Real Estate Misrepresentation: A Costly Legal Lesson

In any transaction—whether for a residential property, commercial building, or business asset—the parties rely on accurate information and truthful disclosures. When one side misrepresents or conceals facts, it not only undermines trust but also creates fertile ground for litigation. A recent decision from the Wisconsin Court of Appeals illustrates these principles, reinforcing that disputes over contract rights and disclosure obligations often cannot be dismissed at an early stage when material facts remain in dispute.

The Background: A Property Sale and Hidden Water Damage

The dispute arose from a property sale in which the sellers had long dealt with flooding and water management issues on their land. Over the years, they had taken steps such as installing an additional sump pump and lodging complaints with the city about flooding. Shortly before listing the property for sale, they also painted the basement walls and floor.

When completing the required real estate condition report, the sellers disclosed that the property experienced some basement "seepage" when a neighbor's pond rose and noted that the backyard was in a flood plain. The buyers, who hired a licensed home inspector before purchase, did not observe signs of flooding or leakage at the time.

However, after moving in, the buyers experienced repeated water issues. They had to replace multiple sump pumps due to continuous operation, observed extensive flooding during rain and snow melts, and noticed staining on the basement walls that they believed had been concealed by paint. Concluding that the sellers had underreported the scope of the water problem, the buyers retained an engineer, who opined that the condition report minimized and understated the true flooding issues.

The buyers filed suit alleging breach of contract, common law intentional misrepresentation, statutory misrepresentation under Wisconsin Statutes §§ 895.446 and 943.20(1)(d) and misrepresentation under Wisconsin's false advertising statute, § 100.18

Trial Court Dismissal: A Risky Summary Judgment

The sellers sought summary judgment, and the trial court dismissed all claims. It concluded that:

• The buyers waived their breach of contract claim by failing to hire an engineer before purchase.
• The buyers unreasonably relied on the sellers' statements in the condition report, defeating the misrepresentation claims.
• The sellers' disclosure of "seepage" was sufficient to negate a statutory misrepresentation claim under § 100.18. The buyers appealed.

The Appeal: Why the Misrepresentation Claims Were Reinstated

The Wisconsin Court of Appeals reversed, finding that the trial court had improperly dismissed the case. Several aspects of the appellate decision are especially important:

1. Waiver of Breach of Contract Must Be Clear The appellate court emphasized that waiver requires a clear and intentional relinquishment of a known right. Because the purchase contract itself was not part of the record, there was no basis to conclude that the buyers had waived their right to bring a breach of contract claim simply by not hiring an engineer. Without the contract terms, the trial court lacked evidence to support its waiver finding.

2. Misrepresentation and Reasonable Reliance Are Often Questions for a Jury For intentional misrepresentation, the trial court had relied on earlier precedents suggesting that reliance must be justifiable. However, the appellate court pointed to Wisconsin Supreme Court authority holding that reasonable reliance is often fact-specific and cannot be resolved as a matter of law unless the evidence is clear-cut.

Here, the buyers were aware of some seepage, but the condition report arguably downplayed the full scope of the problem. Whether reliance was reasonable was a question of fact for a jury, not an issue to be decided on summary judgment.

3. Statutory Misrepresentation Claims Differ from Common Law Importantly, the appellate court explained that Wisconsin's statutory misrepresentation claim under §§ 895.446 and 943.20(1)(d) does not require proof of reasonable reliance. The trial court erred in importing that element into the analysis. The proper focus is whether the defendants made a false representation, knew it was false, intended to deceive, and obtained money as a result.

4. Public Misrepresentation Under § 100.18 Requires Full Context Finally, the court considered the § 100.18 claim, which prohibits false or misleading representations to the public. The trial court had reasoned that checking "yes" to basement seepage was sufficient disclosure. The appellate court disagreed, noting that a jury could find that the use of the term "seepage," coupled with painting over basement walls, minimized the severity of the flooding problem.

Thus, even partial disclosure may still be misleading if it understates the true scope of a defect.

Key Legal Takeaways for Illinois Buyers and Sellers

The appellate court's decision reinforces the importance of honesty, transparency, and precision in contractual transactions. When sellers understate or conceal material facts, disputes often arise, and courts are reluctant to dismiss those disputes without a full airing of the facts before a jury. For inpiduals, business owners, entrepreneurs, and professionals, the case highlights why clear contracts, thorough due diligence, and accurate disclosures are essential to avoid protracted litigation.

Thus, even partial disclosure may still be misleading if it understates the true scope of a defect.

Key Legal Takeaways for Illinois Buyers and Sellers

The appellate court’s decision reinforces the importance of honesty, transparency, and precision in contractual transactions. When sellers understate or conceal material facts, disputes often arise, and courts are reluctant to dismiss those disputes without a full airing of the facts before a jury. For individuals, business owners, entrepreneurs, and professionals, the case highlights why clear contracts, thorough due diligence, and accurate disclosures are essential to avoid protracted litigation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.