The Trusted Adviser
June 2011 | Volume 4 • Number 4



Disclosure; Fraud

Hizer v Holt, 937 NE2d 1 (Ind Ct App 2010).

Facts:In June 2008, the Hizers entered into an agreement with the Holts to purchase the Holts' home. Prior to closing, the Hizers had the septic system inspected and a Veterens Administration appraisal done. They did not have the home itself inspected. James Holt told the Hizers that a previous prospective buyer had an inspection done that revealed only that the water fixtures needed shut-off valves.

At the closing, the Holts completed the Sales Disclosure Form required by Indiana Code Section 32-21-5-7. On the form, the only defects the Holts disclosed were that the microwave and the ice maker on the refrigerator did not work. After the closing, the Hizers discovered several issue with the home, including a faulty irrigation system, an inoperable water holding tank inside the house, mold in the attic, a polybutal water pipe subject to recall, and a leaking crack in the basement wall. The Hizers contacted James Johnson to get a quote for curing the mold problem. Johnson happened to have inspected the home for the prospective buyers of the home before the Hizers. Johnson stated that he had disclosed the presence of the mold, provided a quote for remedying the mold, disclosed the polybutal pipe problem, and indicated the slope of the yard would funnel water towards the house.

Then, the Hizers filed a complaint against the Holts alleging the Holts had committed fraud in misrepresenting the condition of the house and breach of contract. The Holts moved to dismiss the complaint. In response, the Hizers filed a motion to convert or in the alternative a motion for partial summary judgment. The court treated the motion to dismiss as a motion for summary judgment and granted the motion in favor of the Holts. The Hizers appealed.

Holding:Reversed and remanded. On appeal, the court considered whether the Holts could be held liable for fraudulent statements made on the Sales Disclosure Form required by IC 32-21-5-7. The court considered how Indiana Code Sections 32-21-5-1 to -13 modified the common law rule ofcaveat emptorthat states that a purchaser has not right to rely upon the representations of a vendor as to the quality of the property where he has a reasonable opportunity of examining the property and judging for himself as to its qualities.

Looking at the statute itself, as well as prior case law, the court found that Indiana Code chapter 32-21-5 abrogates any interpretation of the common law that might allow sellers to make written misrepresentation with impunity regarding the items that must be disclosed to the buyer on the Sales Disclosure Form. A seller may be held liable for fraudulent misrepresentations made on the Sales Disclosure Form if the buyer can prove the seller's actual knowledge of the defect at the time the form is completed.

The court found that the Hizers presented sufficient evidence to establish a genuine issue of material fact as to the Holts actual knowledge of defects in the basement wall, the piping, the irrigation system, the water tank, and the presence of mold, all of which were listed as not defective on the Sales Disclosure Form.










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[Last update: 5-24-11]