If you have purchased a home, you likely remember that the seller has a duty to disclose material defects. The failure to do so can constitute fraud, negligent misrepresentation or violate Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. But what exactly is a material defect? The Pennsylvania Supreme Court recently grappled with this issue in Milliken v. Janoco, a decision that failed to broaden the definition to include “psychological stigmas”.
In 2006, a man shot and killed his wife and himself inside their Philadelphia, Pennsylvania home. Seven months later, the Janoco family purchased the home at an estate auction without prior knowledge of the murder. After fixing up the house, the Janoco family sold the home nine months later to Janet Milliken. Milliken was moving back from the West Coast, where her husband had died in the family home.
The Janoco family failed to mention the murder/suicide to Milliken, who found out from neighbors shortly after settlement. Milliken quickly sued the seller and brokers involved for failing to disclose the stigma attached to the house. The suit charged the failure to disclose the murder/suicide was a violation of the Pennsylvania Statutory Disclosure Laws or common law.
After quickly dismissing the Statutory Disclosure argument, the Supreme Court had to analyze whether common law principles require disclosure of a murder/suicide, or if failure to do so constituted fraud or misrepresentation. Ms. Milliken argued that, because psychological stigmas reduce the value of the property, they should be considered material defects which would require disclosure.
The Pennsylvania Supreme Court disagreed. The Court’s opinion rested on two principles. First, the Court determined that the variety of psychological stigmas that could necessitate disclosure is endless including examples such as poisoning, rape and satanic rituals. Additionally, how long does the stigma last? 10 years? 20 years? 100 years? Setting a standard for scope and degree of psychological stigmas is simply too difficult.
Second, the Court harped on the foundation of the Disclosure requirements. The laws were enacted to inform buyers of physical defects on the property that are not readily observable or knowable to a person unfamiliar with the property. Unlike physical defects, psychological stigmas do not affect the structure itself. “The occurrence of a tragic event inside a house does not affect the quality of the real estate, which is what seller disclosure duties are intended to address.” Unfortunately for Ms. Milliken, the law and sellers are not yet required to disclose psychological stigmas attached to real estate.
Of course, methods exist to ensure that psychological stigmas are revealed. First, simply ask. Sellers under Milliken are not required to disclose psychological stigmas but may upon request. Second, the buyer can make the disclosure material by adding language to the sale agreement to that effect. If the buyer does this, the seller can be sued for fraud or misrepresentation for failure to disclose.
When buying or selling real estate, as an executor, trustee or guardian, it’s important to know your rights and protections under the law. Or, as in Milliken, what you are not protected against. The assistance of counsel experienced in real estate transactions is one way to ensure your expectations are realized.
If you need assistance with probate or with developing your Estate Plan, please call one of our Probate Lawyers or Estate Planning Attorneys for a free consultation. We have Estate Planning Attorneys in New Jersey, Pennsylvania, New York, Minnesota and Florida.
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