Articles Posted in Fraud

Where a homebuyer’s inspection of a property put them on notice that there were potential water issues in the garage before closing, the buyer could not later sustain a claim for fraud.

In Fulmer v. Follis, No. W2017-02469-COA-R3-CV (Tenn. Ct. App. Dec. 20, 2018), plaintiffs had previously purchased a home from defendants. On their disclosure forms, defendants had stated that they knew of no drainage issues, and that heavy rain had caused water to come into the garage one time, but that the issue had been repaired. While under contract but before closing, plaintiffs had a home inspection done, which noted “possible rainwater intrusion at the east wall in the garage,” grading issues that might cause drainage problems outside the garage, and a 1×8 board that had been installed for “some unknown reason” on the base of the east garage wall. After the inspection, plaintiffs and defendants continued to communicate through their realtors, with defendants sending pictures after a rain to show that no water had come into the garage, and plaintiffs asking about seeing behind the board. Defendants told plaintiffs that the board was intended to cover an area where they “did not like how the drywall and the garage floor came together” and was “purely cosmetic.” Plaintiffs ultimately did not do any further inspection and closed on the property, but did negotiate for defendants to pay $1,500 more in closing costs “due to the possible rainwater intrusion and grading issue.”

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Showing reliance in a fraud case does not require magic words during a plaintiff’s testimony. In Erwin v. Great River Road Supercross LLC, No. W2017-00150-COA-R3-CV (Tenn. Ct. App. Oct. 19, 2017), plaintiffs sued defendants based on a real estate purchase. Defendants had provided a warranty deed to plaintiffs that “specifically warranted against encumbrances,” but the property was actually subject to a $20,000 mortgage, which was not paid off at the time of closing. As part of this suit, plaintiffs alleged that this misrepresentation constituted fraud.

The trial court found that “[t]here was indeed an intentional misrepresentation made that the real property was unencumbered,” but it held that plaintiffs had not established the required element of reliance. The trial court found that “[o]ne Plaintiff testified that he did not rely on the unencumbered language in the deed when making the decision to purchase the property” and held that the claim failed.

On appeal, the Court of Appeals reversed this decision and remanded the intentional misrepresentation claim for further proceedings. The Court reviewed the plaintiff in question’s testimony, and noted that he stated that the warranty deed specifically said the property was unencumbered, that the property was in fact encumbered by a mortgage, and that he did not know about the mortgage until after the purchase had taken place and he received a foreclosure notice. The Court held:

In Jackson v. CitiMortgage, Inc., No. W2016-00701-COA-R3-CV (Tenn. Ct. App. May 31, 2017), the Tennessee Court of Appeals affirmed summary judgment on an intentional misrepresentation (or fraud) claim where the plaintiffs could not establish that an “explicit promise or representation was made[.]”

During the 2008 recession, plaintiffs defaulted on their mortgage, which was held by defendant. Defendant notified plaintiffs in December 2010 that if the default was not cured, foreclosure proceedings would begin. In 2011, plaintiffs applied for loan modification assistance, but were denied. In March 2014, plaintiffs received a letter from a trustee stating that foreclosure would occur. Plaintiffs hired representation (“Mrs. Mitchell”), and Mrs. Mitchell and one of defendant’s representatives began emailing.

The foreclosure was postponed two times, and then was set for July 29, 2014. Before that date, Mrs. Mitchell and defendant’s representative were again in contact via email. Defendant’s representative told Mrs. Mitchell in an email that the “underwriter has requested some additional information from your client to complete their review file,” and that he would “follow up to confirm receipt or check progress by” the set foreclosure date. Plaintiffs asserted in their complaint that they provided the documents to Mrs. Mitchell and were told by her that defendant had agreed not to foreclose on July 29^th. Defendants alleged they never received the documents, and Mrs. Mitchell died before the lawsuit was filed, so plaintiffs’ only evidence of the alleged promise to not foreclose was plaintiff wife’s uncorroborated testimony regarding what Mrs. Mitchell told her. The property was sold at foreclosure as scheduled on July 29, 2014.

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