Do You or Don’t You?

The Dilemma of Disclosing a Property’s Stigmatized Past


 Cori Lamont  |    October 05, 2011
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I once heard that paranormal activity is notably higher in the cooler months, but it is not clear whether this is due to the drop in temperature or the fact that more people pay attention to the unusual because of Halloween. However, as we begin to move into fall, there’s no better time to discuss stigmatized properties and the past that such properties hold.

Typically when we discuss stigmatized properties, we focus our attention on properties that were the site of a murder, suicide or haunting. Such examples include the Brentwood, California home where the notorious murders of Nicole Brown Simpson and Ron Goldman occurred in 1994; the home of the 1996 murder of 6-year-old Jon Benet Ramsey in Boulder, Colorado; and the properties of infamous Wisconsinites Jeffrey Dahmer and Ed Gein.

And it seems that every licensee has heard the story about the notoriously haunted home and its related Reader’s Digest article when we discuss the New York haunting case Stambovsky v. Ackley. In this case, the buyer sued for rescission of his purchase after he learned the house he bought was reputably possessed by poltergeists. The court concluded that where a condition materially impairs the value of a property and the matter is peculiarly within the knowledge of the seller or unlikely to be discovered by a buyer exercising due care, nondisclosure would be a basis for rescission.

So I began to wonder: if in New York, poltergeists materially impair the value of the property, how would a court perceive current or previous ownership by the notorious? The category of notorious could include the homes and properties of the famous and the infamous. One example, for instance, is the multi-million dollar Georgia mansion of former Atlanta Falcon quarterback Michael Vick, whose criminal actions against Pit bulls are well-known. Or the Palm Beach, Florida home of Bernie Madoff, the mastermind of the $65 million Ponzi scheme. And in our own backyard in the state of Wisconsin, the 407-acre Couderay, Wisconsin hideout of notorious 1920s criminal Al Capone.

The homes of the notorious present both marketing and disclosure challenges for the real estate agents involved.

Wis. Stat. § 452.23 (2) (a) states that a licensee is not required to disclose “that a property was the site of a specific act or occurrence, if the act or occurrence had no effect on the physical condition of the property or any structure located on the property.” This statute is intended to apply to “stigmatized properties” which have been or are the site of a murder, suicide, haunting or other notorious event which does not physically damage the property. If the event resulted in physical damage, the seller would normally be required to disclose the defect on a Real Estate Condition Report (RECR).

Since reputation and notoriety don’t physically damage the property, the questions real estate agents are presented with include:

  • If the seller does not disclose the property’s ownership history, do I have to disclose it?
  •  If so, will the information have a positive or negative impact on the value of the property?

So do you or don’t you? If the agent and respective broker believe the information is a material adverse fact, then licensee disclosure is required. If the agent and broker do not believe the information is a material adverse fact - often on the advice of legal counsel - then no licensee disclosure required. Wis. Admin. Code § RL 24.07 (2) requires licensees to disclose known material adverse facts and information suggesting material adverse facts in writing to all parties in the transaction in a timely manner. Licensees would be obligated to make this disclosure even if the client directs the licensee not to disclose.

Whether the information is a material adverse fact is a judgment only the broker can make after considering the facts and circumstances. If the competent licensee knows that this fact: (1) has a significant adverse effect on the value of the property, (2) significantly reduces the structural integrity of the property, (3) presents a significant health risk to the occupants of the property, or (4) is information that indicates that a party to the transaction is not able to or does not intend to meet their obligations under the contract, then the issue constitutes an adverse fact.

If a party to the transaction were to indicate, or if a competent licensee would generally recognize that this fact is of such importance that it would affect a reasonable party’s decision to enter into a contract or would affect the party’s decision about the terms of the contract, the fact is both adverse and material.

The question of whether the seller or agent must disclose a property’s notorious ownership is gray. On a RECR, the seller is asked to disclose conditions that would have a significant adverse effect on the value of the property. Although it is not easily quantified, it is possible that a notorious owner, specifically with a criminal reputation or past, could significantly affect property value or the new owner’s ability to resell a property.

Even if there is no physical damage, there may be a sort of psychological damage present. Typically buyers find out about the event, occurrence or previous owner’s notoriety from the neighbor. For that reason, real estate licensees may encourage sellers to let the licensee disclose the house’s history in order to avoid potential future disputes.

In the 1992 Green Springs Farms case, the Wisconsin Court of Appeals held that a seller had the duty to fully disclose to potential buyers the existence of conditions material to the buyer’s decision to purchase which the buyer is in a poor position to discover. Although this duty to disclose holding has not yet been applied to a stigmatized property case, including notorious ownership, it arguably could be.

There is an upside to a property with a past, whether that past is good or bad. There are some buyers that like the idea of living in a home with built-in history. While there are buyers that prefer a property with a reputation of being haunted, others may be drawn to the idea of living in a home previously owned by a celebrity, regardless of that celebrity’s reputation. Albeit this group may be a small percentage of buyers, at the end of the day, it’s a group that the seller and listing agent may decide is exactly the group they wish to market to.

There really is a buyer for every home.

For more information regarding stigmatized properties, review the National Association of REALTORS® resource Field Guide to Dealing with Stigmatized Properties: click here.

Cori Lamont is Director of Brokerage Regulation and Licensing for the WRA.

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