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Tennessee Real Estate - When can a real estate agent be responsible for failing to disclose alleged defects with a property?

Posted on Nov 15 2012 10:22AM by Attorney, Jason A. Lee

Brief Summary:  Both the Tennessee Residential Property Disclosure Act and the Tennessee Real Estate Broker License Act require a real estate agent to disclose adverse facts of which the agent has actual knowledge or notice.

 

Analysis:  The recent Tennessee Court of Appeals decision of Jamie Paul Ledbetter v. Donald L. Schacht, No. W2011-01857-COA-R3-CV, 2012 WL 3775969 (Tenn. Ct. App. 2012) discussed a real estate agent’s responsibility under the Tennessee Residential Property Disclosure Act and the Tennessee Real Estate Broker License Act to disclose alleged defects in a property.  In this case the plaintiffs asserted the seller’s real estate agent failed to disclose the existence of certain "foundation and structural defects in the home and repair attempts that took place prior to the sale."  Ledbetter at 1.  The real estate agent defendant filed a motion for summary judgment with an affidavit stating she "had no knowledge of any defects in the property or of any adverse information concerning the structural integrity of the property." Ledbetter at 1.  The motion for summary judgment was granted.  As a result, the question on appeal was whether the evidence before the court was sufficient to grant summary judgment to the real estate agent on this issue.

 

The Tennessee Residential Property Disclosure Act requires "the owner of residential property to furnish a residential property disclosure statement to a purchaser regarding the condition of the property, including any material defects known to the owner."  Ledbetter at 3 (citing, T.C.A. § 66-5-202(1)).  The representations in the notice are the representations of the owner, not the real estate representative.  Ledbetter at 4.  However T.C.A. § 66-5-206 provides for the responsibilities of the agent as follows:

 

If a real estate licensee performs those duties [to inform], the licensee shall have no further duties to the parties to a residential real estate transaction under this part, and shall not be liable to any party to a residential real estate transaction for a violation of this part or for any failure to disclose any information regarding any real property subject to this part. However, a cause of action for damages or equitable remedies may be brought against a real estate licensee for intentionally misrepresenting or defrauding a purchaser. A real estate licensee will further be subject to a cause of action for damages or equitable relief for failing to disclose adverse facts of which the licensee has actual knowledge or notice. “Adverse facts” means conditions or occurrences generally recognized by competent licensees that significantly reduce the structural integrity of improvements to real property, or present a significant health risk to occupants of the property.

 

(emphasis added).  Therefore, the Tennessee Residential Property Disclosure Act does place duties on the agent to disclose adverse facts of which the real estate agent has knowledge or notice.

 

Additionally, under T.C.A. § 62-13-403 (the Tennessee Real Estate Broker License Act of 1973) a real estate agent has the following duty:

 

A licensee who provides real estate services in a real estate transaction shall owe all parties to the transaction the following duties, except as provided otherwise by § 62–13–405, in addition to other duties specifically set forth in this chapter or the rules of the commission:

...

(2) Disclose to each party to the transaction any adverse facts of which the licensee has actual notice or knowledge[.]

 

The Ledbetter court therefore summed up the duties of a real estate agent as follows:

 

In sum, a real estate license has a duty under both Acts to disclose “adverse facts” of which the licensee has actual knowledge or notice. Tenn.Code Ann. § 62–13–403, § 66–5–206. Both Acts define adverse facts as “conditions or occurrences generally recognized by competent licensees that ... significantly reduce the structural integrity of improvements to real property or present a significant health risk to occupants of the property[.]” Tenn.Code Ann. § 62–13–102(2); § 66–5–206. However, the definition of adverse facts found in the Real Estate Broker License Act of 1973 also contains a third prong, for conditions or occurrences that “have negative impact on the value of the real estate.” Tenn.Code Ann. § 62–13–102(2).

 

Based on the facts that existed in this case, the Court found:

 

[U]nder section 66–5–206, as applied to the facts of this case, the central question is whether Ms. Lipscomb had knowledge of “conditions or occurrences generally recognized by competent licensees that significantly reduce the structural integrity of improvements to real property.” (Emphasis added). We conclude that she did not. We find that the evidence submitted by Ms. Lipscomb in support of her motion for summary judgment “tend[ed] to disprove an essential factual claim” made by the Ledbetters, and therefore, it negated an essential element of the Ledbetters' claim and shifted the burden of production.  In response, the Ledbetters failed to demonstrate that the previous defects and repairs significantly reduced the structural integrity of the home. The undisputed facts establish that after the recommended repairs were completed, an engineer examined the home for any structural deficiencies and found that it was structurally sound.

(citations omitted) Ledbetter at 6.  As a result, the court found that as a matter of law the real estate agent did not have knowledge of "adverse facts" within the meaning of T.C.A. § 66-5-206.  Additionally, the court noted the defendants submitted numerous reports showing the structural integrity of the home in support of the motion for summary judgment.  The plaintiffs on the other hand did not submit any reports showing the home was structurally defective at the time of the closing.  Despite the allegations of the plaintiffs that there were structural defects at the time of the closing, the court found "we cannot simply assume, based upon the assertions in the Ledbetter's brief on appeal, that the structural integrity of the home was significantly reduced by the repairs, when the evidence in the record demonstrates it was not.  There is simply no evidence in the record from which we can make this assumption."  This ruling shows how important it is to make sure there is actually evidence in the record of what is being asserted in arguments in response to a motion for summary judgment and further on appeal.

Follow me on Twitter at @jasonalee for updates from the Tennessee Defense Litigation site.


TAGS: Real Estate, Miscellaneous
Comments
Jason  -  8/6/2013 9:36:41 AM
Helen,

Thank you for your question. That is a difficult call. The plain language of the statutes I discussed in this post does not include a requirement to disclose those types of issues because they do not "reduce the structural integrity of improvements to real property or present a significant health risk to occupants of the property". So I think it would likely be difficult to establish this is a disclosure that should be made by an agent. However, I think there are likely some attorney who would contend this is a disclosure that should be made but I think they have an uphill battle to hold them legally responsible under these statutes.

Jason

Helen O'Connell  -  8/6/2013 1:24:09 AM
If a licensed real estate agent in TN has knowledge of a home owner having had a serious issue with a neighbor with regard to overgrown hedges or trees is this agent obligated to inform potential buyers of the possibility of having neighbor problems if they were to purchase the "for sale" home?

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