Iowa law requires real estate sellers to provide a written disclosure statement to prospective buyers that details the condition and characteristics of the property. The law is known as the Iowa Real Estate Disclosure Act (Act), and it authorizes an aggrieved buyer to recover actual damages resulting from a violation of the Act. But, must the buyer establish that the seller defrauded the buyer as a condition of recovering under the Act? That was the question presented in this case.
The plaintiffs bought a home from the defendants who had lived in the home for several years. They had experienced water problems in their basement and performed drainage work around the house to help correct the problem. They also replaced basement cabinets and carpet, and painted the basement walls. During the process of selling the home, the defendants executed a disclosure statement on which they claimed that there was no known water or other problems with the basement or foundation, no known settling, flooding, drainage or grading problems and no known structural damage. However, after the plaintiffs purchased the residence, they experienced basement flooding during rainstorms which damaged the carpet, drywall and cabinets. The plaintiffs sued under the Act to recover their damages.
The trial court ruled for the defendants even though the court determined that the defendants knowingly made false statements on the disclosure document. The court believed that the Act required an aggrieved buyer to establish that they were damaged because they reasonably relied on the seller’s false representations. Here, the trial court determined that the plaintiff had failed to meet that requirement. But, does the act require the buyer to prove reliance on the seller’s false statements? That was the issue on appeal.
The appellate court reversed the trial court, holding that the Act does not require an aggrieved buyer to prove fraudulent misrepresentation as an element of “reliance” under the Act. There is no need to prove fraud or reliance on that fraud. The Act only requires that the buyer show that the seller had actual knowledge of a problem concerning the property that was not disclosed. Here, the buyers justifiably relied on the disclosure document in deciding to buy the property and there were no outward signs of water damage that would have put the plaintiffs on notice of problems. The court also determined that the water damage was proximately caused by the problems that were not disclosed on the disclosure document. On the damage issue, the court noted that Iowa law allows for some degree of speculation, but that the damages needed to be adjusted on remand to account for deconstruction and remodeling costs. Hammes v. JCLB Properties, LLC,764 N.W.2d 552 (Iowa Ct. App. 2008).