Can a "psychological defect," such as a murder-suicide occurring in a home, be considered a material defect that needs to be disclosed before a real estate transaction?
According to plaintiffs attorney Timothy Rayne of MacElree Harvey in Kennett Square, the issue should at least be put to a jury.
Mr. Rayne argued that point before the state Supreme Court during its oral argument session last month in Harrisburg. His client, Janet S. Milliken, is a homeowner pursuing claims of fraud, negligent misrepresentation and Unfair Trade Practices and Consumer Protection violations that were tossed from a Delaware County trial court on summary judgment.
Ms. Milliken had bought a home where a murder-suicide had occurred, and neither the sellers, Kathleen and Joseph Jacono, nor the broker, Re/Max, disclosed the event.
"To pretend that psychological things don't affect value just isn't living in reality," Mr. Rayne said. "Is it fair to profit if you don't disclose the bad things?"
In November 2011, a split three-judge panel of the Superior Court ruled that a jury should decide whether the sellers of the $610,000 home had a duty to tell Ms. Milliken about the murder-suicide.
However, a divided en banc panel reversed the ruling in December 2012, holding that a murder-suicide does not constitute a material defect to real estate requiring disclosure under the Real Estate Seller Disclosure Law.
For Mr. Rayne, a material issue of fact existed with regard to the fraud claim, particularly because of the broad disclosure form the defendants used in the transaction, which he said promised to disclose any material defect.
If there was evidence, such as an expert report, that an event affected the home value and would impact a reasonable buyer's decision to purchase the home, the issue should go to a jury, Mr. Rayne argued.
Justice Max Baer asked where the line should be drawn for determining the "defects," and gave the examples of former owners being homosexual or having AIDS as facts that some potential home buyers might find dissuasive.
Justice Debra M. Todd said the brokers did not actually conceal anything because the murder-suicide and the price for which the Jaconos originally purchased the home were public knowledge.
Abraham C. Reich of Fox Rothschild, counsel for Re/Max and its agents, said the buyers are required to perform their own due diligence to investigate the home prior to the purchase.
"The question is, 'Where is the duty?' " Mr. Reich said. "A murder-suicide which is publicly known is not a material defect."
According to Mr. Reich, the brokers had no duty to disclose the event, which had occurred several years before the purchase. Mr. Reich said the disclosure regulations in the Real Estate Seller Disclosure Act come from the common law rules of caveat emptor, which is Latin for buyer beware, and that brokers are only required to disclose serious and dangerous latent defects.
The defendants followed the letter of the law, Mr. Reich argued, and it was not "analytically possible" to conclude that his clients committed fraud.
"If it is material to a buyer, put it to a contract," he said.
Justice J. Michael Eakin, however, suggested that Mr. Reich's claims could be too onerous for a potential buyer.
"Is there supposed to be a laundry list of things they have to ask?" he said. "Some things are so fundamental. ... I shouldn't have to ask."
Justice Correale F. Stevens asked whether the question of what needed to be disclosed was prematurely before the court, and asked if the issue should more properly be taken up by the General Assembly.
Counsel for the Jaconos, J. Scott Watson of Glen Mills, Pa., said it was a matter for the Legislature, and claimed that when the California courts found that sellers and brokers need to disclose material defects, they had no guidance and did not know what facts needed to be disclosed. This led the state to pass laws clarifying that a murder that occurred within three years is required to be disclosed.
Mr. Rayne argued that his client, who was living in California while the Pennsylvania home was being purchased, was the "perfect mark" because she was unable to talk with the neighbors, who had eventually disclosed the home's gruesome history, before making the purchase.
"Couldn't this 'perfect mark' have looked this up on Google?" Chief Justice Ronald D. Castille asked.
Max Mitchell: firstname.lastname@example.org or 215-557-2354. Read more articles like this at www.thelegalintelligencer.com.