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Berger-Vespa v. Rondack Bldg. Inspectors, Inc.: Court Dismisses Fraud Lawsuit against Broker

A New York court has considered a buyer's lawsuit against a real estate licensee, acting as a fully-disclosed dual agent, for comments that the licensee made about the structural soundness of a house that the buyer ultimately purchased.

Susan Berger-Vespa and Marion H. Berger ("Buyers") entered into an agreement to purchase property with Harold Garrett and David R. Dolen ("Sellers"). The Sellers' home was listed for sale with Coldwell Banker Prime Properties, Inc. ("Brokerage") through its representative, broker Margaret M. Bryant ("Broker"). The Buyers agreed to have the Broker serve as a dual agent in this transaction, meaning that the Broker would represent both the Buyers and Sellers. The parties executed the appropriate disclosure forms. On the dual agency disclosure form, a disclaimer paragraph stated that the Broker was not "advising on legal, engineering, surveying, water quantity or quality, the existence of insect infestation, structural condition, or other technical matters", but would provide information on how to obtain experts in these areas upon request.

The purchase agreement between the Buyers and Sellers contained a disclaimer that the property was being sold "as is." The purchase agreement gave the Buyers the right to conduct a series of inspections, including an inspection, at the Buyers' expense, where the "inspector" (which could be an architect, engineer, or "other qualified person") would certify that the home was free from any significant defects. The Buyers retained Rondack Building Inspectors, Inc. ("Inspector") to perform the inspection in accordance with the purchase contract provision. The Inspector's contract contained a number of disclaimers. The Broker testified that the Inspector was one of three inspection companies on a list that she had provided to the Buyers.

The Broker and one of the Buyers, Ms. Berger-Vespa, were present during the inspection. When Berger-Vespa inquired about the mildew smell, water spots on the ceiling, and other water-intrusion signs she noticed in the property's basement, the Broker allegedly stated that the basement must now be dry because the Sellers would not have recently spent money to refinish the basement. When Vespa-Berger asked the Broker and the Inspector on how to mitigate future water intrusions, both responded that she could regrade the property around the foundation. The Inspector's report noted signs of minor water seepage in the basement and recommended regrading to help control the problem.

Following the closing, the Buyers experienced flooding in the basement of the property, which they alleged continued to occur several times during the course of a year. Eventually, they brought a lawsuit against the Sellers, Broker, Brokerage, and the Inspector, seeking to undue the sale contract as well as recover damages. The trial court dismissed the Buyers' lawsuit, and the Buyers appealed.

The New York Supreme Court, Appellate Division, Third Department, affirmed the rulings of the trial court. The court first considered the Buyers' fraud allegations. To allege fraud, the Buyers would need to show that another party made a false representation of material fact with knowledge of the statement's falsity or reckless disregard for the truth, with the purpose of inducing the Buyers to act in reliance on the statement, and where the Buyers justifiably relied upon the misrepresentation and acted upon it, thereby suffering damage. The court found that the Buyers were unable to claim "justifiable reliance" because Vespa-Berger's own testimony was that she had noticed the prior water intrusions on the property prior to purchasing the property. Further, the court found that the disclaimers contained both in the purchase agreement as well as in the dual agency disclosure form further supported the conclusion that the Buyers were not justified in relying upon any of the alleged misrepresentations made by the parties.

Next, the court considered the negligent misrepresentation claims made against the Broker and the Brokerage. In order to allege negligent misrepresentation, the Buyers would need to show that the Broker had a special duty to give the Buyers correct information about the property and proceeded to give the Buyers false or incorrect information about the condition of the basement. The court found that there was no evidence to support the conclusion that the Broker had knowledge of any prior flooding problem, and so the court ruled there no was no support for the Buyers' negligent misrepresentation allegations against the Broker and the Brokerage.

The court also dismissed the claims against the Sellers and the Inspector. The court ruled that the Inspector's report and Vespa-Berger's own observations of prior water damage precluded her from making allegations against the Sellers. The court found that there was no evidence that the Inspector had used any type of unlawful sales tactics so as to establish a "contract of adhesion" with a consumer, and so the court held that the agreement and its disclaimers were enforceable. Thus, the court affirmed the trial court's dismissal of the Buyers' lawsuit.

Berger-Vespa v. Rondack Bldg. Inspectors, Inc., 740 N.Y.S.2d 504 (N.Y. App. Div. 2002).