On March 3, 2016, the Eighth District Court of Appeals in Cuyahoga County, Ohio rendered the decision in the case of Montgomery v. Vargo, 2016-Ohio-809 once again clarifying that all elements of fraud must be proven even if a defect in a home is not disclosed on the Residential Property Disclosure Form. Many people, including a lot of attorneys, simply assume that if a defect is found by a buyer after a purchase and that defect was not disclosed on the Residential Property Disclosure Form, then the seller is responsible for the repairs.
In Montgomery v. Vargo, almost two years after buying the home from Mr. Vargo “as-is,” Mr. Montgomery discovered that the roof over the den had some rotted wood with a cost to replace the roof of just under $3,000. It turns out that when Mr. Vargo bought the property in a foreclosure sale, he discovered that the chimney on the side of the den had separated from the house. He decided to remove the fireplace and chimney. He did not disclose that information on the Residential Property Disclosure Form.
The Magistrate who heard the case in Small Claims entered a judgment against Mr. Vargo for $1,500 solely because he did not disclose the removal of the fireplace and chimney. Mr. Vargo appealed as the removal of the fireplace and chimney were unrelated to the roof defects. In paragraph 6 of the Appellate decision, the court stated, “In this case, liability was imposed because of the failure to disclose a fact under which the seller owed a duty to disclose. The judgment must be reversed. Ohio law does not impose liability based on the mere failure to disclose.”
In paragraph 7, the court stated, “In this case, the court determined that the defect at issue, the rotted roof, was a latent defect unknown to either party until October 2013, two years after Montgomery purchased the property. Further, the trial court concluded Montgomery purchased it “as is,” and that conclusion was not appealed. In the absence of fraud, therefore, Montgomery cannot recover any damages from Vargo.”
In order to be successful in a fraudulent concealment case, a plaintiff must establish the following: (1) concealment of a fact when there is a duty to disclose, (2) that it is material to the transaction at hand, (3) made falsely, with knowledge of its falsity or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred, and (4) with intent to mislead another into relying upon it, (5) justifiable reliance on the representation or concealment and (6) resulting injury proximately caused by the reliance.
Mr. Montgomery relied upon Ohio Revised Code §5302.30 as requiring disclosure of the chimney removal. The court stated in paragraph 9, “The duty to disclose, however, is but one element of a fraudulent concealment claim. R.C. 5302.30 does not give rise to an independent cause of action. The statute merely codifies a party’s duty to disclose certain facts for the purposes of residential real estate transactions… The plaintiff must still present evidence substantiating all other elements of the fraud claim. Even if Vargo breached a duty to disclose, there was no evidence presented of any justifiable reliance on that concealment that proximately caused the injury for which damages were sought. In other words, there was no evidence that the rotted roof was even remotely related to the removal of the fireplace in the den or the chimney attached to the side of the house”
The court also stated in paragraph 13, “It should also be noted that R.C. 5302.30(F)(1) expressly limits liability to nondisclosure of facts within the seller’s actual knowledge. A seller of residential property is “not liable in damages that arise from any error in, inaccuracy of, or omission of any item of information required to be disclosed in the property disclosure form if the error, inaccuracy, or omission was not within the transferor’s actual knowledge. There was no evidence that Vargo had actual knowledge of any problems associated with the exterior roofing over the den; and therefore, even if he omitted any item of information that he was required to disclose, he cannot be liable. There was no evidence that Vargo had actual knowledge of the rotted condition of the roof — the latent defect.”
The court provided many examples of failed attempts of plaintiffs in other case to impute knowledge on the seller of a home with latent defects. The courts in Ohio have consistently held that a plaintiff must prove the actual knowledge of the defendant. Without being able to prove the actual knowledge of the seller, the chances of a positive outcome for a buyer are slim at best.