Michigan Termite Case Tests Real Estate Sellers’ Liability

A dispute over termites now before the Michigan Supreme Court could affect the liability of sellers of real estate.

When Richard and Stacey Roberts bought an old house for $475,000 on Michigan’s scenic Leelanau Peninsula, they thought the home’s other tenants were gone for good.

The previous owners indeed moved out of the house in Leland, northwest of Traverse City. But the Robertses contend the sellers left behind termites that caused enough damage to make the house structurally unsound.

The sellers, Robert and Joanne Saffell, did not report any history of termite infestation in their disclosure statement. About two weeks after the 2003 sale, though, the Saffells gave the buyers a tip sheet noting “a million” bugs would hatch in the spring.

The Saffells said a pest company had been called in the past. There was no way to avoid the insects, but they would not last for long, the couple told the new occupants.

When the bugs showed up the next spring, the Robertses hired a pest control specialist who determined they were termites. A year later, the owners filed a lawsuit against the sellers after a contractor hired to do remodeling work discovered in 2005 that the house was structurally unsound.

The case has made its way to the Michigan Supreme Court. What the court decides could leave sellers with more liability if something wrong is discovered after they sell a home. But it also could give wary buyers with a bit more protection from a house’s risks.

In Michigan, the Seller Disclosure Act requires sellers to disclose only known problems. The Saffells testified they did not know about any termite infestation.

The trial judge let the case move forward under the legal theory of “innocent representation” — when someone makes a statement he thinks is true but that is in fact false. A Leelanau County jury awarded the Robertses $86,000 in 2006 because of the termites.

But the state appeals court last year reversed on a 2-1 vote, ruling sellers must knowingly mislead buyers to be held liable.

The Saffells’ Detroit-based lawyer, Mark Bendure, says the couple lived in California and spent summers at the Leland home they had owned for 35 years. The bugs would emerge for a short time, usually when the Saffells were in California.

“If we lose, it opens the door to sellers being held liable for conditions they didn’t know about,” Bendure said. “It potentially subjects sellers to a whole new class of liability.”

The Robertses had the option of getting a pest inspection within two weeks of signing the purchase agreement but did not do so, according to the sellers.

But Mark Granzotto, a Royal Oak attorney for the buyers, says the trial was never about whether the sellers made an innocent mistake. The heart of the case involved whether the sellers knew about the insect infestation — which he says they did — and did not warn the buyers in time.

Jurors understood they could not hold the sellers liable unless the sellers knew their disclosure statement was false, according to Granzotto. He says the “innocent misrepresentation” issue may have been mislabeled and argues the defendants waived it on appeal anyway.

The appeals court’s decision makes sense “only if one remains completely oblivious to how this case was actually tried and presented to the jury,” Granzotto wrote in a court filing.

The Supreme Court heard arguments over the dispute Wednesday in Centreville in southwestern Michigan, one of a series of hearings justices sometimes hold outside their Lansing chambers so high school students can see firsthand a case being heard at a local courthouse.

The high court is expected to release its decision by the end of July.

Real estate agents are following the case closely because they are the ones responsible for making sure a seller fills out a seller’s disclosure statement.

The Michigan Association of Realtors submitted a brief telling the Supreme Court that disclosure forms should not “trap” sellers who make innocent mistakes.

Disclosure statements are not contracts and include warnings to buyers that they should get professional advice and an inspection to better determine the condition of the property. The buyers say the sellers clearly knew of infestation because they had seen swarms of insects inside the house in the past.

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David Eggert can be reached at deggert(at)ap.org

On the Net:
Read the legal briefs:
http://courts.michigan.gov/supremecourt/Clerk/05-09/137749/137749-In dex.htm