Until recently, when a home seller lied about or failed to disclose something critically wrong with the home you were buying, the go-to law suit was for misrepresentation. In a common sense way, that just seems right. After all, how else would you describe the seller except to say that he misrepresented the condition of the home? I mean, without making the kids cover their ears.

The Wisconsin Supreme Court recently ruled that something called the economic loss doctrine prevents lawsuits for misrepresentation in real estate sales. It’s not exciting stuff, but let me see if I can sum it up the court’s ruling. Basically the ELD (that’s the economic loss doctrine) says that where there’s a deal based on contract, tort-based lawsuits are not permitted for recovery of purely monetary loss. Torts are your standard personal injury type suits. Misrepresentation is a tort.

In the world of lawsuits, tort-based suits and contract-based suits are the two big players, rivals in some ways. The ELD protects contract law’s turf by saying look, if there’s a contract and one side doesn’t deal fairly, you should use contract law to solve the problem, instead of trying to use tort law to sneak around some of the limitations of contract law (no punitive damage, for example). Since real estate transactions are contractual, misrepresentation should be barred by the ELD. So held the court.

So are you out of luck if you’ve been lied to? Well, not entirely. Misrepresentation was popular because it tended to fit the facts in most cases, was easier to prove, and generally was the right tool for the job. But, as anybody who has ever driven a nail with a wrench knows, just because you lose your hammer doesn’t mean you can’t get the job done.

Until the legislature passes a law allowing misrepresentation – it’s in the works – here’s the tools you can use to pound the misrepresenting seller:

  • Breach of contract: You know all of those forms you sign when you buy a home? Those are contracts, and if the seller makes any promises in them that turn out not to be true, you can sue for breach of contract. A suit for breach only entitles you to recover what you actually lost due to the breach. Notably, breach is not a very strong suit to bring if no promise was made (i.e., they just failed to mention the demonic possession), because it is hard to breach a promise you never made. Sure, those contracts require you to disclose major defects, but then you get into an argument about what is major, and so on.
  • False advertising. If the seller makes misrepresentations about the very thing that is wrong, you may be able to pursue false advertising.
  • Theft by Fraud. You were lied to. The lie made you buy. The seller took your money. Now you are spending more money to fix what you were lied to about. Sounds a lot like a misrepresentation case, but it’s called theft by fraud. The trouble here is you actually have to prove the crime of theft to get to a recovery. Usually the facts are a little less egregious than that.

The upshot is you still have ways of getting a remedy if your seller has lied to you or failed to disclose a material defect. The best remedy, however, remains caution. Make sure you have a thorough inspection done. Read the contract carefully. Ask the seller questions. Consult a lawyer. Uncovering a defect before you close is a far better outcome than suing after the fact.

Read More: Home buying after Below: Navigating the Economic Loss Maze

Chris

Comments are closed.