Hays v. Wise (IN)

Summary: Circumstantial evidence support the finding that sellers had actual knowledge of defects in the home when they signed the real estate disclosure form, thus committing fraudulent misrepresentation.


Hays v. Wise, 19 N.E.3d 358 (Ind. Ct. App. 2014).


Facts: In 2007, the Wises were interested in purchasing the Hays’ residence and the surrounding real estate. Prior to making an offer to purchase the home, the Wises hired an inspector to perform an inspection on the home in March of 2007. This inspection indicated that water had entered into the crawl space in the past. A distinct water line was visible, and there was moist soil. The inspection report did not note the presence of a leftover mobile home frame and it did not note any problems with the framing or foundation of the home.

In April 2007, the Hayses executed a sales disclosure form where they answered “No” to a series of questions, among them are the following: “Are there any foundation problems with the improvements? Are there any structural problems with the building? Have you received any notices by any government or quasi-governmental agencies affecting this property? Are there moisture and/or water problems in the basement, crawl space area or any other area? Have any substantial additions or alterations been made without a required building permit? Are there any additions to the structure(s) that may require improvements to the sewage-disposal system?"

The Wises moved into the home in early April 2007. Shortly after moving in, the Wises investigated the possibility of extending a road on the property. During this process the Wises discovered that building permits were never completed for the home, including that there was no final inspection of the home, and that a certificate of occupancy was never issued. The Wises tried to obtain a certificate of occupancy and the LaGrange County Building Commissioner performed an inspection which made at least twenty-three observations about the home. The building commissioner recommended an engineering inspection.

The Wises obtained the engineering inspection and the structural engineer found construction deficiencies that were in existence at the date of closing and characterized the home as being in a state of progressive collapse. The engineer testified that he had “never seen a house with this many problems.” Among the deficiencies were: hallway floor joists not sufficient to carry weight, the residence moving on its foundation; master bedroom wall would move when leaned against, all footers were not set at a depth of three feet or more, and a bounce in upstairs floor caused by excessive length of floor joists.

At trial, it was disclosed that Mr. Hays personally built the home in 2000 with the help of four friends. He had no training, licensing, or education in homebuilding, nor had he ever built a home or structure. In response to Mr. Hays’ preliminary building permit request in December 1999, the LaGrange County Surveyor inspected the property and informed Mr. Hays in January of 2000, that much of the sixteen-acres were in a wetland flood area hazard and advised that a flood elevation certificate would be required. In February 2000, the Hayses submitted an application for a building improvement location permit, and were issued one by the county building department for a three bedroom, two-bathroom residence. It also stated that the Hayses needed to file a Certificate of Elevation and remove the mobile home they were currently living in off the property before a Certificate of Occupancy would be issued.

The Hayses never fully removed the mobile home, leaving a section of its frame in the crawl space of the new home to support a section of the residence. The Hayses also added two additional bedrooms and one additional bathroom to the upper floor and never sought or obtained plans or permits from the county building commission. In June 2003, the Army Corps of Engineers informed the Hayses their property was in violation of the Federal Clean Water Act, which was later remedied by the Hayses.

At the trial, Mr. Hays’s explanation for not obtaining a Final Inspection and Certificate of Occupancy was that he “forgot.” The trial court did not accept this explanation because Mr. Hays built a second residence between 2004-2007. For this residence, the Hayses did obtain a Certificate of Occupancy. Among other conclusions based on the Hayses’ actual knowledge of the home’s defects: lack of anchor bolts in the foundation, the depth of the foundation was not to code, certain beams were stressed to 240% of their designated capacity, and an engineer testified that the house was “downright dangerous”.

The Hayses appealed the trial court findings that the Hayses had made misrepresentations in their responses to several questions on the residential real estate disclosure form. They raise two issues on appeal:

  1. whether the findings, conclusions, and judgment are unsupported by the evidence and are clearly erroneous due to lack of evidence that they had actual knowledge of the defects; and
  2. whether the judgment ordered damages in excess of the amount that would have been required to repair known structural defects and it therefore clearly erroneous.


Holding: Affirmed. The court found that there was sufficient circumstantial evidence to infer that the Hayses had actual knowledge of the defects of the property while answering “No” on a real estate sales disclosure form.

The common law principle of “buyer beware” has been abrogated in Indiana in favor of a real estate disclosure form that a seller of real estate is required to complete, sign, and submit to the prospective buyer. Ind. Code § 32-21-5-10. The purpose of the real estate disclosure form is to relieve the buyer of needing to initiate a specific inquiry in order to get honest disclosure about significant features of a purchase. Johnson v. Wysocki, 990 N.E.2d 456, 465 (Ind. 2013).  The “kinds of defects that will most significantly affect the value and use of a home” are the type of issues that must be addressed in the disclosure form. Id. The disclosure form requires the owner to disclose any known conditions to the purchaser.

While the sales disclosure form is not a warranty by the owner, it “does not mean that they are not actionable representations[.]” Johnson, 990 N.E.2d at 462. Actual knowledge must be shown in order to show a failure to comply with the sales disclosure statutes, but showing that the owner failed to disclose a defect of which he should have known is not sufficient. Boehringer v. Weber, 2 N.E.3d 807, 812 (Ind. Ct. App. 2014). But, actual knowledge can be inferred or “may be proven by circumstantial evidence notwithstanding the absence of a plaintiff’s admission of such knowledge.” Johnson, 990 N.E.2d at 466.

Finally, the appellate court affirmed the damage award. First, the Hayses were found to have knowledge of multiple, if not all, of the home’s defects, which were not revealed on the real estate sales disclosure form. Second, it would be effectively impossible to repair the home. The home would have to be gutted to repair all the deficiencies. The estimate to demolish the home, remove the materials, and build an identical home up to the LaGrange County code would be between $410,000 and $450,000. The amount of damages awarded was $281,062.77. The court awarded the $205,000 for the fair market value of the home, excluding the land value, and attorney fees.


Opinion Year: 
By: ATG Underwriting Department | Posted on: Thu, 07/09/2015 - 9:52am