Stigma Busters - A Primer on Selling Haunted Houses and ...

A t common law, home purchases were governed property. Real estate that suffers from nonphysical or emo-
by the principle known in Latin as caveat emp- tional defects is called “stigmatized property.”
tor—in English, “buyer beware.” Buyers were
expected to perform their own investigation into the “[S]tigmatized property” . . . has been defined as “prop-
property and make their judgments on whether or not to erty psychologically impacted by an event which occurred
purchase based on their own inquiry. Gradually the law or was suspected to have occurred on the property, such
has imposed duties of disclosure on sellers. Simply speak- event being one that has no physical impact of any kind.”
ing, sellers must disclose to buyers any material defects in National Association of Realtors, Study Guide:
the property. Failure to disclose material defects is legally Stigmatized Property 2 (1990), quoted in Robert M.
tantamount to making false representations. Morgan, The Expansion of the Duty of Disclosure in Real
Estate Transactions: It’s Not Just for Sellers Anymore, Fla. B.J.,
Nondisclosure of Stigmatizing Information May Feb. 1994, at 31.
Provide a Cause of Action
Strawn v. Canuso, 657 A.2d 420, 427 n.1 (N.J. 1995), supersed-
Usually, material defects in real property relate to physi- ed by statute as stated in Nobrega v. Edison Glen Assoc., 772
cal flaws in the property or its structures. Some defects, A.2d 368 (N.J. 2001).
however, are not manifested in physical aspects of the
When can a buyer complain that the property is stigma-
Marc Ben-Ezra and Asher Perlin are attorneys with Ben- tized and rescind a contract or state a cause of action on that
Ezra & Katz, P.A., in Miami, Florida. basis? How would a buyer react upon discovering the house

Stigma Busters

A Primer on Selling Haunted Houses and Other Stigmatized Property

By Marc Ben-Ezra and Asher Perlin

The 101-year old A.J. Henry House in Michigan City, Indiana, site of the suicide of a previous resident. Photo by David VanFleet.

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he or she had agreed to buy had been tion or omission that warrants rescis- Notice that the statute provides that
the site of a gruesome murder or sui- sion. Published decisions dealing with this information is nonmaterial as a
cide? What if the previous occupant rescission or misrepresentation claims matter of law. Then, it provides immu-
suffered from HIV or AIDS? What if based on property stigmatization are nity from suit for nondisclosure that
the house were haunted? These are rare perhaps because of the trend in property is stigmatized. Thus, the leg-
serious questions—even the last one. state legislatures to address the issue islature has indicated that certain irra-
At least one court recognized that a statutorily. At least 21 states have tional fears—even those that are in fact
purchaser stated a cause of action to adopted statutes speaking to stigma- “material” to many purchasers—are
rescind the contract when she discov- tizing issues in one way or another. nonetheless legally immaterial.
ered that a woman and her four chil- Cal. Civ. Code § 1710.2; Colo. Rev. Stat.
dren were murdered in the house. Reed Ann. § 38–35.5–101; Conn. Gen. Stat. In fact, buyers’ reluctance to pur-
v. King, 193 Cal. Rptr. 130 (Cal. Ct. § 20–329dd; Del. Code Ann. tit. 24, chase stigmatized property is not
App. 1983). In another case, buyers § 2930; Fla. Stat. § 689.25; Ga. Code based only on irrational fears, preju-
tried to rescind the purchase contract Ann. § 44–1–16; Haw. Rev. Stat. dices, and superstitions. The New York
when they learned that the previous § 467–14(18); Idaho Code § 55–2802; “poltergeist court” found that the
owner died of AIDS. Kleinfield v. Ky. Rev. Stat. Ann. § 207.250; La. Rev. house’s reputation as being haunted
McNally (N.Y. Co. Sup. Ct., July 15, Stat. Ann. § 37:1468; Md. Code Ann., could dramatically affect its market
1988), cited in Ross R. Hartog, Note, Real Prop. § 2–120; Mo. Ann. Stat. value. Nonetheless, the Florida statute
The Psychological Impact of AIDS on Real § 442.600; N.M. Stat. Ann. § 47–13–2; (and most of the other state statutory
Property and a Real Estate Broker’s Duty Okla. Stat. tit. 59, § 858–513; Or. Rev. solutions to the problem) relieves sell-
to Disclose, 36 Ariz. L. Rev. 757, 756–66 Stat. § 93.275; R.I. Gen. Laws ers of any duty to disclose these stig-
(1994). In addition, a New York appel- § 5–20.8–6; S.C. Code Ann. § 27–50–90; matizing facts.
late court allowed a purchaser to S.D. Codified Laws § 43–4–44; Tex.
rescind his contract on a property Prop. Code Ann. § 5.008(c); Utah Code At the other extreme of the statuto-
when he ascertained that his new Ann. § 57–1–37; Va. Code Ann. ry spectrum is South Dakota, which
house was widely reputed to be pos- § 55–524. requires certain nonphysical disclo-
sessed by poltergeists. Stambovsky v. sures. Specifically, the seller must dis-
Ackley, 572 N.Y.S.2d 672 (N.Y. App. The statutory solution in Florida is close whether, in the 12 months pre-
Div. 1991). The “poltergeist court” typical. Fla. Stat. § 689.25 provides: ceding the disclosure statement, a
held: homicide or any other felony against a
(1) (a) The fact that an occupant of person or the property was committed
While I agree with Supreme Court real property is infected or has been on the property. S.D. Codified Laws
that the real estate broker, as agent infected with human immunodefi- § 43–4–44 (2004). The statute provides
for the seller, is under no duty to ciency virus or diagnosed with the buyer with the right to terminate a
disclose to a potential buyer the acquired immune deficiency syn- written offer to purchase the property
phantasmal reputation of the prem- drome is not a material fact that based on these disclosures. Id.
ises and that, in his pursuit of a must be disclosed in a real estate § 43–4–39 (2004). The statute also pro-
legal remedy for fraudulent misrep- transaction. tects from liability any seller who
resentation against the seller, plain- truthfully provides the disclosures. Id.
tiff hasn’t a ghost of a chance, I am (b) The fact that a property was, § 43–4–40 (2004).
nevertheless moved by the spirit of or was at any time suspected to
equity to allow the buyer to seek have been, the site of a homicide, Georgia’s statute exemplifies a third
rescission of the contract of sale and suicide, or death is not a material approach. Although the statute protects
recovery of his down payment. fact that must be disclosed in a the nondisclosure of stigmatizing infor-
real estate transaction. mation, it also provides an affirmative
Id. at 674–75. On learning of any of (2) A cause of action shall not arise duty to respond honestly to questions
these types of “defects,” many buyers against an owner of real property, relating to this same information. Ga.
would have similar apparitions . . . er, his or her agent, an agent of a trans- Code § 44–1–16(a)(1). Contrast Florida
apprehensions about the deal. feree of real property, or a person and many other states that immunize
licensed under chapter 475 for the nondisclosure, even when the seller or
Several States Regulate failure to disclose to the transferee broker is asked. Under this latter
Disclosure of Stigmatizing that the property was or was sus- approach, a cause of action, even for an
pected to have been the site of a intentional misrepresentation, would
Information Statutorily homicide, suicide, or death or that appear difficult to maintain because
an occupant of that property was under common law fraud and misrep-
The usual claim is that the seller’s fail- infected with human immunodefi- resentation standards, liability is only
ure to disclose the stigmatizing infor- ciency virus or diagnosed with for misrepresentations that are material.
mation was a material misrepresenta- acquired immune deficiency Under the Georgia model, the purchaser
syndrome. may, by asking, render stigmatizing
information material.

&60 PROBATE PROPERTY ᭿ MAY/JUNE 2005

Even when states have statutorily the vast majority of jurisdictions. the buyer. This duty is equally applica-
protected nondisclosure of stigmatizing Case law on psychologically impact- ble to all forms of real property, new
information, lawyers must review the and used.
language of the particular statute. Most ed property is sparse. But general legal
such statutes protect only specifically principles regarding disclosure in real 480 So. 2d at 629. This rule is widely
enumerated nondisclosures, such as estate transactions strongly favor open- accepted in other jurisdictions as well. See,
whether an occupant had been diag- ness. Nearly 20 years ago, in a case deal- e.g., Layman v. Binns, 519 N.E.2d 642, 644
nosed with AIDS or whether a murder ing with a hidden physical defect in a n.1 (Ohio 1988) (listing cases). In view of
or other serious crime occurred in or residence, the Florida Supreme Court the trend away from caveat emptor, when
near the house. A few states, however, observed: “[T]he tendency of the more in doubt, disclosure would appear to be
go so far as to protect nondisclosure of recent cases has been to restrict rather the recommended course of action.
all information that would have only than extend the doctrine of caveat emp-
psychological impact on the value of the tor. The law appears to be working Conclusion
property. Colorado, for example, immu- toward the ultimate conclusion that full
nizes nondisclosure of any circumstance disclosure of all material facts must be It is surprising that so many legislatures
that could psychologically impact the made whenever elementary fair con- have refrained from acting to limit liability
property. Colo. Rev. Stat. Ann. duct demands it.” Johnson v. Davis, 480 for nondisclosure of stigmatizing informa-
§ 38–35.5–101. If a buyer purchases a So. 2d 625, 628 (Fla. 1985). Except when tion. Often the individuals handling the
house in Colorado that turns out to be legislatures have erected barriers, the sales of properties are no better situated
haunted, the buyer will be less likely to courts have been steadily expanding than the buyers to know about these psy-
be able to bring an action for misrepre- sellers and brokers’ affirmative duties of chological “defects” in the property. The
sentation, than, say, in Florida, where disclosure. In Johnson v. Davis, the obvious examples are brokers, who usual-
only specifically enumerated stigmatiz- Florida Supreme Court concluded: ly know what the seller tells them. Even
ing circumstances are immunized. some sellers should be shielded from lia-
[W]e hold that where the seller of a bility for these types of nondisclosures. In
One other variable that demands home knows of facts materially many areas, foreclosures constitute a sig-
attention is whether the statute protects affecting the value of the property nificant percentage of all property sales.
sellers, brokers, or both. The Colorado which are not readily observable and The institutional sellers more often than
statute protects only brokers. are not known to the buyer, the seller not would not know about any stigmatiz-
Oklahoma’s statute, which otherwise is under a duty to disclose them to ing circumstances. Psychological impact
largely resembles Colorado’s, protects statutes remove a large degree of uncer-
both sellers and their licensees. Okla. AD Index tainty from these transactions. ᭿
Stat. tit. 59, § 858–513. In all cases when
a particular statute leaves a gap, any 3M 5, 7, 9 www.post-it.com/lawyers
case would default to the common law. Advent Oil 51 1-720-939-1414
Thus, practitioners, even those in states [email protected]
that have legislated on the subject, must American Philatelic Society 63 800-782-9580
educate themselves regarding problems www.stamps.org
under the common law and possible Appraisal Institute IFC
solutions. Although a lawyer’s research www.appraisalinstitute.org/lawyer www.afhe.com
into the client’s obligation should not 15 877-553-6376
end here, a possible starting point could Attorneys for Family-Held Enterprises 67 www.americanbarinsurance.onlinecourtbonds.com
be to consider whether (hypothetically), www.bessemer.com
if the house turns out to be haunted, the The Bar Plan www.ctic.com
client (whether a seller or broker) could 1-800-836-0479
be liable, and for what. Bessemer Trust 57
BC www.incavoappraisals.com
Most States Continue to Treat Chicago Title 8 1-800-663-2255
23 www.heirsearch.com
Stigmatized Property Under the Core Funding Group, LP 1-800-567-8434
45 www.lostheir.com
Common Law Council on Foundations 21 866-535-9220
www.communityfoundations.net www.nobleroyalties.com
More than half the states in the country 58 xxxxxxxxxxxxxxxxxxxxxx
continue to decide all issues relating to Incavo Appraisals
disclosure of stigmatizing information
under the common law. Moreover, as International Genealogical
noted above, even when states have leg- Search
islated in this area, the statutes usually
do not provide complete immunity to Josh Butler & Co.
all possible defendants. Reference to
common law is therefore necessary in Noble Royalties, Inc. IBC

Thompson West 41

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