2013 Decision Articulates Relationship Between Seller's Disclosure and Buyer's Independent Inspection of Real Property in Texas

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

On March 14, 2013, the Texas Court of Appeals in Fort Worth (Second District) decided the case of  Volmich v. Neiman, No. 02-12-00050-CV, 2013 WL 978770, at*1 (Tex. App.-Fort Worth Mar. 14, 2013, no pet.) (mem. op.). This case greatly clarified the interplay between the disclosures made by a Seller of residential real property, and the pre-closing findings contained in an inspection performed on behalf of a Buyer. The case has tremendous implications on the viability of certain suits for fraud by non-disclosure, statutory fraud, and violations of the Texas Deceptive Trade Practices Act ("DTPA") arising from defects in real estate.

Volmich involved a home buyer and home seller (both of whom were represented by real estate agents) who executed a standard TREC-promulgated purchase/sale contract containing a provision that the buyer was accepting the property "in its present condition." The relevant contract provision states:

ACCEPTANCE OF PROPERTY CONDITION: Buyer accepts the Property in its present condition; provided Seller, at Seller's expense, shall complete the following specific repairs and treatments: treat for termites if inspection deems necessary.

 Prior to closing, the buyer arranged for an independent inspect by a licensed inspector of the buyer's choice, which revealed evidence of prior roof leaks.  Two years after closing on the house, the buyer sued the seller for fraudulent inducement and DTPA violations because of the leaky roof. The trial court granted summary judgment in favor of the seller and the buyer appealed.

The issue before the 2nd court of appeals was "whether a boiler-plate 'as-is' clause supersedes a seller's nondisclosure when the buyer relies upon an independent inspection."  A backdrop for the Court's analysis was then-existing Texas law, which provided that a valid "as is" agreement prevents a buyer from holding a seller liable if the thing sold turns out to be worth less than the price paid. Prudential Ins. Co. of Am. v. Jefferson Assocs., Ltd., 896 S.W.2d 156, 161 (Tex. 1995).  However, although an "as is" clause is enforceable standing alone, a Buyer is not bound by the "as is" clause if they were induced into the contract because of a fraudulent representation or concealment of information by the Seller. See Prudential, 896 S.W.2d at 162.

In its analysis, the court first noted that the enforceability of an "as-is" clause is dependent on the totality of the circumstances of a particular transaction. After analyzing several factors, the court concluded that the "as-is" clause was enforceable, but not binding if the buyers were fraudulently induced. The court then held that "under the facts of this case," the buyer's independent inspection defeated the reliance element of the fraudulent inducement claim as well as the producing cause element of the DTPA claim. Both elements are essential for any Plaintiff's success in proving these causes of action.

The court stated, however: "[w]e do not hold that an independent inspection will always bar DTPA and fraudulent inducement claims. Rather, we hold only that, under the facts and circumstances of this case, the [sellers] met their traditional summary judgment burden, and the [buyers] did not meet their burden of presenting evidence to create genuine issues of material fact on each element of their fraudulent inducement and DTPA claims or on an element of the [sellers'] affirmative defenses."  Despite this disclaimer, the Volmich holding has far-reaching legal implications.

If you are confronted with claims or a lawsuit relating to fraud by Non-disclosure, statutory fraud in a real estate contract, or DTPA violations arising from the purchase or sale of Texas real estate, you should contact an experienced real estate lawyer who has been recognized as one of San Antonio's best.