real estate

Can I void offer on stigmatized property?

Steve McLindenDear Real Estate Adviser,
I signed a sales contract to buy a home in Indiana. A few weeks later I discovered the previous tenant has been running a dogfighting ring out of the house. The place was raided and several people were arrested on felonies. They found a couple of badly injured dogs and blood all over. I'm sure dogs died there. This is very disturbing. I want to back out based on non-disclosure, but the seller wants to sue me for not going forward. Do I have a plausible reason to back out?
-- Reginald L.

Dear Reginald,
That's a tough one. Obviously you are soured on the property, and as a dog owner, I certainly would be, too. But in Indiana, unfortunately, there is no clear duty to disclose that a property is thusly psychologically stigmatized, says real estate attorney Rob McNevin of the McNevin & Schiff law firm in Indianapolis.

However, you still have a good shot at backing out of this deal without penalty, though it may require different rationale. Buyers who want out of a bad real estate deal often can find misrepresentations on the Indiana Seller's Disclosure Form, McNevin says. So proceed accordingly and scour that contract thoroughly, ideally with legal representation.

It's worth noting that laws on stigmatized properties vary greatly from state to state. There are a few basic stigmas, though only one is always clearly actionable.

  • Public stigma, which is known to a wide portion of the population. These must always be disclosed. Examples include the "Amityville Horror" case, in which a man killed his parents and four siblings, and the Heaven's Gate mass suicide.
  • Murder and suicide stigma. Disclosure isn't always mandatory. (It is in California, but not in Florida, for example.)
  • Phenomena stigma, involving repeat paranormal events reputed to occur at a home.
  • Debt stigma, which can result in debtor harassment of new occupiers.
  • Minimal stigma, typically known to just a small group, usually neighbors. These last two are seldom disclosed.

Then there's the one that applies to your under-contract home: the "criminal stigma." Alas, not all jurisdictions require sellers to disclose even these. However, sellers everywhere are not allowed to deceive buyers in response to direct questions about crime or just about any other condition or stigma at a home. Had you asked the sellers whether any crimes were committed at the residence and they or their agent said no, you'd have clear basis to back out -- or to sue for fraud if you have already closed on the deal, attorney McNevin says.

Most municipalities have some kind of crime-statistics map on the website of either the local police or sheriff, or both. This gives you a sense of what crimes are occurring in an area. And if you call with a specific address, most cities will tell you if there's a record of a crime committed at that residence. If nothing shows up, ask sellers direct questions about such activities there anyway (and while you're at it, if there are any sex offenders in the neighborhood).

It's unlikely you can be forced to buy this home. Likely, the worst-case scenario here would be that you lose your earnest money and I hope it doesn't even come to that. But it's a fortunate thing you caught onto this before you sealed the deal because your only option after closing would have been to sue. That's typically an exercise in frustration under such circumstances. Good luck and be sure to make that criminal check a part of your due diligence henceforth!

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