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Stebbins v. Wells: Rhode Island Court Sets Forth Disclosure Obligations of Real Estate Professionals

In a case previously summarized in The Letter of the Law, Rhode Island's highest court has set forth when a real estate licensee may be liable for nondisclosure of a property defect. Click here to read the earlier decisions.

To summarize the facts, Thomas Stebbins ("Buyer") retained Miriam Scott ("Buyer's Representative") to act as his representative in finding a summer/retirement home in Little Compton, Rhode Island. During his search, the Buyer rejected an oceanfront property shown to him by the Buyer's Representative because he was concerned about that property's potential for soil erosion problems. Eventually, the Buyer purchased a brackish riverfront property not far from the Atlantic Ocean. The sales contract stated that the property was being sold "as is," and, prior to closing, the Buyer viewed the property personally and also had three professional inspections performed on the property. The Buyer's Representative had owned this property previously, having sold the property to the seller, Melinda Blauvelt Wells ("Seller"). The Seller was represented in this transaction by Deborah Kubik of Country & Coastal Property ("Listing Broker").

Upon taking possession of the property, the Buyer learned from the Seller's handyman that the Seller had removed foliage from the property which had increased the rate of soil erosion caused by the river, and that the property had experienced ten feet of soil erosion in the past ten years. The Buyer filed a multicount lawsuit against the Buyer's Representative, Listing Broker, and the Seller alleging violations of the state's property condition disclosure law, fraud, breach of contract, negligence, and deceptive trade practices. The trial court entered judgment in favor of the Buyer's Representative and Seller, and the Buyer appealed. The Supreme Court of Rhode Island reversed the trial court and sent the case back to the trial court for further proceedings on whether the state's property condition disclosure statute required the disclosure of the alleged erosion problem. On remand, the trial court concluded that the state's property condition disclosure statute did not apply to real estate licensees, and so the court entered judgment in favor of both the Buyer's Representative and the Listing Broker. The Buyer appealed.

The Supreme Court of Rhode Island affirmed the rulings of the trial court but again remanded the case to the trial court for further proceedings. The court found that the trial court had improperly limited its review to whether the Buyer's Representative and Listing Broker were liable to the Buyer under the state's property condition disclosure law. The court stated that the trial court needed to broaden its review to include the other allegations raised by the Buyer in its lawsuit.

The court first considered the potential liability for the real estate professionals under the state's property condition disclosure laws. The court examined the property condition disclosure statute, and found that the law provided for damages of $100 for each violation by "seller and/or his or her agent". The statute did not provide any additional remedies to buyers, and thus the court ruled that it was inappropriate for the Buyer to maintain a private suit for other damages based on the state's property condition disclosure. Thus, the court affirmed the trial court's ruling in favor of the Buyer's Representative and Listing Broker on those allegations.

However, the court stated that the trial court should have also considered the Buyer's allegations against the real estate professionals for negligence, negligent omission, and breach of fiduciary duty. The court found that while the property condition disclosure law protected a real estate professional from lawsuits over condition on the property that the real estate professional did not have knowledge, it did not protect the real estate professional from making an inaccurate disclosure or from failing to disclose facts when he or she "has special knowledge not apparent to the buyer and is aware that the buyer is acting under a misapprehension as to facts which would be important to the buyer and would probably affect [the buyer's] decision." Thus, the court stated that the trial court needed to consider whether the Listing Broker or the Buyer's Representative failed to make such disclosures to the Buyer. If such a breach occurred, then the real estate professionals could be liable to the Buyer. Thus, the court sent the case back to the trial court for further proceedings.

Stebbins v. Wells, 818 A.2d 711 (R.I. 2003).