What is misrepresentation?
Misrepresentation occurs in a real estate transaction when a seller knowingly makes a false statement about an important (called "material") aspect of the property.
For example, if the sellers state that their roof is free of leaks, knowing that this is not true, this is misrepresentation. If a seller says that his house has no termite damage, when he knows that it's termite infested, this is misrepresentation.
Misrepresentation, or fraud, usually involves a deliberate intention to deceive another person for profit or advantage. Concealment is one form of misrepresentation. For example, let's say that the sellers know their basement floods during heavy rainstorms. Before they sell, they paint the basement to cover up water lines that indicate past flooding. The buyers see no signs of past flooding and make the assumption that the basement is watertight. After they move in, it rains and the basement floods.
Nondisclosure also can be considered misrepresentation. Let's say the sellers converted a lower level of their house to a rental unit, which they rent out to students. They represent to the buyers that their property has a rental unit that brings in $500 a month in rental income. They don't, however, disclose that the unit was converted without building permits and that it is not in compliance with local building code or zoning regulations. In fact, they are renting the unit illegally. Under these circumstances, to imply that the property has a legal rental unit is misrepresentation.
Misrepresentation also can occur if a real estate agent falsely represents the property, exaggerates the benefits of a property (called "puffing") or fails to disclose facts known to the agent that materially affect the value or desirability of the property.
False advertising can be construed as misrepresentation if buyers rely on what's said in an ad when they make their decision to buy a house.
FIRST-TIME TIP: Usually, buyers don't discover that misrepresentation has occurred until after they have closed their purchase transaction and moved into the house. At this point, the buyers have several options. If they agreed to an arbitration clause in their purchase agreement, they may be bound to arbitrate a solution to their problem. Otherwise, they may have grounds to sue for misrepresentation.
Always have a property thoroughly inspected. Don't rely on an agent's, or seller's, statement regarding any material fact that's crucial to your decision to buy the property. Take the initiative and verify any critical information independently.
THE CLOSING: As with most things in life, real estate issues rarely have black and white answers. If you have any questions about misrepresentation, a seller's responsibility for disclosure, how you can back out of a deal without risking your deposit, your responsibilities to protect yourself when buying a house, or what legal recourse you have if you've been taken advantage of, the best thing to do is to consult a knowledgeable real estate attorney.
Dian Hymer's column is syndicated through Inman News Features. Send questions and comments care of Inman News Features, 5335 College Ave., No. 25, Oakland, Calif. 94618.