A recent decision by the Michigan Court of Appeals in Coosard v Tarrant, –N.W.2d–(2022) provides an interesting example of one court’s application of fraud to a set of disjointed facts.
Plaintiffs purchased a cabin from Defendant. An online listing for the property included a photograph showing a cabin with an attached porch, garage and fence. The listing did not mention the garage specifically. It did state however that all the buildings were included in the sale.
Defendant completed a Seller Disclosure Statement
Defendant completed a Seller Disclosure Statement (“SDA”). It indicated: 1) the Defendant had no knowledge of any common features of the property that were shared with adjacent landowners such as fences or driveways, and 2) Defendant was not aware of any encroachments. The SDA did indicate that structural modifications were made using unlicensed contractors and no permits were pulled.
After closing, Plaintiffs discovered that the patio, garage, and fence were located on property belonging to the neighbors. The Defendant’s SDA had disclaimed any knowledge of boundary defects. At trial, the adjacent neighbors testified otherwise. They claimed that on two separate occasions, a family representative had notified Defendant of the encroachment and told him to remove his stuff from their property.
The trial court did not believe the Defendant knowingly lied about the encroachment on the SDA. It awarded summary disposition to the Defendant on the basis that it did not believe the Defendant’s conduct had risen to the level necessary to support a claim of fraud. In doing so, it stated the SDA was a giant red flag that there might be problems with the property.
The COA first addressed whether the dispute could be resolved by simply applying the AS-IS provision contained in the purchase agreement. An AS-IS provision transfers the risk of unknown defects to the buyer. While an AS-IS clause will not transfer the risk to a buyer where the seller has committed fraud, the risk will be transferred when the defect should have been discovered by the buyer but was not. The court claimed that whether the Plaintiffs had the means to discover the encroachment in light of the SDA involved consideration of the other information communicated to, or observed by Plaintiffs.
The photo of the fence in the online listing showed that while it was in good condition, it had been present for enough time to accumulate junk stacked near or against it. The neighbor’s pole barn was located beyond the fence. Tall trees grew between the fence and the pole barn suggesting the fence was the property line. The court noted the property was small and the natural tendency would be to assume that if there was an encroachment, it would have been quickly noticed and acted upon by either a governmental entity and/or person with superior title. The court concluded that because the Plaintiffs had knowledge that: 1) unpermitted modifications were made, 2) the SDA indicated Defendant was not aware of any encroachments, and 3) the garage and fence had been present for some time (based on the trees and junk), it was not unreasonable for the Plaintiffs to expect that the features present in the online photograph were part of the property. Therefore, the court did not believe the Plaintiffs should have discovered the defect.
The court then turned its focus on whether the Defendant committed fraud. It thought the neighbors were neglectful in failing to object to the fence and garage, and that could have reasonably induced Defendant to believe there was no encroachment. The only knowledge of the encroachment given to Defendant was: (1) a note duct-taped to his door, and (2) a single conversation with the neighbors. The court noted both of these communications appeared essentially “out of the blue,” and the evidence suggested they were both highly confrontational and unaccompanied by any supporting evidence. Furthermore, the testimony of the neighbors indicated they were not entirely clear about what they told the Defendant. While it might have been wise for Defendant to investigate the issue after receiving the neighbors’ communications, it would not have been unreasonable for Defendant to dismiss those communications.
Because there is no other evidence suggesting that Defendant was aware of any encroachment, by implication, Defendant did not knowingly commit fraud with the MLS listing. Therefore, the COA held the trial court’s grant of summary disposition in Defendant’s favor was proper.
As an aside, the court identified a potential lifeline for the Plaintiffs. It pointed to the possibility of an adverse possession claim against the neighbors. While the Plaintiffs themselves could not meet the 15-year statutory period to support a claim of adverse possession, under certain circumstances, a party may be able to tack on periods where the property was owned by their predecessors in title. The COA suggested that Plaintiffs look into whether the periods of ownership by Defendant and his predecessor in interest could be used to meet the 15-year period to support a claim for adverse possession.
Lessons learned? Both the trial court and COA were critical of the Plaintiffs and Defendant. They believed this dispute could have easily been avoid. The most prudent course of action for both parties would have been to obtain a survey prior to purchasing the property.