Realtors: Protect Yourself from Being Sued Under the Consumer Fraud Act

If you are a professional seller of real estate, you regularly advertise your properties. Make sure your marketing materials do not land you in court. The law is designed to protect the buyer. In this case, the Consumer Fraud Act (CFA) protects buyers from false promises.Realtors can be sued under the CFA for misrepresenting their properties – even accidentally. Here is how it works: The lawsuit must allege the realtor engaged in unlawful conduct, the party sustained a loss and there was a causal relationship between the realtor’s unlawful conduct and the party’s loss.

There are three categories of unlawful conduct:
1. When realtors affirmatively make material misrepresentations;
2. When realtors omit material information; and
3. When there is a violation of an administrative regulation.

This article will address the first two: material misrepresentations and omissions of material information.

Material Misrepresentations – Bending the Truth

The difference between a misrepresentation and an omission is that the latter requires proof that the realtor intended to mislead; the former does not. Said another way – realtors who innocently provide misinformation can be sued under the CFA even if they believed they were providing accurate information.

According to the CFA, “An assertion of fact about a property, not puffery, is a violation if the facts are false and material to the transaction. Proof that the false statements were made with knowledge of the falsity of the misrepresentation, negligence, or the intent to deceive is not required.” That means you had better check – and recheck – anything you put in writing that is used to market the home.

Examples of lawsuits against realtors for providing inaccurate information include (1) misinformation that appeared in Multiple Listing Service advertisements, such as “Ready to build now,” when no permits had been obtained; “property suitable for a two-family dwelling,” when no approvals or permits had been obtained; a representation that a property was not in a flood zone – when it was; (2) a representation that the leased area was greater than the actual square footage; and (3) a representation that a dam was not on the property purchased – when it was.

Omissions of Material Misrepresentations – Did You Leave That Out on Purpose?

Examples of lawsuits against relators for omitting to provide information to a buyer include failing to tell buyers that the property purchased was severely constrained by wetlands and failing to tell buyers there were access easements.

It’s Difficult to Avoid Liability

You might think you can rely on provisions in an Agreement of Sale for protection. That is not always the case.

If you fail to disclose a material fact, such as an encroachment, you might try invoking contract provisions which shift the burden to the buyer. For example, there might be a clause that says a sale is subject to easements that could have been discovered on a survey. This still may not protect you from liability.

You also may not avoid liability for your intentional omission by relying on the buyer’s failure to discover it. According to the CFA, “(A) party to an agreement cannot, simply by means of a provision in the written instrument, create an absolute defense … in an action based on fraud in the inducement to contract.” Similarly, a “no representations” clause does not preclude introduction of earlier explicit misrepresentations, if the facts were peculiarly within that party’s knowledge and were, in fact, intentionally misrepresented.

Nor can a realtor necessarily rely on the fact that a party is sophisticated. “A party’s status as a sophisticated party does not immunize a realtor’s intentional or negligent facilitation of a fraudulent scheme,” according to the CFA.

The moral to the story: trust your source before making representations. That is your best chance at avoiding a lawsuit under the CFA.

Rona Zucker Kaplan is a partner at Cooper Levenson Attorneys at Law, based in the firm’s Atlantic City office.

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