Here is the situation. You are the listing agent. Your company has an agency relationship with the sellers of a house that has a basement. You are showing it to hopeful buyers. While looking at the somewhat dark basement, one of them asks, “Does the basement leak?” You know it does, but before you answer you think to yourself; “Oh no. That is the only problem with this house. Otherwise it is otherwise perfect, and a great buy for these people.” You remember what the sellers told you. They said it had leaked some, and only after that freak hurricane. But you saw three or four high water stain marks a foot or so above floor level. You saw other evidence of leaking and water damage, too.

Here are some possible answers to the buyers’ question: I am not sure. It has not really rained since we listed it.   This house is being sold “as is.” We are making no representations about its condition. We need to get back upstairs. There is a lot more to see. Maybe just a little in flooding conditions  This house is a great buy for you.

Are any of these your final answer? If so, the buyers’ attorney could be a millionaire. All these answers are likely fraud under Alabama law.

Some of the best authority in this area is Cato v. Lowder Realty Co., 630 So2d 378. In this case the buyers sued the sellers and the company over a leaky roof and defective furnace.  The case is based on statutory Alabama fraud law, which says that suppression of a material fact, which a party is under an obligation to communicate, constitutes fraud. The statute is Section 6-5-102 Code of Alabama 1975, as amended. In this case the court discusses caveat emptor, and goes on to say, “Seller generally has a duty to disclose defects to a buyer only if a fiduciary relationship exists between the parties or if the buyer specifically inquires about a material condition concerning the property, in which case the seller has an obligation to disclose known facts.”

The court then cites Boswell v. Coker, 519 So2d 493.  This case says; “Where one responds to an inquiry, it is his duty to impart correct information, and he is guilty of fraud if he denies all knowledge of a fact which he knows to exist, or if he gives equivocal, evasive, or misleading answers calculated to convey a false impression, even though literally true as far as they go, or if he fails to disclose the whole truth.” Let me cite one more case. “This section does not require proof of intent to deceive, as the breach of an obligation to disclose is sufficient to trigger liability for fraudulent suppression.” Intercorp, Inc. v. Pennzoil Co., 877 F.2d 1524. If you are having trouble understanding the court’s language, allow me to translate. If you are asked a specific question, the court is saying, “Spill your guts.”

Let’s summarize the law on fraudulent suppression in Alabama. If you are an agent for the buyer or seller, you have a duty without being asked to disclose known, material facts to your client. Your client is the seller, if you are the listing agency and have an agency-creating listing agreement. Your client is the buyer if you have a written buyer’s agency agreement. Regardless of agency relationships, you have a duty to accurately and completely answer any specific questions about known, material facts regarding the property, regardless of who poses the questions.

Now back to our question. The buyers asked, “Does the basement leak?” Your final answer should be; “Yes. The sellers said it has leaked, and there is evidence of leaking and water damage.” In the Lowder case the buyer did not ask anyone about the condition of the roof or the furnace.  Lowder Realty was an agent for the sellers. For these reasons, neither the sellers nor Lowder Realty were held liable.

Again, it should be noted that the information presented in the preceding article relates ONLY to people buying & selling houses in the state of ALABAMA and their agents.