(March 4, 2015) Historically, Michigan courts have been reluctant to impose upon listing brokers a duty of disclosure to purchasers of real estate. However, two recent decisions by the Michigan Court of Appeals illustrate important exceptions to the general rule that listing brokers do not have a duty of disclosure to buyers. Each case involved a listing broker’s failure to disclose environmental contamination.
In Bowman v. Green, the broker was marketing a condominium unit located at a contaminated former factory site. Despite extensive marketing materials indicating otherwise, the property was not fully remediated. The plaintiffs questioned the broker about the possibility of continuing contamination, but were assured that there were no environmental issues with the property, which was further supported by the seller’s disclosure statement. The plaintiffs purchased the property without an independent inspection.
The plaintiffs later learned that the property was contaminated, and filed suit against the seller and the listing broker. The broker’s case proceeded to trial, where the jury awarded the plaintiffs emotional and economic damages in excess of $400,000. The broker appealed, but the Court of Appeals rejected all of the broker’s arguments. The Court decided that because the broker made false representations about the property, the plaintiffs had no duty to uncover additional evidence, despite having the means to do so. Additionally, the appellate court confirmed that the broker could be held liable under the Seller’s Disclosure Act., based on evidence that the broker acted in concert with the seller to conceal the contamination.
The Court of Appeals reached a similar conclusion in Alfieri v. Bertorelli. The Court held that although Michigan law does not impose on listing agents a duty per se of disclosure to buyers, such a duty may be imposed where a listing agent has acquired new information that renders a prior affirmative statement untrue or misleading. Like Bowman, Alfieri also involved the sale of a condominium located on contaminated property. The listing salesperson had prepared a marketing brochure indicating that the property had been cleaned up, and the buyer had made direct inquires to the listing agent about the environmental condition of the property. The Alfieri Court noted that a duty to disclose may arise solely because a buyer expresses particular concerns or makes direct inquiries of the listing broker and seller about the issue. Of particular concern to brokers and salespersons, it appears that the sales brochure was prepared by the listing agent based on information obtained from the client.
Thus, in Michigan the general rule remains that a listing broker need not disclose property defects to the purchaser, and is not liable for the seller’s misrepresentations about the property. However, Bowman and Alfieri serve as a reminder that once a broker has actual knowledge that prior representations were false or misleading, the broker has an obligation to correct or clarify the misstatements or risk being held liable for fraud. This is particularly true if the purchaser has specifically asked the broker about a particular issue.
In our experience, listing brokers and salespersons may expose themselves to potential claims by disgruntled buyers in the following circumstances:
- Where the broker acts in concert with a seller to conceal a property defect.
- Where the broker knowingly makes a false statement to a buyer, or makes a statement to a buyer without knowing whether it is true or false.
- Where the broker makes a statement to a buyer and later learns that the statement was false or misleading.
For more information or assistance regarding duties of disclosure in connection with sale of property, contact an attorney in the Rhoades McKee Real Estate Team.