The New Jersey statewide Real Estate form Contract provided by realtors, states in part, that the purchasing of a home is one of the most significant investments a person can make in a lifetime. Some people purchase a house to be in a great school system, while others may just want to be by the beach. Whatever the reason may be, hundreds of thousands of dollars are spent for your happiness. So wouldn’t you want to know if your potential new neighbors were volatile or disruptive?
In Phoenix v. U.S. Homes Corp. the New Jersey Court of Appeals held that a property developer has no duty to disclose off-site social conditions, such as the personality traits of a neighbor to a potential homebuyer. The Court stated that New Jersey law does not permit the expansion of the duties of home sellers to include informing buyers of potential social problems with other residence and reinforced the New Jersey rule that sellers are only obligated to disclose offsite conditions of the land which are unknown to the buyer and unobservable. The Court stated that the chaos that would have ensued from a finding of a duty to disclose the personal characteristics of home owners to prospective purchasers is hard to imagine.
In Phoenix v. U.S. Homes Corp, the plaintiff, Phoenix, visited Cedar Point, a community developed by the defendant (Lennar Homes), looking to purchase a home. A Lennar sales representative showed Phoenix a home which she eventually purchased. Phoenix claimed that during her visit a neighbor approached them and warned her about dealing with Lennar and directed an angry tired at the Lennar representative. When asked if there was a problem with the neighbor, the sales representative responded no.
After moving into the new home, the same neighbor began to park his vehicle in front of Phoenix’s home in a way that made it hard for her to get to her mailbox, directed hostile comments to her family and made racist comments about them, spit in their direction, played loud music, called the police on Phoenix and stared down and took pictures of Phoenix’s guests. Phoenix complained to local authorities and obtained a restraining order against the neighbor and, for a time, hired a security guard.
Phoenix claimed that she later learned that Lennar and the neighbor had a dispute about his level of services and that the neighbor had angry interactions with Lennar’s employees prior to Phoenix’s purchase.
In the lawsuit Phoenix alleged that Lennar knew of the neighbor’s hostile tendencies and did not inform Phoenix about them prior to the sale. According to the complaint, Phoenix stated she would not have purchased the property had she known about the neighbor’s behavior and that she relied on the Lennar’s agent’s statement that the neighbor was not a problem and the statement in the promotional materials that the community promised a ‘wonderful lifestyle.’
Phoenix brought claims against Lennar for fraud, equitable fraud, negligent misrepresentation and omission, violation of the New Jersey Consumer Fraud Act (CFA), violation of the Planned Real Estate Development Full Disclosure Act (PREDFDA), and negligent infliction of emotional distress.
Phoenix, attempting to expand the scope of a developer’s duty to disclose conditions in a development, alleged that Lennar had a duty to reveal all information it had about the neighbor once Phoenix inquire about him.
The Trial court found that the statement that the neighbor was “no problem” was not a ‘fact’ but nothing more than an ill-defined opinion. The Trial Court also stated that the terms of the Lennar’s sales agreement precluded Phoenix’s claim of fraud because it disclaims any reliance on statements outside of the contract.
The Appeals Court stated that while developers have a duty to disclose off-site conditions that are material to the transaction, they have no duty to investigate or disclose transient social conditions in the community that arguably affect the value of the property.
The Court stated that the only duty a developer in New Jersey has is to disclose off-site physical conditions known to them and unknown and not readily observable by the buyer, and that a disgruntled neighbor is not a physical condition but a social condition which the defendants were under no duty to disclose.
A ruling to the contrary would create havoc for developers and would be in tension with other rules because sellers are forbidden by various laws to disclose information about other home owners and a social condition disclosure requirement could run afoul of those rules. For example, the Federal Fair Housing Act and its regulations prohibit a seller from communicating to any prospective purchaser that he or she would not be comfortable or compatible with existing residents of a community, neighborhood or development because of race, color, religion, sex, handicap, familial status or national origin.
This case shows you that you better do your homework before purchasing a home. Requiring Lennar to disclose any information about the disruptive neighbor could have had a huge impact on real estate development in New Jersey. Would a home seller have an obligation to disclose that the neighbor’s children wake up at 6 a.m. every weekend morning and play basketball outside or that a neighbor is litigious and brought suit against other neighbors to remove overgrown trees?
The court referenced the Lennar Real Estate contract numerous times in that it provided an integration clause that specifically required the buyer to set forth any statements, representations or understandings which are made by the sales person or any other representative of the seller which are material to the buyer’s decision to purchase. Phoenix did not list any alleged representations.
This matter shows you the strength of the language in a real estate contract and how important the attorney review time period is in all real estate contracts. The attorney review time period permits you the ability to amend the real estate contract and include, among other things, any representations that were made to you and not included in the real estate contract. The attorneys at Gale & Laughlin have helped thousands of people buy and sell homes. Contact us to discuss any real estate questions you may have.