Simon PLC Attorneys & Counselors – July 2023 Memorandum
Seller’s Duties Under the Michigan Seller Disclosure Act
Troy, MI. During the pandemic, many people stayed at home, looked around the house, and decided to make some changes. Whether a “do-it-yourself” job or by a contractor, any such work impacts the homeowner’s future disclosure obligations upon selling the home.
Michigan’s Seller Disclosure Act (Act 92 of 1993) (the “Act”) requires certain disclosures in connection with transfers of residential property. On the statutory Seller Disclosure Statement (the “SDS”), the seller is instructed to “(1) Answer ALL questions. (2) Report known conditions affecting the property. (3) Attach additional pages with your signature if additional space is required. (4) Complete this form yourself. (5) If some items do not apply to your property, check NOT AVAILABLE. If you do not know the facts, check UNKNOWN.”
One of the questions on the SDS is: “Are you aware of any of the following: . . . 4. Structural modifications, alterations, or repairs made without necessary permits or licensed contractors?”
Recently our Firm spoke with a prospective client who had sold their home. During their ownership, they had contracted for a major reconfiguration of the first floor of the house. Now the buyer was demanding damages related to structural failure, supported by an engineering report and repair estimates. Unfortunately, the seller had relied on a contractor who did not obtain permits, and who removed a load-bearing wall without installing the proper compensating support. The seller had failed to disclose that structural work of any kind had been done on the house. Even though the buyer had exercised its right to an inspection, the lack of candor on the SDS brings the defective disclosure back into play. (See Titan Ins Co v Hyten, 491 Mich 547, 571-572; 817 NW2d 562 (2012) (A plaintiff may recover for fraud even if the asserted misrepresentation could have been discovered with reasonable diligence.))
Waiver of an inspection contingency, and even an “as-is” clause in the purchase agreement, does not eliminate a seller’s duty to disclose known defects and conditions. (An “as is” clause does not transfer the risk of loss where a seller makes fraudulent representations before a purchaser signs a binding agreement. Lorenzo v Noel, 206 Mich App 682, 687; 522 NW2d 724 (1994).) While innocent misrepresentation is not a cause of action under the Act, liability will arise in situations where the seller is found to have intentionally misled the buyer, whether by act or omission. Several Michigan judicial decisions have confirmed that where an item is specified for disclosure on the SDS, a seller may be liable for fraud or silent fraud if seller had personal knowledge about the item but failed to exercise “good faith” by disclosing that knowledge. (“Silent fraud is essentially the same except that it is based on a defendant suppressing a material fact that he or she was legally obligated to disclose, rather than making an affirmative misrepresentation.” Alfieri v Bertorelli, 295 Mich App 189, 193; 813 NW2d 772 (2012). “[F]or the suppression of information to constitute silent fraud there must exist a legal or equitable duty of disclosure.” Roberts v Saffell, 280 Mich App 397, 404; 760 NW2d 715 (2008), aff’d 483 Mich 1089 (2009).) In the example cited, the failure to provide information about the existence and nature of the alteration to the house arguably constitutes fraud by omission.
Note further that it is not a defense for a seller to claim that the contractor insisted that no permit was required for the work, or, as in this case, represented that the subject wall was not load-bearing. All homeowners must do their due diligence regarding the contractor’s reputation, licensing, and insurance coverages. They should check with their municipality’s building department to confirm requirements. And on the SDS, if in doubt, write it down!
Our Firm is ready to advise you when entering into an agreement for services with a contractor and when selling your home.
N.B. Not Legal Advice: Please contact us if you would like to discuss the facts and circumstances of your specific matter. Simon PLC Attorneys & Counselors expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this memorandum. The information contained herein may not reflect current legal developments and is provided without any knowledge as to the recipient’s location, industry, identity or specific circumstances. No recipients of this content, clients or otherwise, should act, or refrain from acting, on the basis of any content included in this memorandum without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the jurisdiction for which the recipient’s legal issue(s) involve. The application and impact of relevant laws varies from jurisdiction to jurisdiction, and our attorneys do not seek to practice law in states, territories and foreign countries where they are not properly authorized to do so.