Property's water woes create legal action against seller, broker.

Homeowners in New Jersey who discovered water drainage issues on their property ended up suing the seller and broker, alleging fraudulent statements and negligent misrepresentation. But although the seller told the buyer there was no water problem, despite having knowledge of previous floods, the courts waffled on holding the seller accountable. Read on to learn why.

A pair of water-weary homebuyers in New Jersey filed a complaint against the previous homeowners, a real estate broker, the home’s inspector and even the neighbors when water drainage problems appeared on their property. But their arguments weren’t enough to convince the Superior Court of New Jersey, Appellate Division, which affirmed on Feb. 11 a lower court’s decision to dismiss the complaint.

Plaintiffs Jonathan and Robin Lane bought a house in Bergen County, New Jersey and from Angela and Arnold Schmied, and later discovered water drainages issues in the yard. The Lanes sued the Schmieds, claiming they made fraudulent statements and negligent misrepresentation regarding the drainage system. Also targeted in the suit were the Lanes’ neighbors, the home inspector who inspected the property and the real estate broker.

Potential for problems

On two occasions, the Lanes claimed they asked Angela Schmied specific questions regarding the history of water issues on the property. She allegedly replied that there were no water problems.

During one discussion, Jonathan Lane said, he and Angela Schmied were standing near a pond on a neighbor’s property, and Schmied informed him that it wasn’t a stagnant pond, and that the neighbor had a switch to move the water, preventing mosquito problems.

Angela Schmied also allegedly told Lane that the property had once flooded during Hurricane Floyd in 1999, and that “everybody in the neighborhood had basically been flooded as well and after Hurricane Floyd they decided to put in a $30,000 to $35,000 system and they were assured that wouldn’t happen after,” Jonathan Lane testified.

Arnold Schmied said in court that Jonathan Lane never asked him about drainage issues. The Schmieds also claimed that when they bought the house, they were satisfied that any drainage problems had been resolved.
Additionally, Angela Schmied testified that when she had a discussion with Jonathan Lane, they had been talking about a catch basin and when he asked her if she thought there would be any future troubles with it, she replied that she thought he “shouldn’t have any more problems except for something unforeseen like Hurricane Floyd.”

Schmied said Jonathan Lane and the home inspector walked through the yard and saw the drainage system.

Fact or opinion?

The Superior Court of New Jersey, Chancery Division, Bergen County determined the property’s drainage problem resulted from activities on neighboring properties, and found that Angela Schmied’s statements to Jonathan Lane “‘was more of a statement of opinion than a statement of fact.’”

The superior court thus found that her statements couldn’t be construed as fraud or negligent misrepresentation, and the complaint was dismissed on Feb. 23, 2006. The Lanes appealed, arguing that the court’s findings weren’t supported by credible evidence on record.

The Lanes contended that Angela Schmied’s opinion regarding the drainage system did not negate her failure to disclose the property’s flooding history. Furthermore, the Lanes claimed the evidence supported a finding that the Schmieds fraudulently concealed the property’s drainage condition, and therefore they should have been entitled to rescind the sale.

In response, the Schmieds claimed the court’s factual findings were well-supported by the evidence, and that the Lanes should not be entitled to damages or recession. The Schmieds also contended that the factual findings should not be entitled to special deference, since the trial judge made no express credibility findings.

Ruling was right-on

But reviewing the superior court’s opinion, the appellate court said it was convinced that the judge wholly accepted Angela Schmied’s credibility.
“In doing so, he accepted her testimony that plaintiffs were aware of the drainage system on the property and that she provided no more than an opinion on the future efficacy of the drainage system to address drainage issues on the site,” the appellate court stated.

The appellate court noted that an essential element of fraud is a material representation of a present or past fact. Citing the case House of Drugs Inc. v. RD Elmwood Associates, the court found that when a buyer makes an independent investigation, he or she is held accountable for everything that party could have discerned by employing reasonable diligence.

In the Lanes’ case, the court determined that Angela Schmied didn’t offer a present or past fact, but rather she expressed her opinion about the future function of the drainage system on the property. The Lanes’ knowledge of the system “should have served as some notice of a drainage problem to the home inspector, who clearly took note of the existence of the system and expressed an opinion of its efficacy,” the appellate court said, adding that under those circumstances, it couldn’t be held that the superior court misapplied the law based on the facts that it found.

The superior court’s dismissal of the complaint was therefore affirmed.

Jonathan Lane and Robin Lane v. Arnold Schmied and Angela M. Schmied.