Seller Has No Duty to Warn Homebuyer about a Crazy Neighbor

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Real Estate Law Firm

Developers and homeowners in New Jersey now have guidance as the Third Circuit Court of Appeals affirmed a New Jersey District Court ruling in holding that a property developer has “no duty to disclose off-site social conditions, such as the personality traits of a neighbor” to potential homebuyers. The Court agreed that New Jersey law does not permit the expansion of the obligation(s) of home sellers to include informing buyers of potential social problems and personality traits with other residents and reinforced the New Jersey rule that sellers are only obligated to disclose offsite conditions of the land which are unknown to the buyer and unobservable. The decision was based, in part, (and in my opinion) by the likely significant increase in lawsuits that would be filed from a finding of a duty to disclose the personality traits and unique character behavior of home owners and neighbors to prospective purchasers.

The plaintiff in this case claimed that during her visit, a neighbor, who resided across the street from the subject property, approached her and warned her about dealing with the builder who is a national homebuilder. This neighbor directed an angry tirade at the builder representative. The prospective buyer claimed to have asked the sales representative if there was a problem with the person and alleged that the sales representative replied that there was “no problem”.

In plaintiffs lawsuit, the homebuyer alleged that the builder knew of a neighbor’s hostile tendencies but did not inform her about them prior to the sale. According to the plaintiff she would not have purchased the property had she known about the neighbor’s behavior. Her lawsuit brought claims for fraud, equitable fraud, negligent misrepresentation and omission, violation of the New Jersey Consumer Fraud Act (CFA), violation of the Planned Real Estate Development Full Disclosure Act (PREDFDA), and negligent infliction of emotional distress. Applying New Jersey Law, the district court dismissed the entire complaint.

The Trial Court found that the neighbor’s statement made by the builder were not a “fact” but “nothing more than an ‘ill-defined opinion”. The lack of misrepresentation of material fact doomed any claim under the common law, the New Jersey CFA and PREDFDA. In addition, the trail court found that the terms of sales agreement precluded plaintiff’s claims of fraud because it “disclaims any reliance on statements outside of the contract.” It is manifestly unreasonable for a party to rely on prior oral statements when express language of the contract is written explicitly disclaiming any reliance on a previous communication” said the court.

On appeal, the Third Circuit affirmed the district court’s findings that while the complaint “pains an unpleasant and unenviable experience,” New Jersey provides for redress by an action against the neighbor, but not the developer. The court explained that while developers have a “duty to disclose off-site conditions that are material to the transaction, [they] [have] no ‘duty to investigate or disclose transient social conditions in the community that arguable affect the value of the property”.

Few people know for example, New Jersey law dictates that a New Jersey real estate licensee cannot advise a home buyer that there are neighbors that are subject to Megan’s Law notification requirements for convicted sex offenders. A home buyer must obtain that information by his own investigation. Similarly, the Federal Fair Housing Act and its regulations prohibit a seller from “communicating to any prospective purchaser that he or she would not be comfortable or compatible with existing residents of a community, neighborhood or development because of race, color, religion, sex, handicap, familial status, or national origin.

So what is to be learned from this case? The lesson is that homeowners and small builders should not simply rely on this recent New Jersey case but are encouraged to draft their sales agreements to cut off post hoc claims of detrimental reliance. The builder’s sales agreement specifically required the buyer to set forth any “statements, representations or understandings which are made by a sales person or any other representative of Seller which are material to Buyer’s decision to purchase. A buyer should insist that any such statement, representation or understanding is put in writing and contained in the Agreement…”

To discuss your NJ Real Estate matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.