The Case of the Haunted House

When a seller sells a residential house in the Commonwealth of Pennsylvania there is a legal requirement that material defects with regard to the residential real property or any portion of it that would have a significant adverse impact on the value of the property or involves an unreasonable risk to people on the property be disclosed to the buyer.

To enforce the requirement to identify material defects to the potential buyer, the Real Estate Seller Disclosure Law, 68 Pa.C.S.A. §7100 et seq., requires written disclosures and, in fact, has a form for such disclosures.

Enforcement of disclosure requirements might also be required where a theory of fraud is pled, that is where a claim is made that (1) a representation (2) material to the transaction (the sale of the house), was (3) falsely made, with the knowledge of its falsity and (4) with the intent of misleading another to rely upon the misrepresentation and (5) justifiable reliance on the misrepresentation resulting in (6) injury proximately caused by the reliance.

Representations can be made negligently as well as fraudulently.  For negligent misrepresentation the law requires that (1) a misrepresentation of a material fact be made; (2) under circumstances in which the maker of the misrepresentation ought to have known of its falsity; and (3) where the maker of the false statement intends to induce another to act on it; and (4) which misrepresentation results in injury to a party acting in justifiable reliance of the misrepresentation.  The element required in a fraudulent misrepresentation which is not required in a negligent misrepresentation is that the speaker need not know his or her words are untrue but the speaker must have failed to make a reasonable investigation of the truth or falsity of the statement.  Like any actionable negligence, the maker of the statement must have a duty to the party to whom the statement is made.

Finally, the misrepresentation could arguably be a violation of the Unfair Trade Practices and Consumer Protection Law, 73 P.S. §201-1.  The catch-all provision under the Unfair Trade Practices and Consumer Protection Law requires proof of all of the common law flawed requirements except that no actual fraud need be required but, in its place, merely deceptive conduct must be shown.

In a recent case, all of these theories were advanced on behalf of a purchaser of a house in which, a little over two years earlier, the then owner of the property had shot his wife and then himself, thus a murder/suicide.  The purchasers of the property did not know of the prior tragedy which occurred in the house and there was no disclosure of the same in the written property disclosure provided by the sellers and their real estate agents.  The purchasers indicated that they would not have bought the house had they known of the murder/suicide which occurred in the house and that the murder/suicide, if known to purchasers, would decrease the market value of the house.  The trial court, on a motion from summary judgment, granted judgment in favor of the Defendants.  The case was appealed to the Superior Court which then decided it as Milliken v. Jacono, 2012 Pa. Super. 284, on December 26, 2012.

The Superior Court affirmed the trial court.  The Superior Court reasoned that the psychological damage to the property or its market value occasioned by the murder/suicide does not meet the requirements of real estate disclosure in that it is not a material defect.  Under the Real Estate Seller Disclosure Law, a material defect is one that would have a significant adverse impact on the value of the property where it involves an unreasonable risk to people on the property.  This statute did not intend that sellers be legally required to reveal something such as a psychological damage.  In fact, the law includes a form property disclosure promulgated by the Real Estate Commission and sets forth certain mandated contents including requiring disclosure as to when the property was last occupied by seller; disclosures with regard to the roof; basement; crawl space; termite/wood destroying insects and other pests; structural problems; additions, remodeling and structural changes to the property; water and sewage systems are serviced; plumbing systems; heating and air conditioning systems; electrical systems; other equipment and appliances; soil, drainage and boundaries; presence of hazardous substances; condominium and other home owner’s associations; and legal issues effecting title or would interfere with the use and enjoyment of the property.  The mandatory disclosure items deal with actual physical structures in the house or its components or land, potential legal impairments and hazardous substances.  President Judge Ford Elliott, writing for the Court, stated:

“A requirement that sellers of real estate reveal that a murder once occurred on the property goes to the reputation of the property and not its actual physical structure.  Plainly, the Legislature did not require disclosure of psychological damage to a property.  Buyer argues that if the Legislature had intended to exclude a murder/suicide as a material defect it would have done so by express language excluding psychological damage.  We disagree.  Rather, psychological damage is so different from the physical and legal defects listed that it is plain that the Legislature intended not to include it.  Because the Legislature limited required disclosures to structural matters, legal impairments, and hazardous materials, the extension suggested by Buyer would be both unwarranted and legislative in nature.”

The Court goes on to question how recent a murder would have to be to be included in the disclosure if required.  In the case before the Court, after the murder/suicide, the Estate sold the property to a new owner which sold it to the Plaintiff.  The murder/suicide occurred about two and half years before the sale.  The Court reasons that the passage of time would decrease memory of the murder/suicide and therefore decrease the market value impact.  Thus, a buyer could buy a house and, holding the house for a substantial period of time, realize a windfall.  “The passage of time has no similar curative effect on structural damage, legal impairments or hazardous materials.”

The Court also raised the question of how monetary damages could be assigned to psychological damage to a house caused by a murder.  The decrease in value caused by such a thing would vary greatly from person to person.  Some might be deterred from living in such a house while others would not be impacted at all and there are others who might find it “adventurous”.

Where would disclosures for psychological damage end?  Would it just be murders that would have to be disclosed or would a seller have to disclose any crime, such as a burglary, which occurred at the house?  The Court finally determined that any such requirement would be legislative and the legislature would have to act, not the court.

Likewise, the Court found no liability under fraudulent misrepresentation because the seller did not conceal or fail to disclose a material fact.  The sellers were under no legal obligation to tell the buyer about the murder/suicide.

While the murder/suicide may have been subjectively damaging to the buyer, the Court determined under common law fraud a seller of real estate is only liable for failure to reveal objective material defects.  Psychological damage is not an objective material defect that the law recognizes as material.

Negligent representation cannot be the factual basis of Plaintiffs’ claim because, in addition to materiality, the Defendants did not have a duty which they are violated by not disclosing the psychological damage.  Plaintiffs asserted that the Defendants had a duty to disclose material defects but the Court determined that this was not a material defect.

Finally, the Court rejected the “catch-all” provisions of the Unfair Trade Practices and Consumer Protection Law as the basis for a claim in that the sellers did not engage in any deceptive conduct.  Sellers merely did not inform the buyer of a factor which, while subjectively important to buyer, seller had no obligation to disclose.

One Judge on the Superior Court, Judge Bender, dissented.  Judge Bender believed that the buyer suffered a six figure economic loss which was entirely avoidable if only the sellers had exercised more integrity by advising the buyer of the murder/suicide.  Judge Bender believed that the Real Estate Seller Disclosure Law requires such disclosure.  Judge Bender believed that the pleadings raised question of facts which required resolution by a trial.

The dissent notes the requirement to disclose “any material defect with the property known to the seller”.  The Court, in its opinion, limits the circumstances subject to disclosure to material defects but, Judge Bender notes that, even while the enumerated defects which must be disclosed do not include psychological damage, the statute does not limit disclosure to those enumerated required disclosures.  In fact, the law states:

“The specification of items for disclosure in this Chapter or in any form or property disclosure statement promulgated. . .does not limit or abridge any obligation for disclosure created by any other provision of the law or that may exist in order to avoid fraud, misrepresentation or deceit in the transaction.”

The Court ruled disclosure was not required and, subject to appeal to the Pennsylvania Supreme Court, this is the law in the Commonwealth rather than the dissent.