Iowa Court Of Appeals Explores Real Estate Disclosure Case

Many homeowners contact us about concerns that the sellers of their home didn’t disclose major issues with the house. A recent decision from the Iowa Court of Appeals covered two issues that frequently arise in such cases. First, proving that the seller’s liable for the nondisclosure. Second, establishing that the undisclosed problem has caused or will cause meaningful damage to the new owner. Let’s review.

The case is Michael Browne v. Christoper Roth and Debra Roth. Michael Browne bought a home from the Roths, with the intent to gut and remodel it before moving in. While he was stripping the basement walls, he discovered mold and moisture. Browne sued the Roths for failure to disclose any problems concerning water seepage and any known fungus or mold issues. He claimed the Roths breached statutory disclosure requirements as well as the real estate purchase contract incorporating those requirements.

The trial court ruled in favor of the Roths. On appeal, Browne contended that the Roths had actual knowledge of a mold and moisture problem, that they failed to disclose anything that would have informed him that further investigation was warranted, and that the trial court erred by concluding that the Roths did not violate their statutory disclosure duty and by rejecting his contract claim.

The court began by discussing Iowa Code chapter 558A. That law requires a prospective seller to deliver a written disclosure statement to a prospective buyer. The statement must include information relating to the condition and important characteristics of the property, including significant defects in the structural integrity. A person who violates the disclosure requirement is ordinarily liable for actual damages, but shall not be liable for the error, inaccuracy, or omission in information unless that person has actual knowledge of the inaccuracy, or fails to exercise ordinary care in obtaining the information.

The court next reviewed the Roths’ information on water seepage. The Roths saw waviness in the beadboard located in the northeast and southeast corner of the basement. They removed the beadboard, and the wallboard behind the beadboard was damp. They removed the wallboard and observed black mold on the wallboard, flooring strips, and the concrete block foundation wall. They cleaned up the mold, caulked, replaced a piece of wallboard in each corner with mold-resistant sheetrock, and returned the beadboard to its original position.

The Roths didn’t disclose information about the water seepage to Browne. They checked “No” to the question about “[a]ny known water, seepage or other problems”; “No” to the question about “[a]ny known fungus or mold”; “No” to the question about “[a]ny known modifications, remodeling, alterations, or repairs, etc., made without necessary permits or licensed contractors”; and “No” to the question about “[a]ny known physical problems.” But when they completed the form, they had actual knowledge of seepage and mold in the basement. Because disclosure of the seepage, mold, and remedial measures was statutorily required, the Roths violated the statute by failing to make the disclosures.

Although Browne proved that the Roths violated ther disclosure obligations, he enountered difficulty etablishing that he suffered actual damages. Conerning the mold in the basement, the trial evidence demonstrated that the mold problem had resolved at no cost to Browne and that this had occurred despite standing water being present on the floor of the basement for several years due to an unrelated bursting of a water pipe. Browne failed to prove any damages to remedy the undisclosed mold problem in the basement of the residence.

Browne also sought damages for water seepage repair. That claim failed because Browne couldn’t show that the Roths had knowledge of a widespread seepage problem. Another issue was that the necessary solution for the water seepage issue was the installation of energy walls that the city would’ve required regardless during Browne’s basement remodeling.

In conclusion, Browne’s lesson is that homebuyers who are contemplating a disclosure claim against their seller must carefully evaluate how they’ll prove that the seller had actual knowledge of the undisclosed issues. They also must critically evaluate how they’ll establish damages caused by the lack of disclosure. Iowa’s civil law doesn’t punish a wrongdoer simply for doing something wrong — Harm (damages) stemming from that wrong must also be proved.