Legal Claims Arising From a Seller’s Failure to Disclose

Breach of Contract

The vast majority of residential home sales use the standard form contract that is issued by Colorado’s Department of Regulatory Agencies or “DORA.” The contract includes provisions whereby the seller must fill out a “Seller’s Property Disclosure” form. If a seller fails to disclose information about the home, he or she might be in breach of contract as a result because there is a contractual agreement to disclose information.

To prevail on a breach of contract claim, the plaintiff must show four elements: (1) the existence of a contract, (2) performance by the plaintiff or some justification for nonperformance, (3), failure to perform the contract by the defendant; and (4) resulting damages to the plaintiff.

Misrepresentation

In addition to a claim for breach of contract, a buyer may have a claim for “misrepresentation.” Misrepresentation claims and nondisclosure claims are very similar; however, a misrepresentation claim is based on an affirmative statement by the seller that is not true whereas a nondisclosure claim is based on the lack of disclosure (i.e., no statement was made at all).

Generally, to prevail on a claim for misrepresentation, the plaintiff must show that: the defendant made a false representation, the statement was made to induce the plaintiff into acting in reliance on the statement, the plaintiff actually did rely on the representation, and the plaintiff suffered damages as a result. What this means in layman’s terms is that the seller said something was not true, the buyer purchased the property based on that false statement, and the buyer suffered a loss as a result.

Nondisclosure

As explained above, a claim for nondisclosure is a closely-related claim to misrepresentation. However, a claim for nondisclosure mainly alleges that the seller ought to have made a certain representation but chose not to. This is by far the most common occurrence in residential real estate transactions. A seller will know about a prior flood, window leak, roof leak, or mold and will choose not to disclose any of the information to the buyer. The buyer will purchase the home and realize later that the seller failed to disclose the problems. Under Colorado law, a seller of residential property has an independent duty in tort to disclose all “latent but known defects.” See In re Estate of Gattis, 2013 COA 145, ¶ 17.

“Home sellers owe home buyers an independent duty to disclose latent defects of which they are aware” See In re Estate of Gattis, 2013 COA 145, ¶ 2.

Potential Damages

A buyer of property can claim several types of damages against a seller that failed to disclose problems. The primary item of damages that the buyer may be entitled to is the economic cost of having to repair or replace the undisclosed or misrepresented condition. On top of that, the buyer may be entitled to other damages such as non-economic damages as well as prejudgment interest. If the property is a rental (or supposed to be), the buyer may also be entitled to lost profits. Finally, under the terms of the standard form contract issued by DORA and unless the contract was somehow modified, buyers are entitled to their attorney fees and costs if they prevail in the litigation.