Opinion: Disclosure forms are ticking time bombs

16

By Bob Aaron

Real estate boards and agents across the country continue to promote the use of property disclosure forms, despite the fact that the form has resulted in an avalanche of litigation resulting from its widespread use and misuse.

Proof of the litigation explosion comes in the form of a detailed analysis of every Canadian case on the seller property information statement (SPIS), as it is known in Ontario, which I have just completed for a presentation to real estate lawyers at a gathering of the Ontario Bar Association.

Since the forms were first introduced around 1993, there have been 49 reported court decisions resulting from the use of the SPIS in Ontario, and a further 153 from the other provinces and territories, for a total of 202 cases. I cannot think of any other single document that has accounted for so much litigation in the same time period.

Typical of the cases taking up considerable court time lately is the 2010 decision of Small Claims Court Deputy Judge Jay State in the case of Smith v. Campanella.

David and Brenda Smith sued Salvatore and Maria Campanella for damages in the amount of $9,256.25 arising from their purchase of the Campanella house on Queenslea Drive in Hamilton.

The Campanellas signed a SPIS form, which was given to the purchasers before the Agreement of Purchase and Sale was finalized.

Beside the question for the type of wiring in the house, the seller had the option to check off one of four options: copper, aluminum, knob-and-tube or other. There is a space beside the word “other” where the sellers could have filled in “unknown,” but instead they checked off “copper” and left a blank in the space beside “other.”

They completed the form in this way on the advice of their real estate agent.

After the purchase transaction had closed, the Smiths discovered that the house had both aluminum and copper wiring. They sued for damages representing the cost to remove the aluminum wiring and replace it with copper.

The judge accepted that the Campanellas actually believed that the wiring was all copper and that they did not deliberately or fraudulently mislead the buyers.

Nonetheless, he determined that their answer was based upon “a thin premise, an assumption, a guess, really, based upon the age of the building . . . made without doing any checking to ascertain if the answer was accurate, and this assertion amounted to a negligent misrepresentation.”

In this case, the SPIS was not just “attached” to the Agreement of Purchase and Sale, but it was specifically incorporated into it by a clause to that effect. As a result, it became a contractual commitment of the sellers.

Not only was the statement about copper wiring made a part of the agreement, but the sellers confirmed it orally on two occasions.

The written decision of Judge State is unusually lengthy for a Small Claims Court case. In 264 paragraphs and more than 28,500 words, the judge conducts a detailed analysis of the many court decisions in this area of law.

In the end, the judge was not happy with the actions of either the buyers or the sellers. Even though he found the sellers responsible for misrepresentation, he said the buyers were partly the cause of their own misfortune since they should have conducted a more thorough investigation of the wiring issue that concerned them so much.

This seems to be the first case in which a judge found the sellers and buyers equally at fault. As a result he reduced the damages by 50 per cent, awarding them only $3,556.88 and costs.

Based on the more than 200 SPIS cases taking up the time of lawyers, judges and homeowners in recent years, it’s clear to me that anyone who uses a SPIS in a real estate transaction is playing with a ticking time bomb.

Why real estate associations across the country continue to foist these dangerous disclosure forms on their clients continues to amaze me.

Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a board member of the Tarion Warranty Corp.  He specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law.  E-mail [email protected]

 

16 COMMENTS

  1. PS it terrifies me Brian that you don't understand this basic law stuff. A basic introduction to the common law system used in Canada is found in the real estate pre-licensing course in BC where I'm from, and probably the province you're from as well (apologies if you live and work in quebec).

    • Hi Steve: Don't allow yourself to become too terrified. I don't live and work in Quebec. I have a British Isles heritage, whatever that's worth. I understand "this basic law stuff" only too well. I also understand human nature. Judges are human, and thus, fall victim to subjective thinking, no matter how well they scored on their law exams, or how well regarded they are by their in-house peers.

      Question: Why is it that lawyers have their 'favourite' judges, and recoil at the thought of presenting their cases in front of other judges?

      Answer: Some judges are closed-minded 'pre-judgment' judges, who might not like certain lawyers, which has nothing to do with said lawyers' cases. These judges are exactly opposite to what they are supposed to be. Most judges are not visually / auditorily impaired, thus they get to subjectively choose who they don't like the looks of as well as who they don't like the sounds of. Judges are not computers which simply are programmed to distill input and thereafter spit out the most plausable results, which results you incorrectly assume that real live judges always produce. If that is the case, why are judgements always being appealed, overturned, re-appealed, and subsequently overturned again, be it via small-claims courts / provincial Superior Courts (single person judgements) or via provincial Supreme Courts / Supreme Court of Canada (multi-person / panel judgements), the latter often turning on minority decisions; they still can't all agree, and all of this is based upon the vagaries of precedents based upon common law?

      Beats me.

      Regards,

      Brian

    • Brian,in response to your posting beloe this one: The best advice I can give to anyone: AS FAR AS POSSIBLE, STAY AWAY FROM LAWYERS AND THEIR DANGEROUS COURTROOM CLIENT ENTRAPMENT PLAYGROUNDS. Parrites involved in legal disputes would do well to try their best to settle such disputes. .I have yet to meet an honest lawyer.

  2. "The key word is “accepted”."

    Why does this amaze you so? Judges have to make findings of fact when rendering their decisions. Judges arenot actually direct witnesses to the events that surround lawsuits. They do not read minds. Thus, they never can know what the "actual" facts are. They have no choice but to take the evidence before them and draw logical conclusions based upon them to reach a conclusion as to what probably happened.

    In civil trials, the burden is simply a balance of probabilities (unlike criminal which is beyond a reasonable doubt). That is, can you say that on a balance of probabilities, the fact alleged occured? Not "did this happen for sure?" but "can you say that it _probably_ happened?"

    "The judge’s decision seemed to turn on one word, in one statement, being"

    This is not entirely accurate either. While this may be the judge's conclusion, he only reached this after considering all of the evidence on either side. It is not as is the plaintiff simply stated at court that he believed all the wiring was copper and the judge took him at his word and ended it at that if that's what you're suggesting. The evidence was weighed and the judge reached a conclusion…

    And for this statement you made earlier "This seems to be a case wherein a Judge relied upon other Judges’ decisions in previous cases that somewhat mirrored the subject case details to explain away his decision"

    Exactly! That's good!! Judges, particularly small claims court judges, are legally required to do this. If a judge does not follow legal precedent established by higher level courts, they will have their decisions overturned on appeal. This is because legal precedent made by higher level courts is the law of our country. I.e., that's the basis of a common law system which governs all provinces except Quebec. Not to follow precedent means not to follow the law of our country… That would suck, wouldn't it? You wouldn't want judges arbitrarily reaching decisions depending on how they felt that day now, would you?

    Basic law 099 (not even 101 ;) ) here buddy….

    • Hi Steve: Thanks for your comments. I understand where you are coming from, but conventional thinking is always ripe for challenge. If it was as simple as comparing decisions from previous similar cases and going with the view of the most numerous similar decisions, who needs a judge? Just count up similar decisions, render a like judgement ,and add another one to the score, further entrenching the mind-set of Simon-says, follow-the-leader, let's-not-make-waves, what's-for-dinner judges. The only time that this judge broke the mold was when he again broke ranks with critical thinking and penalized the plaintiffs financially for something that was not their fault, in my opinion. As I said earlier, I have a 50 / 50 chance of being right on this one from a purely statistical perspective, but perhaps a better-than-even chance of being closer to the mark based upon good ol' common sense (aka skepticism).

      We will never know what went down for sure. Only the defendants know for sure, and we don't know if they lied. We also don't know if the judge played favourites, and justified his decision with much research. What about decisions that he researched, and didn't use (that we are not privy to?). I don't place as much faith in all judges as you seem to

      Each case is unique; each judgement should also be unique…to that specific case. That's what educated, free- thinking brains are supposed to be used for…free, critical thinking.

      Being human, I think that judges sometimes reach decisions arbitrarily, after finding their pet precedents, depending upon how they feel at the time. I think that brave judges, with critical minds of their own, will buck convention when need be, to do the right thing, as they see it, depending upon how they feel at the time. That's how society progresses into the future, and adapts to the future.

      Thanks for the challenge though.

      Regards,

      Brian

    • I was writing to you based on your complaint that the judge applied law from other decisions. That clarified, Nothing you wrote changes the fact that judges have required to apply legal principles from higher level courts to the case at hand.

      Most of what you brought up in your two posts is unrelated. To that I'll only say that Applying legal principles to unique legal problems is more complicated than you seem to think which is precisely why computers can't do it and why decisions get overturned.

    • Hi again Steve: Again, thanks for taking the time to go through my comments.

      In this case the Judge did as you, and I, I might add, realize, that this is the way that judges are required to assist themselves when trying to figure out which way to go on certain issues. This then should ideally create decisions that can realistically be attributed to the reasoning employed by the current judge based upon previously accepted judgements, at least in the majority of cases, if one thinks that the majority is always correct. How then, does one justify what this judge did, when he split the damages 50 / 50 between the plaintiff and the defendant? According to Bob AAron…"This seems to be the first case in which a judge found the sellers and buyers equally at fault." There apparently is no precedent for his decision to do this. According to established British Common Law precedent, Judge State just invented a new precedent right out of thin air. Now who's the renegade…and why?

      But I do agree with you when you state that…"Applying legal principles to unique problems is more complicated than you (I) think which is precisely why computers can't do it and why decisions get overturned."

      They get overturned because another human had his / her own subjective spin on the information at hand, which is often at polar odds with the previous human, er, judge. It's all based upon political persuasion when one gets right down to it, although this will never be admitted to by most humans, er, judges. You're right…left?; it is complicated.

      Good discussion.

      Regards,

      Brian

    • "How then, does one justify what this judge did, when he split the damages 50 / 50 between the plaintiff and the defendant?"

      Honestly, who knows. Did you read the decision the actual text of the decision and all 200ish paragraphs? I didn't. Perhaps we should before we speculate.

    • Hi Steve: No, I did not read the text of the decision, so we both agree to agree on the speculation point. Whatever the judge's rationale, it would still be based upon his intepretation of the legal principles of his precedents of choice, with that intellectual process being a similar procedure used by real estate appraisers when establishing their opinions of so-called market values of subject properties by choosing certain comparable sales from amongst many available to justify said opinions.
      (I make this observation speaking as a former appraiser)

      I think that it is very difficult for the human mind to go against one's initial emotional assessment of a situation from a visceral perspective, and thereafter to look for ways to prove one's self wrong. But just that type of clear-headed thinking is what is required, in my opinion, to qualify one to be a judge of the highest calibre. Maybe this judge is that type of personality, maybe not. Only he knows for sure. Hopefully, I am wrong on this one, and he is the former. It's 50 /50.

      Regards,

      Brian

  3. Bob states: " Disclosure forms are ticking time bombs" I say: Why is it so wrong in disclosing the truth? Furthermore: Most lawyers I've met have a serious problem with the truth. And further more, more, more and more: Based on my experiences, courts a a liars forum, where the best liar (especially the best looking liar), gets the trophy after all is said and done. Come on Bob, give me your thoughts on mine.

    P.S. In case you didn't know Bob, disclosure forms can indeed be a time bomb. Bottom line is very simple: Before submitting them, ascertain accuracy. If in doubt about something state it so in the form.

  4. I find this part interesting, it appears the sellers were aware the type of wiring was important to the buyers:-

    "he said the buyers were partly the cause of their own misfortune since they should have conducted a more thorough investigation of the wiring issue that concerned them so much."

    Bob, it is interesting that even though the judge found the sellers did not intend to mislead, they were still held partially liable. Perhaps because the buyers relied on their statement in conjunction with the above and/or, the sellers had the option to make a notation on the SPIS but didn't? Can you shed some light on this?

    There are two lessons here.

    When it comes to the SPIS, a REALTOR"S job is to explain the form to the seller them direct them to their lawyer for his advice as to completing same or not and, at his direction – not ours. We haven't lived in the client's house and so we have no business telling them what is in it. For not being protective enough of the client, chances are this REALTOR won't be getting his repeat business or referrals and might also find himself in hot water.

    The second reason is of course buying a property without having it first inspected by a qualified inspector. This is just asking for trouble.

  5. Hi Brian. Have you ever heard of the phrase; THE LAW IS AN ASS. Precedents are set by whichever lawyer provides the most convincing presentation before the trial judge. In other words the best story teller gets the trophy. Basically, that's typical justice here in Canada. "you state: "The Pandora’s Box has been opened…again." Remember, lawyers make a handsome living by opening Pandora's Box." They're good at it.

  6. The SCCJ said the following in his decision of this case: "The written decision of Judge State is unusually lengthy for a Small Claims Court case. In 264 paragraphs and more than 28,500 words, the judge conducts a detailed analysis of the many court decisions in this area of law."
    I can't believe that a SCCJ made such a lengthy written decision on a matter of minimal importance. I've seen less words used by judges in murder cases decisions. Say Bob? Just how much was this judge paid for his decision from the public purse?

  7. Hi Bob: Your first sentence ends with "…the form has resulted in…litigation…resulting from its widespread use and misuse." What is your personal interpretation of the word "misuse"?

    To me the word "misuse" implies the use of 'something' to mislead a third party away from the original intent of the 'something', in this case, the SPIS form. In other words, the SPIS could be construed to be a kind of 'smoke-and-mirrors' inducement by a seller, with guidance from the Realtor, to encourage a buyer to write an offer, enhanced by a fuzzy-feel-good-feeling that could be the spin-off effect of the contents of the SPIS. Am I being too skeptical about the potential motives of some?

    You say that the "Smith v. Campanella" case is typical. Thus, the statement that the Campanellas "…completed the form in this way on the advice of their real estate agent." seems to suggest that it is typical for real estate sales representatives to advise sellers about how they should fill out SPIS forms (at very least in those proved instances where litigation occurs). Is there not potential for conflict of interest here?

    In this case, a misrepresentation ended up costing the buyers $9,256.25; the adjectives "negligent / fraudulent" make no difference regarding damages accrued due directly to a misrepresentation of facts by the sellers, in conjunction with the Realtor's advice. How can there logically be a 50 / 50 decision of responsibility for damages experienced by the buyers in this case?

    There is nothing to suggest that the buyers were or were not advised by their Realtor to hire a reputable home inspector. Obviously, the buyers only became concerned about the wiring issue after-the-fact of taking possession of the property and thereupon discovering the aluminum wiring.

    This seems to be a case wherein a Judge relied upon other Judges' decisions in previous cases that somewhat mirrored the subject case details to explain away his decision, instead of sticking his neck out and incorporating good old common sense (from where good old English Common Law evolved from in the first place) to place the majority of blame where it 100% rightly belongs, on the heads of the parties who created the problem in the first place…the sellers. The simple fact is that the buyers would have experienced what they bargained for in the first place if there had been no misrepresentation, home inspection or no home inspection. By cutting the buyers' damages in half (in favour of the sellers), the judge has effectively reasoned that the buyer, by trusting in what a seller signs his name to, bears the same legal weight of wrongdoing as the seller, who in fact actually committed a misrepresentation in pusuit of monetary gain. The Judge's decision has effectively put a damper on the ability of victims' of misrepresentations lawsuits in this area to recoup full compensation for damages accrued, if his decision is used as a precedent. Some court system this is; "It may not be worth sueing sir / madame; you could also be held responsible". Could this be a way of simply trying to dissuade others from launching similar law suits..to unclog the courts?

    If this is the first case whereby a judge has found the sellers and buyers equally at fault, which cases (or case) will from here on in be used as precedent(s)?

    The Pandora's Box has been opened…again.

    Brian

    • I will restrict my comments to the case of the Smiths and Campanellas. Any tool in the hands of an inexperienced or unreliable person is dangerous. An experienced Realtor representing a Buyer who expresses grave concern about a matter like wiring, who does not insist on the buyer having a home inspection is not representing his client properly and in my opinion is negligent and I believe RECO would agree.
      Next, regarding the matter of aluminum wiring – properly installed there is nothing wrong with aluminum wiring. It does require careful attention at terminations and any ongoing modifications need to be done by knowledgable electricians.
      I would agree that the Buyers were clear in their stated desire to have a house with copper wiring.
      After the fact they did not or would not agree to mitigate the impact of the fact of aluminum wiring.
      If I know anything about lawyers, they followed legal advise in going whole-hog in correcting the wiring issue. And I am sure the lawyer assured the Smiths that they would get retribution and full recompense for the rewiring work.
      The judge was wise in determining responsibility and I agree with his decision.
      Based on case law on the subject, I suspect that the Smith's lawyer felt he/she was on safe ground to advise the course of action but was mediation considered?
      Most lawyers do not make money on mediation but they do on law-suits. The sellers did have to pay costs. Shame.

    • The judge's decision seemed to turn on one word, in one statement, being:

      "The judge accepted that the Campanellas actually believed that the wiring was all copper and that they did not deliberately or fraudulently mislead the buyers."

      The key word is "accepted".

      Therefore the Judge formulated a 'belief' based upon the defendants' stated 'belief' (belief begets belief?). Beliefs are not based upon facts; knowledge is based upon facts. Beliefs are based upon what one 'chooses' to believe given certain information designed and presented in such a way as to pursuade one to believe in the final assessment. Therefore, the Judge, not being in possession of the actual facts / knowledge of the actual truth, or not, of the defendants' statements, had a 50 /50 chance of being wrong with his 'belief'. Was this how he rationalized the 50 / 50 split of liability on the parts of the buyers and sellers?

      It seems to me that the Judge had a 50 / 50 chance of rendering an unjust award of damages with his subjective logic, and it's 50 / 50 that he may very well have done just that.

      I believe that I have a 50 / 50 chance of being right on this one.

      Heads or tails?

      Regards,

      Brian

LEAVE A REPLY

Please enter your comment!
Please enter your name here