Delano v Umbreit

[*1] Delano v Umbreit 2005 NY Slip Op 51959(U) [10 Misc 3d 1054(A)] Decided on October 13, 2005 District Court Of Suffolk County, Third District Hackeling, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 13, 2005
District Court of Suffolk County, Third District

LAURIE DELANO, DELANO CHRISTOPHER, PLAINTIFFS

against

MICHAEL UMBREIT, USA HOME INSPECTION SERVICES WILLIAM WHALEN, DEFENDANTS



HUSC 157-05



Edward A. Christensen, Esq.

Attorney for the Plaintiffs

127 South Street

Oyster Bay, NY 11791

William Whelan, Esq.

Attorney for the Defendants

361 15th Street

West Babylon, NY

William Blanda, d/b/a/ US Home Inspection Services, Pro Se

253 West Second Street

Deer Park, NY 11729

C. Stephen Hackeling, J.

Undisputed Facts

The plaintiffs, Laurie and Christopher Delano, purchased 437 17th Street, West Babylon, NY from the defendant Michael Umbreit pursuant to a standard NSBA approved contract dated May 31, 2004. The plaintiffs paid defendant William Blanda d/b/a USA Home Inspection Services $350.00 to do a visual home inspection and give a written report. The real property sale closed on August 30, 2004. The parties executed a post closing possession agreement which created a $2,500.00 escrow, held by defendant William Whalen, Esq., to insure delivery of the premises with all appliances and systems being in working order. A dispute arose [*2]as to the swimming pool and the defendant Umbreit commenced a small claims action [FN1] to recover the $2,500.00 not paid due to the escrow dispute. An arbitrator awarded the plaintiffs a judgment in the sum of $495.00 on their counterclaim on December 6, 2004. Defendant Whalen paid plaintiffs out of the escrow per a letter demand dated December 10, 2004 and released the

balance of the escrow to the defendant Umbreit without having received a formal escrow release. Sometime shortly thereafter, the plaintiffs discovered that two rooms in the house had no heat source, and that the heating vents were only cosmetic and were not connected to the furnace system. The plaintiffs seek to recover the cost of hooking up to the furnace and assert a cause of action sounding in fraud.

Disputed Facts

The Umbreit's attorney asserts that his client's New York Article 14 RPL Sec. 462 election "not to disclose" vitiates any alleged fraud claim as they statutorily made no representations. Defendant USA Home Inspection's principal William Blanda gave unrebutted testimony that Mrs. Umbreit represented to him, during his post contract inspection, that the heating system was in working order. She later admitted to him, that she misrepresented that fact about the heat source as "it was his job to find out that the rooms had no heat".

Issues Presented

Is a significant misrepresentation made during the period of time after a NY RPL Sec. 465(1) "opt-out of disclosure election", but before delivery of a deed, actionable in fraud?

Fraud/RPL Sec. 462

Post Election/Preclosing Gap Representations

Discussion

Notwithstanding the 2002 enactment of Article 14 of the New York RPL (Real Property Uniform Disclosure Act); house buyers may still assert common law "fraud in the procurement" claims against sellers. See Cohan v. Sinclaire, 214 AD2d 637 (NYAD 2nd Dept 2004) As a general rule, a seller who pays the $500.00 credit and elects not to make statutory [*3]disclosures and representations cannot be found liable in fraud under a "merged" "as is" contract, as the cause of action elements of affirmative or implied misrepresentation and reliance can not be established. Bishop v. Graziano, 2005 NY Slip Op 25439 (Dist. Ct. Suffolk Co., dec. 10-18-05) citing to Danann Realty Corp. V. Harris, 5 NY2d 317 (NY 1959). However, the Article 14 disclosure opt-out election is not an absolute bar to establishing fraud. New York Sec. 467 expressly preserves plaintiff's common law rights and remedies. See Malach v. Chuang, 194 Misc. 2nd at 651 (NY Civ Ct. 2002). Though this Court has previously stated that the opt-out election makes a factual determination of fraud difficult, it is not impossible. Article 14 requires either disclosure or election to opt-out and pay $500.00 on the contract signing date. Representations in a "merged" contract are not discharged until delivery of the deed at closing. See Venizia v. Coldwell Banker Sammis Realty, 270 AD2d 480 ( NY AD 2nd Dept 2000). An election to opt-out creates a gap period which is totally outside the purview of Article 14. It is the

subsequent post contract/preclosing misrepresentation which is not cloaked in the Article 14 "no representations immunity ". Any new post contract fraud which induces reliance by facilitating the closing and deed acceptance, and which cut off any contractual remedy, is still actionable. This Court readily concedes that casual misrepresentations made not to the Sellers but to their home inspector agent may not be sufficient to rebut the formal Article 14 statutory presumption of no reliance. However, this Court need not wrestle with this issue as New York law is clear that

"active concealment" of a latent defect is per se inferred fraud where the Sellers construct a dummy ventilation system. See Ross v. 68th Street Assoc., 173 AD2d 245, (NY AD 1st Dept. 1991). The unrebutted evidence that the Umbreits installed dummy heating vents in the walls, lied about it post contract, and later admitted knowing about the subterfuge, establishes plaintiff's fraud claim despite the provisions of Article 14.

Other Defendants

The plaintiffs' breach of contract/negligence claim against the defendant home inspector is not established by the record. The parties contract (Exhibit 6) clearly excepts latent defects from its scope and expressly advises that no behind wall inspections can be made. The inspector's general inspection of the heating system and his query of Mrs. Umbreit about the adequacy of the heating system appears to be a reasonable alternative to a behind wall inspection and is evidence of meeting the "standard of care" described in defendant's Exhibit A (National Association of Home Inspectors Standards and Practices). In any event, the burden to show that such an alternative does not meet the industry "standards of care" is upon the plaintiff. It is the Court's opinion that the parties fully understood that the $350.00 charge would only cover a "patent defect" inspection.

Likewise, the Court finds no breach of contract liability for the escrow agent [*4]defendant Whalen. The parties executed a very informal hand written escrow agreement. The contract does not provide for the tender of a formal escrow release prior to the release of sequestered funds. The Court accepts defendant Whalen's testimony that he released the escrow funds in reliance upon plaintiffs' attorney's written demand requesting payment of a judgment of a Court. Absent a more explicit contract, it was reasonable to assume that a demand for a turnover of a portion of the escrow in satisfaction of a Court judgment was also an authorization to release the balance of the escrow.

Accordingly, the Court grants judgment for the plaintiffs against Michael Umbreit in the sum of $2,200.00 representing the paid cost to install duct work to the furnace, plus interest from September 17, 2005 and costs. See Exhibit 4 in evidence establishing plaintiff's claim for damages. The complaint against the other defendants is dismissed.

Dated:_________________ __________________________________

J.D.C. Footnotes

Footnote 1: This small claims action was separate and distinct from this proceeding.