/>iIt is no secret among professional liability defense attorneys that the sellers of residential real estate are not the only parties susceptible to lawsuits alleging insufficient disclosures. Illinois real estate brokers and their agents also routinely are named as defendants in these cases.
Negligent misrepresentation claims against real estate professionals are common and are often accompanied by claims under the Residential Real Property Disclosure Act (Disclosure Act) and Article 15 of the Real Estate Licensee Act (Licensee Act).
Claims against real estate professionals under these acts are becoming more common, and thus there has been significant discussion in the Illinois appellate courts interpreting – among other issues – the scope of a real estate agent’s duties under these acts, and what evidence or allegations are sufficient for a plaintiff-buyer to prove the often-litigated issue of “reasonable reliance.” Two recent appellate opinions offer some insight.
THE HAHN OPINION
The Illinois Second District Appellate Court opinion in Hahn v. McElroy addressed a case where the plaintiffbuyers claimed that they discovered mold and water damage shortly after moving into the property. The buyer sued the seller and the seller’s agent, and the evidence revealed that the sellers previously had water problems, but that they were fixed in 2015, three years before the sale. Notably on this issue, the Second District held that previous problems the sellers reasonably believed were corrected need not be disclosed, and rejected the plaintiff’s argument that circumstantial evidence to the contrary was sufficient to defeat the defendants’ motion for directed verdict after a bench trial.
Further, the buyer argued that since the plaintiff knew about prior water problems, they should have investigated and confirmed that the disclosure form’s representation of no water or mold issues was accurate. The Second District rejected this argument, noting that section 35 of the Disclosure Act does not require sellers to investigate and confirm their representations, nor does a seller’s agent have such an obligation.
The Hahn opinion offers insight on two important points often litigated in these cases:
• Past defects that the seller reasonably believes have been fixed need not be disclosed.
•The Disclosure Act does not impose a duty on real estate agents to independently investigate the veracity of their clients’ disclosures.
With respect to the former, the Hahn case offers clarity as to the Disclosure Act’s scope; if sellers reasonably believe past problems have been fixed, neither they nor their agent is required to disclose those past problems and how they were remedied.
As to the latter, Hahn offers an important distinction between Disclosure Act claims against real estate agents versus negligent misrepresentation claims. Under the Disclosure Act, an agent has no obligation to investigate the seller’s representations, whereas in a negligent misrepresentation claim, the agent has no obligation to independently investigate unless the agent could have discovered that the seller’s representations were false through the exercise of ordinary care. See, e.g., Harkala v. Wildwood Realty, Inc., 200 Ill. App. 3d 447, 454 (1st Dist. 1990).
Negligent misrepresentation and Disclosure Act claims against real estate professionals often rely on the same allegations; thus, the distinction set forth in Hahn is an important consideration.
THE REVITE OPINION
In an Illinois First District Appellate Court case, Revite Corp. v. 2424 Chi., Inc., the court (in an unpublished Rule 23 opinion) affirmed the trial court’s dismissal of various counts against the sellers and real estate agents in connection with the plaintiff’s purchase of two residential and one commercial unit in an HOA building.
The Revite opinion offers insight into the scope of a real estate agent’s duties under the Licensee Act, as well as what facts can defeat a plaintiff’s claim of justified reliance.
The First District court rejected the plaintiff’s claim that her agent violated his duty to exercise reasonable skill and care by failing to advise the plaintiff to bring an inspector to the day-of-closing walkthrough. The court noted that the agent (who was acting as a dual agent, governed by section 15-45 of the Licensee Act) was not mandated to advise the plaintiff to bring an inspector; the Licensee Act says that agents “can” help arrange for an inspection. Thus, the court held that the plaintiff “fails to explain how that advice violated duties under section 15-15(a)(3) to ‘exercise reasonable skill and care in the performance of brokerage services.’”
While the Revite opinion is unpublished, it nonetheless may be persuasive in a claim that an agent breached their duties under the Licensee Act by failing to advise the buyer to bring an inspector to the final walkthrough.
Further, the Revite plaintiff – in support of her negligent misrepresentation claim against the realtor – argued that she reasonably relied on the realtor’s statement that she could build a fence on the property. However, the court held that since the plaintiff’s real estate attorney (at the plaintiff’s direction prior to closing) specifically negotiated for the plaintiff to become part of the HOA – which subjected her to the HOA declaration that explained that the plaintiff would not be able to build a fence without the board’s approval – the plaintiff could not prove justified reliance on the realtor’s representation. The court thus affirmed the grant of summary judgment on that claim.
The First District’s discussion of reasonable reliance in Revite is notable because whether reliance on a statement is reasonable is typically a question of fact, precluding summary judgment. See, e.g. Olson v. Hunter’s Point Homes, LLC, 2012 IL App (5th) 100506 (holding that even though public records may have revealed to the plaintiff-buyer the truth of the alleged misrepresentation, the complexity of interpreting those public records was sufficient to create a question of fact regarding whether reliance was justified). Thus, the Revite opinion discusses the reasonable/justified reliance element outside of the context of public records and provides guidance as to what other information available to the plaintiff-buyer can potentially eliminate their ability to claim justified reliance and avoid a question of fact.
Finally, it is notable that other appellate courts around the country recently addressed similar fact patterns, affirming lower courts’ decisions in favor of a seller’s real estate agent. See, e.g., Douet v. Romero, Tex. 14th App. Dist. (2022) (affirming summary judgment for seller’s agent’s because no evidence established that the agent knew or should have known that the seller’s representation that no mold issues existed was false); see also, Atlanta Partners Realty, LLC v. Wohlgemuth, 365 Ga. App. 386, 393-96 (2022) (holding plaintiffbuyer’s negligence claim against seller’s agent failed because the plaintiff could have discovered the alleged defect by way of a reasonable inspection and, therefore, seller’s agent could not be liable).
The plain language of Georgia’s statute governing seller’s agents’ duties to buyers was dispositive as to the agent’s scope of duty to the plaintiff and provides that if the alleged defect can be discovered by a reasonable inspection, the plaintiff cannot establish the element of justified/reasonable reliance); see also, Young v. Era Advantage Realty, 2022 MT 130 (Mont. Sup. Ct. 2022) (holding plaintiff-buyer’s negligence and constructive fraud claims against seller’s agent failed as a matter of law because plaintiff presented no evidence that seller’s agent knew or should have known of the undisclosed defect [water intrusion], and holding that Montana’s statute governing real estate agents’ duties [MCA §37-51-313(3)(a)] controlled as to the scope of the seller’s agent’s duty to the plaintiff-buyer).
CONCLUSION
Buyers of residential real estate are increasingly using the same facts and allegations to bring claims for common law negligence and statutory claims against sellers’ real estate agents. In Illinois specifically, negligent misrepresentation claims are often buttressed by Illinois Residential Real Property Disclosure Act and Real Estate Licenses Act claims.
The sheer number of these claims has led to much appellate review of the various issues presented, as well as what the plaintiff-buyers must bring forth in terms of evidence to satisfy the elements of their claims. As discussed, it is important that professional liability attorneys monitor these appellate decisions and appreciate the often-nuanced analysis of these claims. Specifically, it is important to know the extent to which statutes govern the scope of a seller’s agent’s duty to a buyer, and what sort of evidence may prove dispositive with regard to the plaintiff-buyer’s ability to establish that they justifiably or reasonably relied on the agent’s representations.
This area of the law is regularly evolving, and conducting discovery with the above-discussed considerations in mind can result in dispositive motion victories, saving real estate professionals the costs and risks associated with taking these cases all the way through a trial.
