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On-Demand Seminars | Posted 04/05/21

Seller Disclosure Statement Disputes and Resolutions

John B. Swift, II

Michigan State Housing Development Authority

Lansing

Deborah S. Lapin

Maddin Hauser Roth & Heller PC

Southfield

Matthew John Turchyn

Hertz Schram PC

Bloomfield Hills

Video: Initial Review

>> Hello, my name is John Swift from ICLE. With me today are Deb Lapin from Maddin Hauser, Roth & Heller in Southfield and Matthew Turchyn from Hertz Schram in Bloomfield Hills. Thank you both for being here. Seller disclosure statements are a relatively routine part of most residential transactions, but can also be the linchpin of litigation when a buyer feels they're misled about a purchase. What are some of the common mistakes sellers make? >> Well, I think the key is you just have to be honest. The good thing about the Seller Disclosure Act, it only requires the seller to disclose, and I'm going to quote, ''the knowledge and information known at the time of the signing of the document," which really isn't a high standard. And the statute always requires that the disclosures be made in good faith and "honesty, in fact" at the time of the transaction. I would say the rule of thumb is don't be cute and just be honest. If you don't know something about a condition of the property or the appliance, say that. I guess the other side of the coin is if you do have an inkling about something, that could be an issue, definitely be honest about it. Don't try to hide it because it could come back to bite you in the end. One thing that I would say to be honest about is if you don't have really a direct connection to the property. And the perfect example would be the child of a deceased parent, Maybe selling the parent's property. And the child has not lived at the property in several years. Make sure that that is on the form. And there are places on there to disclose that, but you can qualify your responses based on information like that so don't hesitate to do it. One other thing I would suggest that a seller do is check with the city or the town to see if they have separate disclosures because the statute does direct that. MCL 565.959 tells the seller that there may be additional disclosures to complete that would be required by a town or a city so check on that. Obviously read everything before you sign it. And it does behoove a seller to get legal help if they're not sure of something. But again, honesty is the best policy. I know Matthew is going to cover breaches or causes of action in the next section, but I'd say this: the form itself, I think, can't really be a standalone claim or cause of action for breach of contract. But it can really be significant in the linchpin of a fraud claim against the seller. Many people say, "oh, I can't get sued based on the document." You can indirectly still be sued based on that document. And it could be exhibit 1 of any fraud claim that would be brought against you. So be honest and just make sure that it's done correctly because again, it could cause problems down the road if it's not properly executed. >> Matt, what should practitioners be looking for if a new case involving one of these comes across their desk? >> Really it's a lot like any other civil case involving a contract or tort claim. You always want to be thinking about what are your damages? What are your causes of action? Then also, what evidence do you have, what are your proofs? With the damages, you're going to need to be able to prove damages, to prove a fraud claim, which is going to be your primary claim, as I'll talk about in a little bit. You want to make sure you have them in the first place, and you also just want to make sure that the case is worth pursuing obviously. As to the causes of action, they're surprisingly limited. As Deb mentioned, there's a Seller Disclosure Act. There's no private right of action under that act though. You can't bring a lawsuit just based on that act. You need bring a fraud claim an innocent misrepresentation claim, a silent fraud claim, or something else like that. The thing that you need to think about, what that too is that you need clear and convincing evidence to prove any of those claims. So they can be difficult. You want to make sure you have your proofs lined up. >> Okay. Sounds good. Thank you.

I. Summary

§1.1 Seller disclosure statements (SDSs) are a relatively routine part of most residential transactions but can also be the lynchpin of litigation when a buyer feels they were misled about a purchase. In this virtual seminar, Deborah Lapin and Matthew Turchyn explain how to evaluate the merits of a new case and pursue litigation, mediation, or other remedies.

II. Video Contents

§1.2 Segment 1—Initial Review

SDSs in Michigan are governed by the Seller Disclosure Act, MCL 565.951 et seq. Sellers will generally complete these forms without the benefit of an attorney. What are some common mistakes sellers make?
What should practitioners be looking for when reviewing a new case involving a dispute over an SDS?

Segment 2—Evidentiary Issues

One of the challenges in bringing an SDS case is that of proof, showing that a seller knowingly failed to disclose a defect with the property. What sort of evidence is likely to be persuasive in this type of case, and how hard is it to come by?
If there has been an effort to conceal a defect, a buyer may not discover a problem with the property. How does the six-year statute of limitations figure into that?

Segment 3—Damages and Remedies

Even if a seller knowingly conceals a defect on a property, the actual amount of damages may not warrant pursuing the matter. What sort of case would be worth pursuing? Is rescinding the sale ever an option?
What are some other options for resolving these cases that don’t involve going to court?

Segment 4—Third Parties

Most residential transactions involve lenders, inspectors, real estate agents, and even homeowner’s insurance carriers. Do these third parties ever get pulled into this type of dispute following a transaction?
Any tips for attorneys in working with these third parties to craft a resolution for their clients?

III. Relevant Caselaw

§1.3

Boyle v GMC, 468 Mich 226, 661 NW2d 557 (2003), discusses the running of the statute of limitations for fraud claims.
Roberts v Saffell, 280 Mich App 397, 760 NW2d 715 (2008); Pena v Ellis, No 257840 (Mich Ct App Apr 18, 2006) (unpublished); and Locher v Estate of Zimmerman, No 346566 (Mich Ct App Feb 18, 2020) (unpublished), discuss no private right of action to bring a civil suit under the Seller Disclosure Act.
In Flynn v Korneffel, 451 Mich 186, 199, 547 NW2d 249 (1996), a fraud claim also has its limitations because it must be proven by clear and convincing evidence.
In Haines v Maple Island Estates, Inc, No 285849 (Mich Ct App Dec 3, 2009) (unpublished), innocent misrepresentation also has challenges because the representation must be made in connection with a contract, and an SDS is technically separate from a purchase agreement.