Legal Case Studies March 2013


March 2013 | D.R. Legal News

Legal Case Studies

Compiled by IAR Legal Counsel 

Pennsylvania Court holds that real estate agent has no duty to disclose that there has been a murder on the property. 2012 WL 6684757 (Pa. Super. Ct. December 2012. Both the Seller and Buyer were represented by real estate agents. Buyer in this case had purchased the home through an auction from the Koumboulis estate. Koumboulis had allegedly shot his wife and then committed suicide on the property. Prior to the Seller listing the property for sale, Seller spoke with representatives of the Pennsylvania Real Estate Commission about whether the murder/suicide had to be disclosed to Buyers. The Pennsylvania Real Estate Commission told the Seller that this was not a material defect that needed to be disclosed. The Pennsylvania Association of REALTORS® legal concurred. The Buyers, who were represented by a Seller’s agent, purchased the property in June 2007. The Seller Property Disclosure Statement that was completed by the Seller did not disclose the murder/suicide as a known material defect. Three weeks after the Buyer moved into the property, she learned about the murder/suicide that had taken place in the home. The Buyer then sued the Seller, the listing agent, and her own Buyer’s agent. She asserted that the murder/suicide was a “material defect” which had to be disclosed because the murder/suicide had a significant adverse impact on the value of the property. She also sued for fraud because of the intentional concealment and nondisclosure of the murder/suicide. Buyer also sued on the grounds of negligent misrepresentation and for violation of the State Unfair Trade Practices and Consumer Protection Law. At the Trial Court level, the Court granted summary judgment in favor of the Defendant-Seller and real estate brokers. The Buyer then appealed.

The Buyer argued that the murder/suicide qualified as a material defect as that term is defined under the Real Estate Seller Disclosure Law. Material defect is defined as “A problem with a residential real property or any portion of it that would have a significant adverse impact on the value of the property or that involves an unreasonable risk to people on the property. The fact that a structural element, system or subsystem is near, or at the end of the normal useful life of such a structural element, system or subsystem is not by itself a material defect.”  The Court, however, looked at the examples of items that the Seller Disclosure Law identified as “material defects,” which included things such as the condition of the roof, basements and crawl spaces, presence of termites, wood destroying insects, structural problems, water and sewage systems, plumbing system, heating and air conditioning, electrical system and the condition of equipment and appliances that are included in the sale. In looking at the law and then the examples of the types of items that must be disclosed, the Court determined that the intent of the law was to disclose only physical defects on the property and not “psychological damage to a property.”  The Buyer argued that if the legislature had intended to exclude psychological damage, it would have done so in the statute. The Court, however, that there was such a difference between physical damage and psychological damage that the legislature did not have to make a statutory statement that psychological damage was to be excluded. The Court noted that if the legislature had intended that psychological damage be something that had to be disclosed, problems would be created. For instance, how recent must the murder be that the Seller must inform the Buyer? What if the murder happened 100 years ago? What if numerous owners had lived in the house in the interim?  The Court pointed out that the passage of time will heal psychological defects as the memories of persons fade, which is substantially different from physical defects which the passing of time itself will not fix. The Court also found that it would be difficult to place a monetary value to a psychological damage to a house caused by murder. The psychological defects would have a greatly varying impact from person to person. The Court also found difficulty of whether or not psychological damage would include only murder, or would it be that all crimes on the property would have to be revealed including burglaries and other crimes. The result reached in this Pennsylvania case would be the same result had the case been in Illinois. The Illinois law only requires disclosure of physical defects to the property as well.

Illinois Supreme Court reverses ruling in case previously reported regarding powers of Homeowners’ Association and Association security officer. Poris v. Lake Holiday Property Owners’ Association, 213 IL 113907 (January 25, 2013). Legal Case Studies first covered this case when the Appellate Court ruled that a Homeowners’ Association did not have the authority to set speed limits and that security officers hired directly by the Association, as Association employees did not have authority to stop speeding cars and issue a citation for violation of the property owners’ Association speed limit. Additionally, the original Plaintiff who was stopped by the security officer the Court believed had been unlawfully held by the Association thus giving rise to a false imprisonment claim. On appeal to the Illinois Supreme Court, the Illinois Supreme Court reversed the Appellate Court. The Court held the Association was within its authority to establish and enforce speed limits on Association property. The Court also said that security officers were not attempting to unlawfully assert police powers in issuing the traffic citations. The Court held that because the security officer was only trying to enforce an Association rule, the security officer was not attempting to unlawfully assert police powers when the officers stopped the owner of a home in the development for speeding on a street within the development. Although the Appellate Court believed that amber oscillating lights on the security vehicle were improper, the Supreme Court disagreed and did not find a problem with the amber oscillating lights. As to the false imprisonment claim, the Court held that a cause of action for false imprisonment required that the Plaintiff was restrained or arrested by the security officer and that the officer acted without reasonable grounds to believe that an offense was committed by the Plaintiff. The Court stated that the elements of false imprisonment were not met because the security officer had clocked the homeowner traveling at 34 miles per hour in a 25 mile per hour zone as established by Association rule. This gave the security officer probable cause to stop the driver for an Association violation. Probable cause is an absolute bar to a claim of false imprisonment. Therefore, the false imprisonment claim failed. The Court looked at the Illinois Vehicle Code (625 ILCS 5/11-209.1) which stated in part:

(a)  Any person or board of directors owning, operating or representing a residential subdivision, development, apartment house or apartment project, containing a minimum of 10 apartments or single family residences may file written request with the appropriate local authority wherein such property is situated requesting their law enforcement agency enforce the provision of this Code [Illinois Vehicle Code] on all private streets or roads open to or used by the tenants, owners, employees or the public for the purposes of vehicular traffic by permission of such person or board of directors and not as a matter of public right.

The Homeowners’ Association’s request that local authorities enforce its speed limit, by statute, does not prevent local authorities with respect to streets and highway under their jurisdiction from altering speed limits. Thus, the Association had the right to enforce its own traffic rules and issue tickets for violation of the Association’s rules and regulations as a security officer acting to enforce the Association rules and regulations; they were not attempting to unlawfully assert police powers. The Court ruled that even though the Plaintiff’s speeding was not an offense that was a felony or misdemeanor, the violation of the Association’s rules and regulations gave the Association’s security officer the power to enforce those rules and regulations. The circumstances were such that it gave the officer a strong and honest suspicion that Plaintiff was guilty of violating Association rules. Therefore, the security officer had probable cause to believe that an offense was committed by Plaintiff, which was an absolute bar to his claim of false imprisonment.

Condominium resident who is being evicted for failure to pay assessments could raise as an affirmative defense to the eviction that the Association had breached its duty to repair common areas of the building. Spanish Court Two Condominium Association v. Carlson, 2012 Ill.App (2d), 110473 (November 9, 2012). A condominium board of managers sued a resident owner for possession for failure to pay repair and maintenance assessments. The resident raised as a defense to the eviction that the Condominium Association had failed to make repairs to a brick façade and leakage problems which the resident claimed caused damage to her unit. The trial court ruled that the resident could not raise failure to repair and maintain as an affirmative defense in the condo association’s forcible entry and detainer action. In a case of first impression on this issue, the appellate court reversed and held that if the condominium association failed to properly maintain and repair the property, which is the purpose for the condominium assessments, then the resident could raise such failure as an affirmative defense. The case was sent back to the trial court for rehearing consistent with the appellate court’s ruling.

Illinois appellate court upholds judicial sale of half-interest in property that yielded one-tenth of appraisal. NAB Bank v. LaSalle Bank, N.A., 2013 IL App (1st) 121147. A couple (the “Toms”) obtained a summary judgment against Adeline over an old dispute. Afterward, Adeline and her husband quitclaimed their home, which they had owned for 30 years, to themselves as tenants by the entirety. Because a tenancy by the entirety protects an “innocent spouse” against having his or her homestead property sold to satisfy the debts of the other spouse, that ploy successfully prevented the Toms from enforcing their judgment against Adeline’s share of the residence. The Toms, however, were able to have the quitclaim deed set aside as fraudulent. They then proceeded to pursue their judgment through a levy sale of Adeline’s one-half interest in the property, which was appraised at $120,000. As the only bidders, the Toms’ bid of $20,000 was successful. Adeline’s husband, now a widower, asked the court to set aside the sale because the terms were unconscionable and otherwise unjust. The court upheld the sale, holding that inadequacy of a sale price was insufficient, standing alone, to deny confirmation of a judicial sale. The court noted that it would be unusual for property to bring its full, fair market value at a forced sale and that in this case the price of a one-half interest in residential property, along with the additional costs and delays the purchasers would incur in dealing with Adeline’s widower who still resided in the house, would be severely depressed. The fair sale price could not be determined merely by dividing an appraisal in two:  auctions yield a “real price” and appraisals are “just forecasts.”

Condo owner’s suit to regain possession from association is limited by statute. Gotham Lots Condominium Association v. Kaider, 2013 IL App (1st) 120400. A condominium association won a judgment of possession for defendant’s unit due to failure to pay association assessments. Defendant later filed a motion to vacate the judgment of possession, alleging that his debts had been satisfied because the association had rented out his unit. The court noted that taking possession of a condominium unit is a powerful remedy against owners who fail to pay assessments. Under the statute governing condominiums, the association may choose to lease property over which it has gained possession, but it must apply all rental income to the owner’s account. When all outstanding assessments, attorney fees, and court costs have been satisfied, the owner is entitled to any surplus in the rent received and may regain possession of the property at the end of the lease term. In this case, there was no evidentiary hearing and no evidence as to whether there had been a tenant or how much rent had been collected, if any. The court held that the burden of proof was on the party seeking to regain possession and that a proceeding to regain possession under the condo statute must be limited to two factual questions:  (1) whether the default in payment of assessments had been cured, and (2) whether the unit was currently leased to a tenant. When the evidence needed to answer these two question was solely in possession of the condominium association, the litigation tools of discovery were available to the owner. However, if the owner wanted to allege that the association was negligent in leasing or collecting rent from a tenant in his unit, he had to bring a separate tort action; that issue could not be decided under this limited proceeding to regain possession. 