real estate

Seller concealed story of stigmatized home

Steve McLindenDear Real Estate Adviser,
We just discovered that the previous owner of our house molested children here and then hanged himself, also in this house. No one told us anything about this before we bought. We had to find out from our neighbors. Do we have any recourse?
-- Skip J.

Dear Skip,
What a dreadful revelation! Somewhere along the line, this information should have been relayed to you, arguably on the seller's disclosure form but certainly by your own buyer's agent, assuming you used one. However, "should" in this case may not necessarily equate to "must." While you may have a strong enough case to seek redress or rescission, state laws can be ambiguous and vary greatly on the subject, and the legal process can be time-consuming and expensive. Not what you wanted to hear, I'm sure.

Your home, in real estate parlance, is considered a "stigmatized property." That's when a home has endured anything from a murder or suicide to criminal or cult activity to reported repeat hauntings. Such stigmas tend to render affected properties harder to sell or lease and can even subject new owners to unwelcome public visits or vandalism. A study at Wright State University published in 2000 found that stigmatized homes lingered on the market 45 percent longer than average. It also found, somewhat surprisingly, that a stigma caused the sale price to drop by an average of only 3 percent.

What to do? If your home is in California, the seller and seller's agent were obligated to disclose the suicide, though not necessarily the criminal activity. More often than not, though, the general rule of caveat emptor, or "let the buyer beware," applies, though there have been lawsuits won against such silent sellers. If the seller or seller's agent lied about or misrepresented any material facts aimed at misleading you, that's actionable in court. And, in your case, there's a pretty strong chance the sellers willfully withheld information they knew you'd find unsettling and would likely affect resale value -- but this is always a gray area. In about 30 states, in fact, there are "shield statutes" that protect sellers and agents from liability for not disclosing nonphysical defects. Moreover, a seller's agent can actually be held liable for violating the agent-owner fiduciary relationship by disclosing stigmas to buyers without the seller's permission.

You don't say whether it was the kin of the molester or a short-term investor who actually sold you the house. Sometimes, an investor will swoop in and pick up a stigmatized house at a steep discount with intent to quickly flip it to an unwary buyer. In some instances, the latter strategy can demonstrate intent to defraud in court. You'll need to consult with an attorney for clarity on your state's disclosure laws.

Because it's illegal to lie about a home's condition or history in response to a direct question, be doubly sure to ask the owner or agent if any of the aforementioned stigmas apply to the home you're seeking, Bankrate readers. And please summon the courage to chat up potential future neighbors before buying, no matter how good the neighborhood seems. A buyer's agent can help run this type of interference for you.

So sorry, Skip, for the anguish this is causing. As you're now well aware, someday you may have to decide what you will or won't disclose when you sell the place. The good news is that in most jurisdictions, there's a time limit for how long a home is considered stigmatized.

Good luck!

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