty to disclose all known and reasonably discoverable defects, especially when the sale of the property is AS IS.

What is the standard of due diligence on a buyer of real estate in Virginia? The Virginia Supreme Court has defined the standard of due diligence on buyers as “such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case.” See STB Marketing, 240 Va. at 144, 393 S.E.2d at 397 (quoting Black’s Law Dictionary 411 (rev. 5th ed.1979)). Thus, absent any agreement to the contrary, “the vendor of land was not liable to his vendee, or a fortiori to any other person, for the condition of the land existing at the time of transfer.” Restatement (Second) of Torts § 352 (1965) (comment a).

What constitutes Seller Diversion? The caveat emptor standard does NOT empower a seller to make misrepresentations the nature and quality of the property, or to conceal latent defects. Rather, the Virginia Supreme Court held in the landmark case of Armentrout v. French, 220 Va. 458, 258 S.E.2d 519 (1979) that, “[A] very important exception to that rule is that the seller ‘must not say or do anything to throw the purchaser off his guard or to divert him from making the inquiries and examination which a prudent man ought to make.’” Id at 466 (1979) (quoting from Horner v. Ahern, 207 Va. 860, 864, 153 S.E.2d 216, 219 (1967).

Buyer Due Diligence vs Seller Fraud. Most real estate fraud cases revolve around the themes of buyer due diligence versus the seller’s duty to disclose material latent defects. Whether the seller committed actionable fraud, or whether the buyer was on notice of the complained of defects so as to foreclose any fraud claim depends on the facts of each case.

For a detailed analysis of your case, please contact us at Fox and Moghul to set up a consult. As a part of your consult, please have the following documents ready:

  1. NVAR Residential Sales Contract
  2. Exclusive Right to Represent Agreement (if represented by a real estate salesperson)
  3. Home Inspection and/or other inspection reports, if any
  4. Settlement Documents, including closing disclosure