Court Considers Iowa’s Real Estate Disclosure Act and Seller’s Responsibilities

Iowa’s Real Estate Disclosure Act (Iowa Code Ch. 558A) requires real estate sellers to disclose “significant defects in the structural integrity of the structure” to prospective buyers. If the seller fails to make the requisite disclosure, they are liable to the buyer for the amount of “actual damages” suffered if they had actual knowledge of the inaccuracy or failed to exercise ordinary care in obtaining information regarding structural defects. 

Here, the buyers of an 1880’s farmhouse alleged that the sellers failed to disclose defects in the foundation of the home. After the buyers purchased the home, they discovered a large crack in the west wall of the basement, along with several cracks in the basement floor and a leaning north wall. The buyers had the home inspected by an engineer and a home inspector. Both experts indicated that the foundation of the home was constructed with limestone, the use of which typically results in moisture problems.  The experts recommended that the foundation or parts of the foundation be replaced. The buyers hired a contractor to lift the home, remove the old limestone and pour a new foundation. The buyers also discovered that the septic system was illegally draining into a ditch- a condition which was not disclosed by the seller on the disclosure form. Thus, the buyers installed a new and compliant septic system. 

The buyers sued the sellers, alleging a violation of the Iowa Real Estate Disclosure Act, fraudulent misrepresentation as to the condition of the property and breach of contract. The buyers sought nearly $84,000 in actual damages and $85,000 in punitive damages, plus court and attorney’s fees. The trial court concluded that sellers properly disclosed the structural defects in the basement to the best of their knowledge. However, they failed to adequately disclose the septic system defects and were ordered to pay the buyers $5740 in actual damages for the new septic installation. The buyers appealed the trial court’s judgment. 

The Iowa Court of Appeals first discussed the requirements of Ch. 558A.  Under that provision, sellers must disclose structural defects in the property. In this case, the sellers did disclose that there were water problems in the basement and that they attempted to fix the problems. Both parties offered conflicting testimony on the cause of the water problems. Ultimately, the appellate court was swayed by the seller’s and other prior owner’s testimony. The seller testified that they thought they “had the problem licked” when they sealed the walls with a fiber bond to prevent further leaking. The appellate court pointed out that the buyers’ evidence contained some shortcomings and that there was no way the seller could have been aware of additional structural defects on the outside of the foundation. 

The appellate court also found that there was no fraudulent misrepresentation made on the part of the sellers, because the buyers could not establish that the sellers had an intent to deceive that resulted in the damage to the home. Further, the court found that there was no breach of contract and that punitive damages may only be awarded in a real estate disclosure case if there was actual or legal malice- neither of those conditions were present here. Thus, the trial court’s verdict was upheld.  Lowe v. Myers, No. 0-255/09-1554 (Iowa Ct. App. May 26, 2010).