By James L. Goldsmith, Esquire
"Today, we find that psychological damage to a property cannot be considered a material defect in the property which must be revealed by the seller to the buyer," said Superior Court President Judge Emeritus Kate Ford Elliott writing for the majority in an opinion filed December 26, 2012. Short of the Pennsylvania Supreme Court reversing the decision, this should settle the question of whether issues related to so-called "stigmatized properties" must be disclosed in Pennsylvania.
The case, Milliken v. Jacono, involves a 2006 incident where a property owner shot his wife and then himself in the property. Seven months later, the Jaconos bought the property at a real estate auction and, seven months thereafter, sold it to the plaintiff, Janet Milliken. The Jacanos did not mention the murder/suicide in the seller disclosure statement given to Milliken, who found out about the horrid incident three weeks after settlement. Milliken later sued the sellers and the involved brokers.
The procedural history of the case is somewhat unusual and is the subject of two articles previously published in PARJustListed. What is most remarkable about the procedural history is that the Superior Court, which had reversed a trial court's dismissal of the suit and had sent it on for trial, reconsidered its panel's decision (three judges) and took a second look. This time the outcome was far different: a seven-to-three decision in favor of the sellers. The PAR Legal Action Fund supported the filing of an amicus curiae brief in support of the broker's position that disclosure was not required.
Why did the Superior Court find that a murder/suicide need not be disclosed in the absence of a direct inquiry? After analyzing the types of disclosures mandated by law, the court noted that "psychological damage is so different from the physical and legal defects listed that it is plain that the legislature intended not to include it." The court also noted the problems that such disclosure could create.
First, how recent must an event be to require disclosure? Must a 100-year-old murder be disclosed or one that happened many owners ago?
Second, what monetary value should be assigned to such stigma? "There are persons for whom no amount of money would induce them to live in such a house, while others may not care at all, or even find it adventurous . . . [T]he monetary value of such a psychological defect will dissipate with the passage of time as the memory of the murder recedes."
Third, would crimes other than murder have to be disclosed? What about burglaries or even crimes that did not occur on the property but elsewhere in the neighborhood?
Milliken v. Jacono not only resolves the question of whether the Pennsylvania Seller Disclosure Law requires disclosure of a murder/suicide, but also whether such crimes constitute objective material defects that must to be revealed under Pennsylvania common law. "While the murder/suicide may have been subjectively material to Buyer's decision, we hold that under common law fraud a seller of real estate is only liable for failing to reveal objective material defects. Psychological damage to real estate does not constitute a defect that the law is presently prepared to recognize as material." Likewise, Milliken's claim for negligent misrepresentation also failed.
As stated, the implications of this decision go well beyond murder/suicide. If psychological defects were to be disclosed, how far down the slippery slope would we draw the line? Would we be required to reveal that a next-door neighbor is loud and obnoxious, or on some days you can smell a nearby sewage plant, or that the house was built on an old Indian burial ground? Indeed, one could identify numerous psychological problems with any house.
The Superior Court made clear that the doctrine of caveat emptor (buyer beware) is alive, and modern technology has only strengthened the argument for a buyer's duty of its own due diligence. Certainly, in the age of the Internet the modern home buyer has a powerful tool to uncover the notorious history of a house or neighborhood.