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Rabin v. Wolensky

A-3183-01T2 (N.J. Super. App. Div. 2003) (Unpublished)

BROKERS; CONSUMER FRAUD—A real estate broker has no duty to undertake inspections to find out if there are defective conditions that are not readily observable.

Home buyers within a development sued their broker for violations of the Consumer Fraud Act, common law fraud, and negligence for failing to disclose to them that the housing they had purchased had previously suffered significant flooding. The lower court granted the broker’s motion for summary judgment, dismissing the complaint. The buyers appealed, but the Appellate Division affirmed. Under the Consumer Fraud Act, a seller’s broker may be liable for failing to disclose a defective condition if it was known to the broker but not readily observable to the buyer. A buyer needs to prove both that the broker was aware of the extent of the flood damage and intentionally concealed that information intending that the buyer would rely on the concealment. In addition the information concealed must be material to the transaction. The Appellate Division found that there was insufficient credible evidence to show that the broker in this case knew of the extent of the damage and intentionally concealed it. The only evidence presented was the seller’s assertion and assumption that the broker “must have known” about the water damage.

The buyers also claimed that their broker violated the Consumer Fraud Act by concealing material information regarding the flooding. With respect to the buyers’ broker, the buyers claimed that a seller’s disclosure statement for a property that was across the street and closer to a nearby river revealed extensive flooding. Therefore, the buyers concluded that the broker must have known about the significant flooding and water damage. The Court noted that the fact that another property had significant water damage did not mean the brokers knew the buyers’ property had extensive damage as well. Without knowledge of the extent of the damage to the other properties, the buyers’ broker could not be guilty of violating the Consumer Fraud Act. The Court also rejected the buyers’ claim of common law fraud against the broker. In order to prove common law fraud, one must show: (a) a material misrepresentation of a presently existing or past fact; (b) knowledge or belief by the declarant that it is false; (c) an intention that the misrepresentation be relied upon; (d) reasonable reliance; and (e) resulting damage. Here, the buyers claimed that the broker knew that the sellers’ response on their property disclosure form regarding leakage was incorrect, but still allowed the incorrect information to be forwarded to the buyers. The Court noted that the seller’s disclosure statement did not refer to water accumulation in the basement. It also noted that the broker, after observing that the basement was finished and used as an office and play area, had no reason to expect leakage or even dampness in the basement. Based on those facts, the Court concluded that the broker did not have knowledge or belief that the sellers misrepresented the condition of their basement. Lastly, the Court rejected the buyers’ negligence claims. The Court found that a broker has no duty to undertake inspections to find out if there are defective conditions that are not readily observable.

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