The Duty to Disclose When a Home is Sold "As is" in New Jersey

A homeowner wants to list her home for sale. She states that because she is listing her home in an “as is” condition, she does not have to reveal any information concerning the condition of the home. “As is” means you get what you get - is she correct?

The answer, in a nutshell, is that the homeowner is wrong. In New Jersey, the law requires a seller of residential real estate to disclose all latent defects known to the seller and which are not readily observable to a buyer.

Background: Caveat Emptor and the Doctrine of Merger

At one time, there were two legal concepts which largely prevented lawsuits against sellers of real estate who failed to disclose known defects. The first of these was “caveat emptor” – let the buyer beware. Under caveat emptor, property is presumed to be sold as-is and the buyer has the burden, and the legal obligation, to reasonably examine the property before purchase to satisfy himself of its condition. See Freedman v. Kensica Realty Co., 99 N.J.Eq. 115, 118 (Ch. Div. 1926) (“The doctrine of caveat emptor is applicable to the purchase of [New Jersey] real estate, and is applied as well in equity as at law.”).

The second legal concept was “merger”. Under the doctrine of merger, any promises contained in the contract of sale were said to “merge into the deed” so that the only remedies available to a buyer were those warranties – if any - found in the deed. The term “merger” is probably not an accurate description – it is not that the contract and the deed merge into one document, but rather that the deed replaces the contract. See Bogert v. Citizens First National Bank & Trust Co. of Ridgewod, 131 N.J.L. 218, 222 (E&A 1944) (“It is the general rule that the acceptance of a deed for land is to be deemed prima facie full execution of an executory agreement to convey and that thenceforward the agreement becomes void and the rights of the parties are to be determined by the deed, not by the agreement.”).

Thus, the first doctrine presumed that property was sold “as is” and placed the burden on the buyer to find any hidden defects and the second provided that the only relief available to a buyer after the closing was that provided for in the deed.

The Law Evolves to Place the Burden of Disclosure on the Seller and to Provide Statutory Consumer Protections to Buyers.

Over time, the courts created certain, limited exceptions to the application of caveat emptor and merger to residential real estate transactions. For example, actual fraudulent misrepresentations or intentional concealment of known defects were exception to both caveat emptor and merger. McDonald v. Mianecki, 159 N.J.Super. 1 (App. Div. 1978) aff’d 79 N.J. 275 (1979). In McDonald, a Buyer purchased a newly constructed home and discovered after the closing that the water was not potable (i.e., it was not fit for human consumption). The McDonald court recognized that “the policy reasons … to support the traditional doctrines of merger and caveat emptor are no longer viable” and ruled that the sale of a home comes with certain implied warranties, including the warranty of habitability.

The McDonald case did not address the situation where a Seller knows of a defect but neither makes any misrepresentation concerning it nor takes any action to conceal the defect. That issue was addressed by the New Jersey Supreme Court in Weintraub v. Krobatsch, 64 N.J. 445 (1974). In Weintraub, the Buyer sued the Seller and Seller’s broker for their failure to disclose a roach infestation. The Seller argued that she was under no obligation to disclose defects. The Court rejected the Seller’s argument and created a new rule finding that a Seller has a duty to disclose a latent defect that is “not observable by the the purchasers on their inspection”. Importantly, the Court noted that “silence may be fraudulent” Id. at 455. In 1981, relying on Weintraub, one New Jersey court ruled that caveat emptor was no longer the law of New Jersey. Berman v. Gurwicz, 189 N.J.Super. 89, 93 (Ch.Div.1981) cited with approval in Strawn v. Canuso, 140 N.J. 45, 53 (1995). The courts equate merger with caveat emptor.

Thus, the law in New Jersey today is that a Seller has an affirmative duty to disclose latent defects. Silence is fraud by omission when the Seller knows of a material defect but fails to disclose it. “Even when selling property ‘as is,’ a seller may not deliberately conceal or fail to disclose a latent condition material to the transaction.” Hackerman v. Larusso & Tozour, LLC, 2015 WL 3476587 (App. Div.)

Conclusion

The concept of caveat emptor is not applicable to residential real estate transactions. The concept of merger does not preclude a claim based on a misrepresentation or a failure to disclose a latent material condition that is not discovered until after closing.

A Seller of real estate in New Jersey has a duty to disclose all known latent, material conditions. A Seller cannot avoid that duty by selling the property “as is”.