Caveat Venditor (Let the Seller Beware?)

A residential real estate contract has a Disclosure Statement, which states in substance that the Seller does not make any representations or warranties concerning the property condition, and that the Buyers will acquire the property in “as-is” condition.   This should cover the Seller as to any property defects, right? Not necessarily.   The Virginia Supreme Court recently ruled that a seller’s concealment of a defect in the property was grounds for rescission of the real estate contract despite language in the contract that stated that the property was sold “as is”. As reported in the January 19, 2015 edition of the Virginia Lawyers Weekly, the Virginia Supreme Court in Devine v. Buki, et al., (Record No. 140301, January 8, 2015), in part upheld a finding of fraudulent inducement to perform the contract by the Northumberland County Circuit Court and an award of rescission of the contract to the purchasers. If a party conceals a fact that is material to the transaction, knowing that the other party is acting on the assumption that no such fact exists, the concealment is as much a fraud as if the existence of the fact were expressly denied, or the reverse of it expressly stated. The parties to the case entered into a real estate contract for the sale of a 200-year old house that the seller had purportedly fully restored. The contract contained a “Disclosure Statement” which stated that the owners made no representations or warranties as to the condition of the property and that the property was to be conveyed “as is” with all defects which may exist. Following the closing on the transaction, the purchasers discovered that the seller had actively concealed substantial rot and terminate damage to the home’s foundation, which had not been discovered by the purchasers’ pre-closing home inspection. The damage was so extensive that the home’s structural integrity was significantly compromised. The purchasers sued the seller for fraudulent inducement and sought rescission of the contract, claiming that the concealment of the damage to the foundation induced the purchasers to proceed to closing and purchase the property. The trial court ultimately agreed and granted rescission of the contract, plus consequential damages for the purchasers’ interest payments on their mortgage loan, real estate taxes, and property insurance. On appeal to the Virginia Supreme Court the seller argued that he had no duty to reveal the damage to the foundation because of the contract’s Disclosure Statement. The Court disagreed, finding that the seller may not rely upon and claim the benefits of the contract, and at the same time, contract against and relieve himself of the consequences of his fraud. Essentially, if a party conceals a fact that is material to the transaction, knowing that the other party is acting on the assumption that no such fact exists, the concealment is as much a fraud as if the existence of the fact were expressly denied, or the reverse of it expressly stated. The entire contract was rescinded as a result of the seller’s fraudulent inducement, including any language indicating that the sale of the property was made “as is.” Any case involving a claim of fraudulent inducement will most certainly revolve around the specific facts of each case. With this said, a prospective Seller and the Seller’s representative should always...

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Wow! That Can’t Happen to Me … Can It? Part 2

A number of recent real estate scams underscore the need for diligence on the part of all parties to a real estate transaction, including real estate agents and settlement companies. Part two. This is a three part series on real estate scams and fraud.  Check out Part One if you haven’t already done so. The nephew hired an older woman, also well into her eighties, to impersonate his aunt. Another real estate scam we’ve seen in recent years involves mortgage fraud. Several years ago we were involved in a case where an elderly out-of-state woman owned a piece of residential property located in Northern Virginia that she leased to third party tenants. The owner was well into her late eighties and owned the property free and clear. A nephew of the woman, recognizing the potential for money-making at his aunt’s expense, took out a home equity mortgage on the property in his aunt’s name. The daringness of the young nephew reached new levels. The nephew hired an older woman, also well into her eighties, to impersonate his aunt. In doing so he prepared various fraudulent documents and supplied her with a fake driver’s license. He then accompanied the woman to a bank to apply for a mortgage in the aunt’s name. When the loan was closed, the imposter forged the aunt’s name on the loan documents, and the nephew pocketed the proceeds and promptly vanished. The property owner did not learn of the mortgage until the loan fell into arrears and a notice of foreclosure was served on her tenants. The real owner only received notice of the pending foreclosure and the perpetrated fraud within a few days before the scheduled foreclosure, at which time she retained our firm to address and correct the situation.   The property owner incurred significant legal fees to stop the foreclosure and to work with the bank to establish that the loan had been obtained fraudulently. Because her identity was stolen, the property owner must now constantly monitor her credit. The bank now has claims against the title company that closed the loan and against its lender’s title insurance policy. Part Three of our three part series on real estate scams and fraud will offers more example and lessons learned. Chung & Press, P.C. handles a diverse array of legal matters, including residential and commercial real estate transactions and closings, corporate and business transactions, bankruptcy, litigation, and intellectual property. Our experienced attorneys and staff provide  streamlined, cost efficient legal representation with a high-level of personal attention to all of our clients, from individuals, to entrepreneurs and small businesses, to large companies. We serve clients in Virginia, Maryland, and Washington, D.C., as well as handle matters throughout the United States and abroad. Please do not hesitate to contact us at (703) 734-3800 to discuss your legal...

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Wow! That Can’t Happen to Me … Can It?

A number of recent real estate scams underscore the need for diligence on the part of all parties to a real estate transaction, including real estate agents and settlement companies. The sale was ultimately voided by the circuit court as a forged deed cannot pass title, even to a bona fide purchaser for value. One such scam involved the sale of property in Virginia Beach, Virginia, and was reported in the June 9, 2014, issue of the Virginia Lawyers Weekly. A thief set up an elaborate ruse to impersonate the property owner for the purpose of contracting to sell the property. The imposter contacted the local clerk’s office to change the ownership address of record to a post office box in Florida. The imposter then contacted a realty company in Virginia Beach to list the property for sale. Once a contract was signed (or forged in the case of the named seller), the seller’s settlement documents, including the deed, were sent to Florida for the “seller’s” signature. The imposter set up a fake social security number and obtained a forged notary seal to acknowledge the deed. When the deed was recorded, the sales proceeds were wired to an account in Florida. The imposter and the sales proceeds have since disappeared. The real owner of the property only learned of the sale when he contacted the same realty company to sell the property himself. To regain ownership the real owner was forced to file a legal action in the Virginia Beach Circuit Court. The sale was ultimately voided by the circuit court as a forged deed cannot pass title, even to a bona fide purchaser for value. The owner incurred thousands of dollars in legal fees, and the realty company and the title company that conducted the closing are facing claims from the purchasers and their lender for the loss of the property and the funds transferred to the imposter. Check out Part Two and Part Three of our three part series on real estate scams and fraud for more examples and lessons learned. Chung & Press, P.C. handles a diverse array of legal matters, including residential and commercial real estate transactions and closings, corporate and business transactions, bankruptcy, litigation, and intellectual property. Our experienced attorneys and staff provide  streamlined, cost efficient legal representation with a high-level of personal attention to all of our clients, from individuals, to entrepreneurs and small businesses, to large companies. We serve clients in Virginia, Maryland, and Washington, D.C., as well as handle matters throughout the United States and abroad. Please do not hesitate to contact us at (703) 734-3800 to discuss your legal needs....

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