November 20th - 2014

Legal Beat: Deception over fire leads to lawsuit

One of the buyers of a property had respiratory problems. Before making a purchase, the buyers instructed their real estate representative to ask whether a fire had ever occurred in that house.

Mervin Burgard Q.C.

by Mervin Burgard 

One of the buyers of a property had respiratory problems. Before making a purchase, the buyers instructed their real estate representative to ask whether a fire had ever occurred in that house. The buyer rep reported back that, according to the seller’s rep, there had never been a fire or smoke damage at the property.

After taking possession of the home, the new owners were told by a neighbour that a fire had indeed occurred there. The sellers had received a cash settlement to fix the damage.

The buyers then sued the REALTORS®, appraisers and home inspector for negligence. The buyers also sued the sellers for fraudulent misrepresentation, arguing that they knowingly lied about the fire and smoke damage.

In turn, the sellers sued their insurance company to recover money. A legal dispute over the nature of their insurance coverage ensued. In this case, their policy stated that they were covered for “all sums which you become legally liable to pay as compensatory damages because of unintentional bodily injury or property damage”.

In his ruling, the judge stated that the seller had lied about the fire in order to facilitate a sale. “At its heart, the claim … is about deceit”. Therefore, he ruled that the claim was beyond the scope of this policy and the insurance company did not have to provide coverage for these home owners.

Shad v TD insurance 2013 ONSC 1325

MERV’S  COMMENTS

Mervin Burgard Q.C.

I wonder whether the sellers completed an OREA Seller Property Information Statement (SPIS) Form 220 and how they answered the following question: “Have you made any renovations, additions or improvements to the property?” Did they provide further information under “additional comments”?

Why do sellers lie about their property?  Do buyers or their REALTORS® knock on the neighbours’ doors to ask about their concerns? Whether an SPIS exists or not, do neighbours usually know about fires, drug houses, deaths, etc.? Will they tell buyers before they do a deal or after the deal is closed? Should a buyer rep rely on a listing rep?

Legal actions against sellers and their real estate representatives will continue. Many sellers are sued for failing to disclose material facts. The usual arguments focus on latent and patent defects and representations. As this case shows, deliberate fraudulent misrepresentation amounting to deceit will override other arguments. Buyers should ask specific questions, as these buyers did. Sellers should answer honestly, or they will pay for their lies. Many may look to their home insurance company for coverage only to find exclusions such as in this policy. What does your policy say?

Mervin Burgard, Q.C.

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