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Kennedy v. Best

A-2530-97T5 (N.J. Super. App. Div. 1998) (Unpublished)

CONTRACTS; FRAUDULENT CONCEALMENT—A seller of residential real estate who has knowledge of a material defect should not be permitted to escape liability merely because the buyer’s inspection service fails to uncover the defect prior to closing.

The buyer contracted to purchase a home that the sellers had bought in new condition forty years earlier. Prior to closing, the buyer hired a home inspector. As part of the inspection, the seller was asked whether there were any water conditions in the basement of the home, and the seller denied that there was a flooding condition in the basement. It admitted however, that it had experienced some minor water in the basement on three occasions, but only one of those episodes was from exterior water. All three incidences were disclosed to the buyer prior to closing. The inspector suggested that a down spout be connected to an underground drain and that the gutters and downspouts be inspected and cleaned regularly so that the drainage system would function properly. It also reported evidence of moisture in the basement, that the interior surface of the foundation wall had minor cracking, and prior moisture on the front wall. Although the concrete floor displayed no evidence of moisture, the inspector noted that its visibility of the basement’s structure was limited. In the eleven months following the closing, the house experienced thirty-five incidences of flooding in the basement. As a consequence, the buyer retained an engineer who concluded that water had been entering the foundation of the basement for over ten years. He also found that the house had been constructed in the area of a high water table. It was raining on the day of inspection and water was entering a foundation wall during the inspection. A variety of other expert opinions was presented to the lower court. Faced with the testimony and evidence, the lower court decided that a reasonable jury could not conclude that the buyer could prove each element of fraud by clear and convincing evidence. The judge reasoned that the buyer’s proofs only showed that a flooding condition existed in the basement for several years prior to closing but did not show, by clear and convincing evidence, that the seller knew about the condition. Further, the judge concluded that there was no equitable fraud because if a flooding condition existed, it was readily observable to the buyer upon inspection prior to closing.

The Appellate Division was more generous to the buyer. To that Court, even though both sides presented conflicting expert reports, it was clear that a water problem existed and required correction. It further determined that a reasonable jury could conclude, after weighing the credibility of testimony, that the thirty-five incidences of flooding experienced by the buyer coupled with the expert reports, proved that a severe water problem existed prior to closing and that the seller had knowledge of it. On the other hand, a prima facie case of fraudulent concealment against a seller of real estate also requires that the buyer clearly and convincingly establish that the material defect or fact was not apparent upon a reasonable inspection of the premises. Here, where not all of the areas displaying water damage were open to the inspectors or to the buyers, the Court did not feel that the condition was apparent. Moreover, portions of the basement were covered with possessions belonging to the seller and thus not obvious to a lay person. Even if visibility within the basement was unobstructed, the buyer may not have been able to detect whether a flooding condition existed. In concluding, the Court opined that a seller of residential real estate, who has knowledge of a material defect, should not be permitted to escape liability merely because the buyer’s inspection service fails to uncover the defect prior to closing. The fact that a buyer may have a claim against its inspector does not eliminate any claim it may have against its seller.


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