Buyer Beware! (Of Ghosts?)

            The crunching of leaves, cold nights preceding comfortably cool days, October is the epitome of fall. Halloween is one of the most beloved holidays in this country, surely netting millions for the Nestlé Company and your local dentists. Halloween is known for emphasizing (and celebrating) the things that scare us. However, many places in this country attempt to make money all year-round in an attempt to monetize the bizarre, unknown, and frightening. What people often do not think about is the legal impact of such actions. In Stambovsky v. Ackley, 169 A.D.2d 254 (N.Y. App. Div. 1991), a New York Court was forced to decide that “as a matter of law, [a] house [was] haunted.” Yes, in a 1991 case riddled with ghostly-puns, a Court was actually required to write that sentence. In fact, the decision is now known as the “Ghostbusters” ruling. Please join us for a fearsome cautionary tale about disclosures in Property Law.

            After having his petition dismissed, a man appealed his rescission action. The buyer signed a purchase and sale contract on a home in Nyack, New York, a village just outside of New York City. What was the reason for his suit? The purchaser had come to find out the house was “haunted”. New York, like New Hampshire, is a caveat emptor state, meaning “let the buyer beware”. For her part, the seller held the house out as haunted. The seller sought after the publication of her family’s stories of ghostly apparitions haunting the home. The stories appeared in Reader’s Digest and the local press on at least two occasions. These publications gave the home a local reputation of being haunted. By 1989, the home was included on a walking tour of the city, which included mentioning the home’s ghostly inhabitants. However, the buyer was not from Nyack. Therefore, he was unaware of the building’s reputation of having ghostly dwellers. Upon learning of the home’s spectral residents, the seller wished to have a rescission of his contract.

At this point, a reader may ask how could the Court possibly be forced to waste its time with such nonsense. Is the Court really going to say that a buyer can back out of a contract because he is afraid of ghosts? The short answer is yes, but not for that reason. Despite the ridiculous context, there was a real legal question for the Court to answer: How far does caveat emptor apply? The Court answered the question by stating, baring certain nonapplicable exceptions, there is normally no duty to disclose information concerning the premises. However, there are limits to caveat emptor. The basis behind the legal theory is that it is the buyer’s sole responsibility to assess the fitness and value of the property he or she is buying. However, it is not the buyer’s responsibility to consider and ask every single question that could possibly pertain to the property. The Court encapsulates this idea by writing, “there is no sound policy to deny plaintiff relief for failing to discover a state of affairs which the most prudent purchaser would not be expected to even contemplate.” Of course, any person would want to know the facts that may impact the potential value of a home, right?

As preposterous as the facts of this case may be, in New York, and in general, caveat emptor applies to the physical condition of the home. Caveat emptor does not apply to the reputation of a home created by information disseminated to the public through the seller.  The Court held that “[w]here a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller, or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction, nondisclosure constitutes a basis for rescission”. Even express disclaimers will not save the potential defendants. The Court takes time to note that even though the purchase and sale agreement included the phrase to sell the home “as is”, such language assumes that both parties have an equal understanding of what the property is or had an opportunity to reasonably discover such facts. As the Court reasons, “permit[ting] a seller to take unfair advantage of a buyer’s ignorance so long as [the buyer] is not actively misled [is] ‘singularly unappetizing’.” For here, the seller not only took advantage of the seller’s ignorance, but did so on the basis of facts the seller created about the home.

            While you likely will not have to deal with poltergeists when buying or selling your next property, the sale of a home does have its share of terrifying pitfalls. New Hampshire is a caveat emptor state. Surely, you would not want to be left with some haunted manor (made scarier by the termite damage you forgot to ask about). Consider consulting with an attorney that knows the kinds of questions you should ask before signing your name to any contract. At Parnell, Michels & McKay we seek to guide people through what can be obscure legalese to help provide sound legal advice steeped in the practical necessities particular to a client’s situation. If you are interested in learning more about the kinds of questions you should ask when purchasing a home, information you should provide when selling a home, or have questions and concerns about Property Law, please contact us to learn more. Let us help you avoid a “haunting” experience.