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Just the Facts: The Massachusetts Consumer Protection Act – Chapter 93A

by ROBERT S. KUTNER, ESQ. Partner, Casner & Edwards | May 16, 2017
The Massachusetts Consumer Protection Act, Chapter 93A, continues to be a widespread source of claims against real estate agents. Regulations of the Attorney General explaining Chapter 93A provide that it is a violation when:
“Any person or other legal entity subject to this act fails to disclose to a buyer or prospective buyer any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.”

Chapter 93A applies to real estate brokers and salespersons (private home sellers are not engaged in business and, therefore, are not subject to Chapter 93A). The law requires that a real estate agent volunteer the information, even if the real estate salesperson is not asked. The duty to disclose facts that are known by a real estate agent does not impose a duty to discover defects with a property being sold. Only when an agent possesses actual knowledge of facts must disclosure. Investigating the condition of a property to discover problems is not required. That is the job of a home inspector.

The Courts

In a 1993 decision from the Supreme Judicial Court, Underwood v. Risman, the Massachusetts Association of Realtors® clarified and substantially narrowed the impact of Chapter 93A.

The landlord and rental agent, Risman, was found to have no liability for failure to warn prospective tenants that he believed that an older house in Medford probably contained lead paint, because Chapter 93A does not require disclosure of suspicions. Only facts known by the agent must be disclosed. However, you should know that the Massachusetts Lead Law now imposes a duty on landlords to provide a lead safe home in properties built before 1978.

Just the ‘Facts’

One of the lingering questions that nags Realtors® is which statements they receive are considered “facts” that require disclosure and which statements are not considered to be “facts.”

Suppose a buyer decides not to purchase due to an “unsatisfactory” inspection, a reason may be passed along to the listing agent. The listing agent’s dilemma then becomes how to determine if the statement is considered a “fact” that is required to be disclosed to future prospective buyers.

This determination often depends on the qualifications of the person who is the source of the “information.” For example, the reason for a buyer’s withdrawal may relate to a defect in the property that was identified by a licensed home inspector or may have been based upon a concern identified by the buyers themselves as a justification to withdraw due to “cold feet.”

Expert vs. Non-Expert

When a qualified professional, such as a licensed home inspector or engineer, provides information about a specific issue based upon the person’s education, training, experience as well as observations or testing, the views expressed will usually be considered to rise to the level of “facts” that require disclosure. On the other hand, an issue claimed to have been identified by an untrained lay person is more likely to be viewed as an opinion that does not fall within the fact disclosure requirement.

While there is no case precedent or regulation that provides comprehensive guidance, in a 1981 decision of the Appellate Division of the District Court, Jepson v. Barrett, the court ruled that a broker was not liable for failing to inform a buyer that a nonexpert neighbor had told the broker that the private well on the property produced an insufficient quantity of water. Because the opinion was from a non-expert and because the neighbor’s daughter was also competing to buy the property, the court found no liability of the broker. Failure to make a disclosure, even from an untrained person, may lead to an unwanted lawsuit. Therefore, when in doubt – disclose.

Not all defects must be identified by licensed home inspectors. Regulations governing inspectors state that certain matters are not required to be included in their reports, such as building code defects (“regulatory compliance”). 266 CMR 6.05. Inspectors are not required to test subsoil conditions or for radon. Home inspectors are prohibited from offering opinions concerning the cost of repairs or market value. A full copy of that regulation is available at www.mass. gov/dpl/boards/hi/cmr.htm. Realtors®, particularly those working as buyer’s agents, would be wise to become familiar with those standards. Per licensing regulations, only buyer’s agents may recommend particular home inspectors to buyers.

When in Doubt

Sometimes it is not possible to determine with certainty who is the source of the buyer’s reason for withdrawal. In such a case, rely on the best practice mantra, “when in doubt – disclose.” If the buyer has not identified a specific defect, but only general dissatisfaction with the condition of the property, the listing agent does not have a duty to obtain a copy of the home inspection report to determine the specific work required or to try to identify a specific problem. The listing agent has no duty to investigate possible problems for the benefit of a buyer.

For example, suppose a licensed pest control inspector states that there are signs of active termite infestation in the sill of the house. That statement should be disclosed to other prospective buyers. By contrast, if all the listing agent is told is that the buyer is concerned about possible insect infestation and is terminating due to lack of satisfaction, the reason is more likely to be one that is not legally required to be disclosed. While disclosure of the buyer’s opinion may not be legally required by Chapter 93A, in the litigation climate brokers face, the best practice is to make a disclosure and to do so in writing.

The counter argument is that listing agents owe fiduciary duties to their clients, the sellers. Fiduciary duties suggest that the listing agent refrain from unnecessarily identifying unsubstantiated defects or issues that may harm the seller’s bargaining position, namely, where the problem is merely suspected by an unqualified person. Before disclosure is made, the agent should discuss the disclosure of the unqualified person’s claimed defect with the seller. The seller may be able to clarify that the problem is one that was previously corrected or one that the seller is willing to correct
immediately.

Alternatively, the seller may want to hire an inspector to counter the unfounded claims of the buyer’s inspector or buyer. In such cases, it is recommended that disclosure be made of both the problem identified by the buyer who withdrew as well as report from the seller’s inspector or from the seller concerning any or treatment. By making disclosure of both, it enables the buyer to review the specific situation and arrive at their own conclusions. It is recommended that the listing agent not make a unilateral decision to withhold a disclosure, believing that the seller or seller’s inspector’s is accurate. Let the buyer make that decision.

Market Conditions

In a slow real estate market the seller may discourage the listing agent from making a disclosure of a problem reported by the withdrawing buyer. When faced with a reluctant seller, the agent may explain that if a new buyer discovers the same problem after a purchase, a lawsuit may be filed against both the seller and the broker for non-disclosure.

If suit were to be filed, the seller would be faced with the expense to hire an attorney with no insurance to cover those fees as well as no insurance to cover the cost of settlement or an award to the buyer. Unless the non-disclosure is deemed intentional, the listing agent is likely to have professional liability (Errors & Omissions) insurance that will protect them for any claim. Each agent should check with his/her office. By making a disclosure, the risk to both the seller and agent is eliminated. Therefore, it is best to err on the side of full disclosure.

Attorneys representing real estate agents urge that all disclosures be made in writing, so that the agent can prove when and to whom the disclosures were made. Having the buyer sign a disclosure, such as in the MAR form “Sellers Statement of Property Condition,” is one method. If you cannot get the seller or buyer to sign a disclosure, alternatives include sending a fax or email to the buyer or buyer’s agent with the information so you have a record of delivery.

An agent should not give a copy of the home inspection report from the withdrawing buyer to another buyer without permission. Doing so could give rise to a claim by the inspector. Nevertheless, the facts in the report should be disclosed.