Dooley Real Estate

The Law of Unintended Consequences

It’s been over ten years since the Connecticut legislature adopted a law (Sec. 20-327b-1) requiring sellers of residential property to provide what is known as a Property Condition Disclosure Report. The form asks the homeowner the age of the structure, how long they’ve occupied it, and whether they’ve experienced problems with, among other things, the roof, the foundation, the heating system, and so on. The questions intended to elicit information about problems can be answered by marking “yes” (problems have been experienced), “no” (no problems have occurred), or “unknown” (the seller is unaware or any problems but is not in a position to represent that none exist). In cases where the seller indicates that a problem exists (a leaking roof, for example), he or she is asked to describe the extent of the problem. Most attorneys and real estate brokers advise their clients to fill out the form carefully and honestly in the belief that their clients cannot subsequently be held liable if they have fully disclosed what they know about their property.

The Property Condition Disclosure Report was intended to protect prospective purchasers of property from making formal offers and undertaking the expense of hiring a building inspector for properties with known defects—defects that would have caused them not to make an offer in the first place had they known of them. The issue of paying a building inspector to discover what could have been disclosed is the basis for the penalty imposed on sellers who don’t provide the report (a $300 credit at closing—the approximate amount that building inspections cost a decade ago). Most of us in the business have assumed that sellers have very little liability in providing honest disclosure reports. That assumption has been called into question by a recent Superior Court case.

In Hull v. Fonck a Bridgeport jury awarded damages in the amount of $44,200 to the plaintiff on the basis of “innocent misrepresentation” contained in the Property Condition Disclosure Report over two years after the plaintiff had purchased the house. The facts of the case are as follows: The defendant purchased the house in 1968. At the time there was a crack in the basement foundation wall and across the adjoining slab. Four or five years later, the defendant finished the basement, covering the cracks in the process. The plaintiff purchased the house in 2003 after having commissioned a building inspection which noted “typical settlement cracks (were) found at the front and real foundation walls” and went on to recommend that these “be kept sealed and monitored for any future movement.” The inspector’s report also noted, “It appears that there has been some settlement to the house along the right side, as the last 10 or 12 feet of the structure do tend to settle away from the structure.”

In 2005, approximately two years after purchasing the house, the plaintiff experienced flooding in the basement and discovered the covered cracking in his attempt to cure the water problem. It was subsequently determined that the original builder (who was not a defendant) had constructed the house on inadequate fill and that the house was breaking apart due to settling along the original crack lines. There was no conclusive testimony as to the severity of the cracks at the time they were covered up by the basement finishing. The seller’s answer of “unknown” to the question about basement/foundation problems became an expensive oversight.

While this case is unusual in that the condition that became the basis for the plaintiff’s claim was essentially undiscoverable in the course of the buyer’s building inspection (because of the basement finishing), it stands as a cautionary message to sellers, their brokers and their attorneys that the representations made on the disclosure report can survive the closing and that the Property Condition Disclosure Report should not be treated casually in the process of listing a house.

(Note: We are grateful to Attorney Stuyvesant Bearns of Shipman & Goodwin for bringing this case to our attention.)