Daily Development for Friday, November 4, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

VENDOR/PURCHASER; MISREPRESENTATION; STATUTE OF LIMITATIONS: Statute of limitations will bar home buyers  from suing broker or seller for negligent misrepresentation when they were shown and purchased a house that the seller did not own, rather than house across the street that it did own, where they moved into the house they thought they had bought and lived there for more than five years before the real owner of their house knocked on their door.   But buyers parallel fraud action may proceed if they reasonably relied upon fraudulent statements and reasonably did not discover they had been defrauded until within the two year limitations period on such actions. 

Gilmore v. M&B Realty Co., 895 So. 2d 200 (Ala. 2004)

First time homebuyers contacted a broker to buy a home.  They were shown a house by a broker that the broker believed was listed with the brokerage office by the Veteran’s Administration.  Not surprisingly, the broker’s recollection was vague as to just what happened, but he showed the homebuyers the vacant house across the street instead.  The broker claimed that, for this to have happened, there had to be a working lockbox on the house and paperwork to sign inside regarding the listing. 

Part of the confusion stemmed from the fact that the VA, in dealing with the house, consistently used the address “4369 Bayou Drive.”  In fact, the house address of the VA-owned home was 4360 Bayou Drive, and the house across the street was 4361 Bayou Drive.  4361 was owned by a builder, who apparently was paying very little attention to it.  The 4369 address was a vacant lot.

Homebuyers alleged that the broker told them that the house had a new roof and had recently been painted.  And, of course, the broker told them that the house was for sale, listed by the VA.

The homebuyers decided to buy the house, signing a contract listing the property as “4369 Bayou Drive.”  The took a mortgage from the VA and the VA got a lender’s policy.  The legal description contained a subdivision lot designation for what was really 4360 Bayou Drive, but no one knew it.  Homebuyers moved into what was really 4361 Bayou Drive and lived there relatively uneventfully for 6 years, making some improvements and paying annual taxes (presumably on 4360 Bayou Drive.)  The tax bill came to their house, although they listed the address with the tax collector as 4369 Bayou Drive.  Apparently the tax collector credited the payments on 4360 Bayou Drive.  They did not get an owner’s policy of title insurance, but it is unclear that would have made much difference here.

Everyone was aware that the address on the front of the house was not 4369, but they assumed that this was as VA error in the designation of the house located at 4361, and, assuming that the red tape would grow waste high if they tried to change things, they designated the property as 4369 on all VA documents.  One tax document that one of the buyers signed did show the correct address, but only in the corner with a lot of other technical numbers, and she missed it.  The court said that this was a reasonable “miss.”

More than five years after homebuyers moved into their little nest, the developer who really owned the house showed up.  They sued the VA, the brokerage, and the sale agent, for wanton negligence and fraud. 

The trial court granted summary judgment for defendants on the negligence and fraud claims, based upon the running of the two year statute of limitations on negligence.  The court held that no real damage need be suffered as a consequence of negligence to trigger the running of the statute of limitations.  All that has to happen is that the act of negligence be completed.  Ignorance of the tort or injury are irrelevant if there is no fraudulent concealment by defendants.

The Alabama Supreme Court here affirmed the dismissal of the negligence claims.  But it reversed the trial court (by a split decision) on the fraud allegations.  The Alabama statute in this case is also two years, but does not begin to run until “the discovery by the aggrieved party of the fact constituting the fraud.” 

The defendants argued, of course, that the homebuyers had not relied reasonably on any alleged fraud, since there was the mention of the correct address in one of the documents and parties are expected to read the documents.  But the court noted that the fact of the true address was not prominent in the documents.  A reasonable person, exercising ordinary care, might have missed them, or at least the likelihood of such is sufficient to survive summary judgment.  The court also stated that other circumstances wouldn’t have led homebuyers to discover the fraud.  It cited as evidence supporting this claim that the broker didn’t find the problem. [But note, for these purposes, we would be assume that the broker was being fraudulent - so the broker in fact would have known of the problem under that assumption.]

The court held that even though the contract stated that buyers could conduct an independent title search, it did not require them to do so, or to buy their own title insurance.

Comment: Now what happens?  We go to the jury on the argument that the broker (and possibly the VA) fraudulently sold the wrong house to the buyers.  To what end?  They couldn’t have anticipated that fraud of this nature wouldn’t be exposed within the two year period, and there would have been hell to pay.  There simply was not motive for fraud here.  It was just bonehead stupidity, perhaps driven by the obstinancy of the VA bureaucracy in other instances that led everyone to pussyfoot around the problem. 

But we’re going to an Alabama jury with innocent young homebuyer plaintiffs who have lost their home.  So expect a settlement.

Comment 2: By the way, the roof was not new and the house had not been painted.  This was true both of 4360 and 4361.  So there will be fraud damages here if the buyers can convince the court that the broker told them this.  Once again, normally no big deal, but here the defendants will want to settle to avoid the floodgates from opening.

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