Verrall v. MacHura

Citations: 810 N.E.2d 1159; 2004 Ind. App. LEXIS 1262; 2004 WL 1465614Docket: 45A03-0309-CV-359

Court: Indiana Court of Appeals; June 30, 2004; Indiana; State Appellate Court

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Andrew and Susan Verrall appealed the trial court's denial of their motion for summary judgment concerning fraud claims by Eric Machura related to the sale of their home in Crown Point, Indiana. The court examined whether the trial court erred in this decision, ultimately affirming in part and reversing in part.

In 2001, the Verralls sold their home, which they had purchased in 1997, and were provided a Residential Real Estate Sales Disclosure form by the previous owners, the Myreses. This form indicated minor seepage in the basement during heavy rain. However, the Verralls experienced significant water leakage and litigated against the Myreses for misrepresentation, resolving the matter through mediation. During their ownership, they noted a decrease in water seepage, attributing it to a neighbor's sump pump adjustments, and decided against repairs, instead investing in remodeling the basement.

Before listing the home, the Verralls had a gas fireplace tested by Pilot-Lite, which confirmed it was operational. When they listed the property, the Verralls disclosed potential water issues, indicating possible light seepage during heavy rains, while asserting that the fireplace was not defective. Machura, the buyer, inspected the home at least twice and signed a contract after waiving the right to a home inspection. Despite being informed about the water seepage, he later experienced flooding in the basement within 45 days of moving in and discovered extensive damage, including a crack in the basement wall and a gas leak in the fireplace. The Verralls did not disclose the prior water damage or the lawsuit against the Myreses to the buyer.

Buyer believed that Sellers improperly removed a battery-powered back-up sump pump from the Residence and sought reimbursement, which Sellers refused. On April 29, 2002, Buyer filed a complaint against Sellers for four material misrepresentations regarding the Residence's condition: 1) water intrusion in the basement, 2) structural damage to the basement wall, 3) defects in the basement fireplace, and 4) removal of the sump pump. Sellers responded by filing an Answer and Affirmative Defenses on June 13, 2002, and moved for summary judgment on December 30, 2002, arguing that under Indiana law, Buyer could not recover based on the Sellers' Disclosure Form and statements.

Sellers presented various evidentiary materials, including affidavits and deposition excerpts, asserting that Buyer was aware of disclosed water seepage. Buyer opposed the motion, claiming that factual disputes existed regarding Sellers' knowledge of the water seepage, the opportunity to inspect for structural defects, and the fireplace's condition. Buyer provided his and his girlfriend's affidavits as evidence.

In their reply, Sellers contended that Buyer could not rely on the Disclosure Form and had failed to provide evidence disputing Sellers' knowledge regarding the water issues and structural defects. They also argued that Buyer's claims related to the fireplace were limited by statutory liability provisions. 

A hearing occurred on May 13, 2003, and on June 20, 2003, the trial court denied Sellers' motion for summary judgment. Sellers subsequently filed a Petition for Certification of Appeal, which the court granted on August 15, 2003. On October 10, 2003, the appellate court accepted jurisdiction of the interlocutory appeal, with Sellers arguing that the trial court's denial was contrary to Indiana law regarding the Disclosure Form and Buyer's evidence. The appellate review applies the same standard as the trial court, ensuring no genuine issue of material fact exists, favoring the non-moving party in evaluating evidence.

A material issue of fact must be supported by sufficient evidence for summary judgment, necessitating a jury or judge to resolve conflicting accounts at trial. To establish fraudulent misrepresentation, a Buyer must prove: 1) Sellers made false statements of material facts, 2) Sellers knew the statements were false or acted recklessly regarding their truth, 3) the statements were made to induce Buyer to act, 4) Buyer justifiably relied on the statements, and 5) Buyer suffered injury. Buyer’s claims about flooding are based on a Disclosure Form, which Indiana law mandates sellers to provide before accepting offers for residential sales. This form must disclose known conditions of the property, including its foundation and water systems. Importantly, Indiana law limits a seller's liability for errors on the form, provided the seller was not aware of the inaccuracies and was not negligent in obtaining information from reliable third parties.

The Disclosure Form at issue asserts that its contents are based on the Seller's current actual knowledge. Sellers argue against the denial of summary judgment regarding water seepage, claiming the Disclosure Form is not a warranty and cannot support a fraud claim. They reference the case Kashman v. Haas, where sellers were found not liable for undisclosed termite damage because they reasonably relied on a contractor's assurance that previous damage had been repaired. The court upheld the sellers' summary judgment, stating that the buyers did not present evidence to counter the sellers' reliance on the contractor's assurances.

Sellers are exempt from liability based on their responses on the Disclosure Form, as outlined in Ind.Code XX-XX-X-XX and I.C. 32-21-5-11. Owners are not liable for errors based on information from public agencies or professionals considered reliable, provided they reasonably believed the information was correct. In this case, Sellers did not depend on a contractor's assurances regarding basement water seepage, distinguishing this situation from Kashman. The critical issue is the Sellers' actual knowledge about water leakage when completing the Disclosure Form. Sellers must demonstrate no genuine factual dispute about their knowledge to succeed in summary judgment. Their evidence does not conclusively show this, especially given prior undisclosed water leakage and extensive remodeling after the seepage issue. A fact-finder must resolve disputes about their knowledge at trial, leading to the denial of summary judgment on water seepage.

A similar factual dispute exists regarding a structural defect in the basement wall. Although Sellers claimed they had no reason to investigate the defect, the actual knowledge of the defect is again at issue. The Buyer faces challenges in disputing Sellers’ lack of knowledge, but past water damage and remodeling create questions of fact.

On the other hand, summary judgment should not have been denied on the fraudulent misrepresentation claims concerning the basement fireplace and sump pump. For the fireplace, Sellers provided a report from Pilot-Lite, a heating company, stating the fireplace was functioning normally, which they relied upon in the Disclosure Form. The Buyer did not present evidence to counter this claim, warranting summary judgment in favor of Sellers on this issue.

Regarding the sump pump, while the Buyer asserts it was part of the purchase price and should have remained, there is no evidence of any misrepresentation or statement made to support a fraudulent misrepresentation claim. Thus, the denial of summary judgment on this claim was also improper.

Summary judgment was improperly denied regarding the basement fireplace and the back-up sump pump, while the trial court's denial of summary judgment concerning water seepage and structural defects was appropriate. The judgment was affirmed in part and reversed in part. KIRSCH, C.J. and BARNES, J. concurred. Tina Gernenz, although a co-plaintiff, was not a party to the transaction and her claims were not appealed after the trial court granted summary judgment in favor of the sellers. Additionally, the Myreses' disclosure form noted slight seepage in the basement during heavy rainfall. The Indiana legislature recodified residential real estate disclosure laws in 2003, maintaining substantive provisions while adding clarifying phrases.