07/25/2014 04:13 pm ET Updated Sep 24, 2014

Pennsylvania Supreme Court Holds That Homebuyer Need Not Be Told of Murder

In a July 21, 2014, decision, the Pennsylvania Supreme Court held that a murder/suicide inside a house did not constitute a material defect that had to be disclosed to a buyer (Milliken v. Jacano). The Court indicated that it would be difficult to determine what traumatizing events would have to be disclosed and that in general "the possible fact patterns are endless and lead down a slippery slope." The legislature should make this determination. It is very difficult to assign monetary damages to psychological stigmas since individual reactions vary. Finally, the murder/suicide was publicized and the buyer could have located this information in print or on the internet. This comment briefly reviews the legal issue of stigmatized properties. Consult an experienced real estate professional in disclosure situations.

The historic approach to buying and selling was caveat emptor (let the buyer beware). As an outgrowth of the consumer protection movement of the 1960s, courts and legislatures began to view failures to disclose material facts concerning property for sale as fraudulent. However, buyers were expected to exercise due diligence in finding information that was available to the public. So, for example, if a highway bypass project had been publicized that would reduce traffic flow by a business, the seller of the business had no legal obligation to disclose this information to a buyer. In like manner, courts attempted to distinguish information that was uniquely known by the seller and was intrinsic to the property from information that was extrinsic to the property and publically disclosed. Additionally, courts were concerned that dissatisfied buyers would seize upon trivial matters to be excused from purchases.

Stigmatized property involves crimes or other repulsive activity unique to the premises. A well-known 1983 California decision found a duty to disclose that five murders had occurred in the house ten years prior to the purchase (Reed v. King). An equally famous 1991 New York case allowed a buyer to rescind the purchase of an allegedly haunted house on the basis that the seller had perpetuated the haunted reputation and taken advantage of the buyer's ignorance (Stambovsky v. Ackley). Both of these cases occurred in the absence of specific legislation or regulation addressing mandatory disclosures.

With the onset of HIV/AIDS in the early 1980s, legislatures began enacting legislation that either protected sellers who failed to disclose various stigmas, or mandated certain disclosures by sellers and licensed brokers. These statutes vary and one must research applicable state law. Some statutes limit mandatory disclosure to specified stigmatizing events that occur within three years of the sale.

In general, it is safe to conclude that a seller may not lie in response to a buyer's specific inquiry. Note, however, that puffery or sales talk is not considered fraudulent. Some statutes mandate a formal inquiry process and allow the seller not to respond to the question.

Buyers should conduct internet and related data searches as part of their due diligence before purchasing property. These searches should be a broadly based review of extrinsic and intrinsic factors. Neighborhood crime, schools, climate, construction and zoning patterns and employment prospects are a few examples of influences on community property values. An address specific home inspection as well as a careful study of the property's history is essential. Is the property potentially subject to environmental pollution problems, for example? Of course, stigmatizing events are frequently well publicized. Utilize experienced real estate and legal professionals when purchasing property. It is money well spent.