Michigan Termite Case Could Increase Liability for Real Estate Sellers

Article

A dispute over termites before the Michigan Supreme Court could af-fect the liability of real estate sellers. When Richard and Stacey Roberts bought an old house on Michigan’s Leelanau Peninsula, they thought the home’s other tenants were gone for good. The previous owners had moved out of the house in Leland, northwest of Traverse City, but the Robertses contend the sellers left behind termites that have made the house structurally unsound.

The sellers, Robert and Joanne Saffell, did not report a history of termite infestation in their disclosure statement. But about two weeks after the 2003 sale, the Saffells gave the buyers a tip sheet noting “a million” bugs would hatch in the spring.

The Saffells said a pest company had been called in the past. There was no way to avoid the insects, but they would not last for long, the couple told the new occupants.

When the bugs showed up, the Robertses hired a pest control specialist who found they were termites. A year later, the owners filed a lawsuit against the sellers after a contractor hired to do remodeling work discovered in 2005 that the house was structurally unsound.

What the Michigan Supreme Court decides could leave sellers with more liability if something wrong is discovered after they sell a home. But it also gives buyers more protection.

In Michigan, the Seller Disclosure Act requires sellers to disclose known problems. The Saffells testified they did not know about any termite infestation.

The trial judge let the case move forward under the legal theory of “innocent representation” – when someone makes a statement he thinks is true but that is in fact false.

A Leelanau County jury awarded the Robertses $86,000 in 2006 because of the termites. But the state appeals court last year reversed on a 2-1 vote, ruling sellers must knowingly mislead buyers to be held liable.

The Saffells’ Detroit-based lawyer, Mark Bendure, says the couple lived in California and spent summers at the Leland home they had owned for 35 years. The bugs would emerge for a short time, usually when the Saffells were in California. “If we lose, it opens the door to sellers being held liable for conditions they didn’t know about,” he said. “It potentially subjects sellers to a whole new class of liability.”

The Robertses had the option of getting a pest inspection within two weeks of signing the purchase agreement but did not do so, the sellers say.

Mark Granzotto, a Royal Oak attorney for the buyers, says the trial was never about whether the sellers made an innocent mistake. The heart of the case involved whether the sellers knew about the insect infestation – which he says they did – and did not warn the buyers in time.

Jurors understood they could not hold the sellers liable unless the sellers knew the disclosure statement was false, Granzotto said. He says the “innocent misrepresentation” issue may have been mislabeled and argues the defendants waived it on appeal anyway.

The Supreme Court is expected to release its decision by the end of July. Real estate agents are following the case closely because they are the ones responsible for making sure a seller fills out a seller’s disclosure statement.

The Michigan Association of Realtors maintains that disclosure forms should not “trap” sellers who make innocent mistakes. Disclos-ure statements are not contracts and include warnings that buyers should get professional advice and an inspection to better determine a property’s condition. The buyers say the sellers knew of infestation because they had seen swarms of insects in the house in the past.