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In a case previously summarized in The Letter of the Law, a federal court has considered whether a buyer's allegations could proceed against a listing broker for negligent misrepresentation when the listing broker failed to disclose the presence of lead paint on the property.
Tonia Flowers ("Buyer") purchased an apartment building from George and Lenise Johnson ("Sellers"). The Sellers were represented in the transaction by ERA Unique Real Estate ("Broker") and the Buyer was represented by Eaglets Real Estate ("Buyer's Representative"). After the completion of the transaction, the Buyer discovered the presence of lead-based paint on the premises. The Buyer filed a lawsuit naming the Sellers, the Broker, and the Buyer's Representative for their failure to disclose the presence of lead-based paint on the property and also that she had received none of the lead-based paint disclosures required by the federal Residential Lead-Based Hazard Act ("Act").
In an earlier ruling in this case, the court ruled in favor of the Buyer's Representative and dismissed the allegations against it, finding that the Act did not require a buyer's broker to make lead-based paint disclosures nor did it require the buyer's broker to assure that the seller complied with the Act's provisions. Click here to read a summary of this decision. The Broker also filed a motion to dismiss the negligent misrepresentation allegations made against it, claiming that it had no knowledge of lead paint's presence on the Sellers' property and therefore had no duty to disclose its presence.
The United States District Court, Northern District of Illinois, allowed the negligent misrepresentation allegations to proceed against the Broker. To allege negligent misrepresentation under Illinois law, a party must allege that another individual owed it a legal duty, that duty was breached, and that damages arose from the breach. The court found that the Illinois real estate license laws require a real estate licensee to disclose material facts to purchasers, and also that Illinois case law has found that licensees also "occupy a position of trust with respect to purchasers with whom they are negotiating and owe a duty to exercise good faith in their dealing with such purchasers, even absent the existence of an agency relationship." Illinois cases have also found that real estate licensees can be liable for negligent misrepresentation when they fail to disclose a latent defect when they "knew or should have known" of the latent defect's existence. Looking at the legal standards in Illinois, the court found that the Buyer had sufficiently alleged that the Broker knew or should have known of the presence of lead paint on the premises creating a disclosure duty, and so the negligent misrepresentation allegations against the Broker were allowed to proceed.
Flowers v. ERA Unique Real Estate, Inc., 227 F. Supp. 2d 998 (N.D. Ill. 2002).