New Jersey Real Estate Law Decision Examines Duty to Disclose Defects in “As Is” Residential Real Estate Sales

New Jersey real estate law is enormously important – the purchase and sale of a home are often the largest transactions in many people’s lives.  It is fraught with risks for both buyers and sellers.

For example, let’s say you’re buying a house and you receive a disclosure form from the sellers saying that there are no problems with the house, so you buy it and, lo and behold, there are significant issues.  Do you have any recourse?  The Appellate Division addressed that question in the recent case of Rogers vs. Conti.

 

Background: The Rogers vs. Conti Case

Robert and Joyce Rogers entered into a contract to buy a home from Nora Conti.  Nora was elderly and had moved out a year before the contract was signed.  The sale was “as is.”  A year before there was a leak in a hallway bathroom.  Nora’s insurance company made a total repair of the leak and treated the home with an anti-microbial agent to prevent mold.  Nora’s son, Christopher, who was handling the sale, did not put the leak on the disclosure form.  The buyers had a home inspection conducted which did not find any issues with the house.

However, after the purchase they discovered mold behind some walls and asked to rescind the sale.  The Contis agreed and did everything possible to rescind the sale, even returning the escrow proceeds and offering to pay the broker’s commission.  However, the Rogers changed their mind and decided to proceed with ownership.

The Rogers refused to let the Contis inspect the alleged mold, and completely renovated the condition, which eliminated any evidence of the mold.  The Rogers then sued the Contis in the Superior Court of New Jersey for breach of contract and fraud.  They claimed that if the Rogers had disclosed the leak they would either have cancelled the contract or conducted a more intensive inspection.  The Rogers also claimed that the Contis had an affirmative independent duty to disclose the leak.

The Contis asked the trial judge to dismiss the case, which the judge did, finding that the Contis had not made any misrepresentations.  The Rogers appealed to the Appellate Division of the Superior Court of New Jersey.

 

The Appellate Division’s Opinion

The Appellate Division affirmed the Superior Court judge’s decision.  It reviewed the disclosure form which required disclosure of conditions “as of the date set forth below,” ie., the date the form was signed.  On the date the contract was signed, to the best of the Contis’ knowledge the leak and mold had been completely remediated and there was no issue, and thus they were not lying or trying to mislead the buyers.

Moreover, the contract said the sale was “as is” and that the Rogers were not relying on any representations by the sellers.  The Appellate Division explained that the term “as is” in a contract:

acknowledges that the purchaser is acquiring real property in its present state or condition. The term implies real property is taken with whatever faults it may possess, and that the grantor is released of any obligation to reimburse purchaser for losses or damages resulting from the condition of the property conveyed.

Further, the sellers gave the Rogers the opportunity to rescind the sale and make them whole after they discovered the mold.  The Rogers chose to go forward with the purchase even though they knew about the mold.  As the Appellate Division explained, “Buyers accepted the property with whatever faults it possessed, even after the opportunity to rescind the sale was given by the sellers.”

The principle of “as is” sales assumes, however, that the sellers have disclosed to the buyer all latent defects known to them which are not readily observable  to the buyer. However, here they were not aware of any conditions and believed that the leak and mold had been fully remediated; they were not aware of any latent defects, particularly here where the disclosure form applied only to the date it was signed.

The Appellate Division also noted that proving mold and its cause requires an expert report.  Here, the buyers’ expert report was excluded because if failed to adequately explain the basis for its opinion, and therefore was inadmissible “net opinion.”

 

The Takeaways

• Latent defects not readily observable must be disclosed if they are known by the sellers.
• “As is” means as is.
• Admissible expert opinion is necessary to prove latent defects, their causes, and when they are known.

However, this case only applies these legal doctrines to the set of facts before it.  Had the Contis known about the defect at the time they filled out the disclosure form, or had the Rogers not chosen to go forward after they knew about the mold and were offered the chance to rescind the purchase and me made whole, the case might very well have gone the other way.  This is why you need an experienced real estate lawyer when purchasing residential or commercial real estate, or when litigating after the transaction.

 

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