RESPONSIBILITIES TO THE BUYER: WHAT BROKERS AND SELLERS MUST REVEAL
by Tania Snyder and John Sperino, ATG Law Clerks


There are several theories buyers may use to hold brokers and sellers liable for defects in a used home. While every parcel of real estate is unique, so is every case on the subject. Each transaction involves a different physical defect, however, several standard causes of action are used to redress these problems. The following describes standard causes of action and the responsibilities brokers and sellers owe buyers under the law.

Residential Real Estate Disclosure Act


As of October 1, 1994 (the effective date of the Residential Real Property Disclosure Act, 765 ILCS 77/1, et seq.), sellers of used homes must disclose known defects. Except for a limited number of non-arm's length transfers, the statute requires the seller to provide a detailed disclosure statement before the contract for purchase and sale is consummated. §35. Included in this statement are such items as flooding, roofing, asbestos, termites, underground tanks, lot line disputes, and lead paint and pipes. Id.


The Act states that these disclosures are not "warranties" and that a seller is not liable for errors made unintentionally. §25(a). Although the seller is not obligated to make any specific inquiry or investigation prior to completing the disclosure form, effective January 1, 1998, P.A. 90-383 requires that a written supplement be provided to the buyer if the seller is aware of any errors in the original disclosure form. A seller who "knowingly" violates the Act or discloses untruthful information is liable for actual damages, court costs, and reasonable attorney's fees. §55. The statute of limitations is relatively short: one year from the closing. §60. Effective August 15, 1997, an amendment added the following note to §35 of the Residential Real Property Act: "These disclosures are intended to reflect the current condition of the premises and do not include previous problems, if any, that the seller reasonably believes have been corrected."

NOTE: Recent research has revealed no cases that interpret the Residential Real Property Disclosure Act. The number of reported common law cases involving misrepresentation has dropped significantly since its effective date.

Fraudulent Misrepresentation


The common law imposes a duty upon sellers of used homes to disclose facts that (1) materially affect the value or desirability of the property, (2) are known or accessible only to the seller, and (3) the seller knows are not accessible to a diligent buyer. Posner v. Davis, 395 N.E.2d 133 (1st Dist. 1979).


For a statement to be fraudulent, the following elements must exist (Hamming v. Murphy, 404 N.E.2d 1026 (2nd Dist. 1980)):

  • the statement is untrue;



  • the statement is of a material fact;



  • the proponent knows or believes the statement to be untrue;



  • the listener believed and rightfully relied on the statement;



  • the statement was made for the purpose of inducing the listener to act; and



  • the listener's actions caused damages to the listener.

Fraud can consist of verbal or written statements or active concealment of defects. One court has found that silence alone does not amount to active concealment; there must be an action or a statement to state a claim for fraud.Dee v. Peters, 591 N.E.2d 115 (3rd Dist. 1992). However, where a person has a duty to speak, the failure to do so will support a claim of fraud.Salisbury v. Chapman Realty, 465 N.E.2d 127 (1984);Zimmerman v. Northfield Real Estate, Inc., 410 N.E.2d 409 (1st Dist. 1986). (Both cases deal with claims against real estate brokers for silence in the face of their duty of honesty with the buyers.)


The general rule states that one is not entitled to rely upon another's representation of the law because everyone is presumed to be equally capable of knowing and interpreting the law.Kinsey v. Scott, 463 N.E.2d 1359 (2nd Dist. 1984);Hamming v. Murphy, 404 N.E.2d 1026 (2nd Dist. 1980). This principle collapses the two elements of material fact and the right to rely by finding that a buyer has no right to rely upon a statement of law that is not a material fact. Thus, courts have created a fact/law distinction that results in a liability/no liability distinction in outcomes. Counterbalancing this principle, courts have found "the doctrine is well settled, that as a rule, a party guilty of fraudulent conduct shall not be allowed to cry 'negligence' as against his own deliberate fraud."Linnington v. Strong, 107 Ill. 295 at 302;Peterson v. Yactman, 166 N.E.2d 452 at 456 (1st Dist. 1960). This rule is also subject to a qualification that the person asserting fraudulent misrepresentation had a right to rely thereon: "He may not enter into a transaction, close his eyes to available information, and then charge that he has been deceived by the words or conduct of the other party."Broberg v. Mann, 213 N.E.2d 89 at 92 (2nd Dist. 1965). In this case, the buyer discovered purchased land he thought was 26 acres was later discovered to be only 18 acres. Summing up these principles, courts examine the facts of each case to determine the reasonableness of the buyer's reliance on any misrepresentations.


However, courts still make a "fact versus law" distinction in determining seller liability for any misrepresentations. Recently the first and second district appellate court have examined the case law on the matter in the context of zoning cases and determined that the rule is somewhat more complex than that. InStichauf v. Cermak Road Realty, 603 N.E.2d 828 (1st Dist. 1992), the court characterized the distinction between the holdings as finding liability only where "the defendant misrepresents facts of which he possesses almost exclusive knowledge and the truth or falsity of which are not readily ascertainable by the plaintiff." Id. at 835. The same rule was iterated by the 2nd Appellate District inGilmore v. Kowalkiewicz, 600 N.E.2d 492 (2nd Dist. 1992).

Consumer Fraud and Deceptive Practices Act


The Consumer Fraud Act (CFDPA) was designed to simplify fraud actions. It expands consumers' rights beyond those granted through common law by relaxing some of the elements necessary to prove fraud.Zimmerman. Thus, for defendants subject to this statute, a finding that there is "a cause of action for fraud is sufficient to warrant the conclusion that the same acts violate the Consumer Fraud Act because the Act prohibits any misrepresentation at all."Id.However,Zimmermanis part of a significant body of case law holding that the CFDPA does not apply to private sellers of residential real estate. See alsoAnderson v. Stowell, 183 Ill. App. 3d 862, 539 N.E.2d 852 (3rd Dist. 1989);Strauss v. Cruz, 259 Ill. App. 3d 608, 631 N.E.2d 468 (3d Dist. 1994).


However, inAnnamarie v. Cambridge Homes, Inc., 1997 WL 154629 (2nd Dist.), a court broke away from the line of cases that held that the CFDPA does not apply to private sellers. The court held that the CFDPA does not exempt real estate sellers, commercial or private, from suits under the Act. See alsoRandels v. Best Real Estate, Inc., 243 Ill. App. 3d 801, 612 N.E.2d 984 (2nd Dist. 1993). (Assuming, without discussion, that the CFDPA applies to a private seller who used a real estate brokerage firm to list property for sale.)

The Real Estate License Act


In addition to common law and CFDPA duties to disclose material facts, brokers have a special statutory duty to buyers under the Real Estate License Act. 225 ILCS 455/18(h). Under this act, the Office of Banks and Real Estate has the power to enforce licensing provisions and may refuse to issue, renew, revoke, reprimand or suspend a license. It also may assess up to $10,000 in penalties. In theZimmermancase,supra, the court found that silence may constitute fraudulent concealment of material facts. However, in evaluating the broker's silence, the court applied a rule that a real estate broker is only obligated to independently substantiate the seller's statements if the broker is aware of reasons to believe those statements are false. The same rule was upheld inHarkala v. Wildwood Realty, Inc., 558 N.E.2d 195 (1st Dist. 1990) where the broker had stated that the house was in good condition and a good buy without knowledge of a latent termite infestation. There, the court found that since the broker did not know of the termites and did not have any reason to be suspicious of termites, the broker had no duty to investigate for termites. The claim against the real estate broker under the CFDPA was dismissed.


Furthermore, the License Act codified and altered the traditional agency relationship between real estate brokers and clients. The act provides redress only if a broker provides false information that he or she knew or should have known was false. 225 ILCS 455/38.20, 455/38.25. The Act further creates a duty for the broker to disclose adverse material facts about the physical condition of the property that the broker actually knows, but which could not be discovered by reasonable diligence in inspection. §38.25. These requirements are enforced in the same way as the other provisions of the Real Estate License Act, by the Office of Banks and Real Estate, so that while a broker may have his or her license affected plus a fee, there is no liability to the client.

Unauthorized Practice of Law


The Attorney Act, 705 ILCS 205/1, prohibits the unauthorized practice of law and allows for contempt sanctions and other remedies at law for the violation of the statute. InTorres v. Fiol, 441 N.E.2d 1300 (1st Dist. 1982), the appellate court held that the plaintiffs could seek damages for negligence against a non-attorney for his practice of law in a business transaction. InChicago Bar Ass'n v. Quinlan & Tyson, Inc., 214 N.E.2d 771 (1966), the Illinois Supreme Court held that in general, real estate brokers engage in the unauthorized practice of law when they fill in the blanks on deeds, mortgages, and other legal instruments. A narrow exception is when real estate brokers fill in the blanks on a standard form earnest money contract or offer to purchase contract with information the parties provide. Those exceptions were allowed because they are preliminary forms that are incidental to the broker's function and entitle the broker to a commission. However, the Court did find that a real estate broker may not fill out other forms and legal documents, no matter how routine or standardized, since a lawyer is the only person who can identify when the situation will require a greater investigation of the law.

Conclusion


While the Residential Real Estate Disclosure Act has caused a decline in the number of cases involving defects in used homes, the responsibilities brokers and sellers owe to buyers remain in effect. Brokers and sellers are well-advised to disclose conditions that will affect a buyer's decision to purchase (even if not required by the act) and to negotiate the sales price rather than face possible litigation later. Furthermore, when in doubt, brokers and sellers should be encouraged to seek advice from an attorney rather than make their own assessments of the risks involved in non-disclosure.

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