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The Legal Ramifications of Concealing Defects in Real Property

You may have heard of the phrase caveat emptor – let the buyer beware. In the context of American real estate law, this means that the burden is upon the buyer of real property to ensure it is free of defects before agreeing to purchase it.

This concept finds its roots in English common law and has stood undisturbed for centuries. However, some sellers take the concept too far, assuming that it allows them to actively conceal defects without fear of consequence. Likewise, many disappointed buyers are too quick to assume that caveat emptoralways means they simply have to live with any defect they discovered after purchase. This is not always the case.

Minnesota statutes require disclosures in residential transactions, unless the buyer waives the disclosure. The statute reads as follows:

(A) Before signing an agreement to sell or transfer residential real property, the seller shall make a written disclosure to the prospective buyer. The disclosure must include all material facts of which the seller is aware that could adversely and significantly affect:

  1. an ordinary buyer’s use and enjoyment of the property; or
  2. any intended use of the property of which the seller is aware.

(B) The disclosure must be made in good faith and based upon the best of the seller’s knowledge at the time of the disclosure.

Simply put, caveat emptor does not apply to cases involving fraud, misrepresentation or active concealment. While there are some distinctions between these three scenarios, they all involve an intentional act or failure to act on the part of the buyer that is intended to prevent the seller from learning something about the property. While sellers cannot be held liable for defects of which they were unaware, and are not obliged to make blanket disclosures, they may be held liable if the following conditions are met:

  • The seller made a false statement of fact that was material to the transaction or remained silent when a disclosure was legally required
  • The seller knew the statement was untrue and made it with intent to deceive the buyer
  • The buyer relied upon the statement and such reliance was reasonable
  • The buyer was harmed as a result of the misrepresentation

Fraud and misrepresentation are among the most frequent causes of post-closing real estate litigation. If you have recently purchased property and believe you were purposefully mislead regarding its condition, an Elk River real estate attorney may be able to help you assert your legal rights.