Selling Real Estate: A Cautionary Tale

These are difficult times for the real estate industry. Prices have dropped, sales have plummeted and the regulatory landscape continues to become more challenging. At the same time, the legal rights afforded homebuyers have continued to expand under the Consumer Fraud Act (“Act”), which prohibits unconscionable practices in connection with the sale of real estate.

It is well established that brokers may be held liable under the Act for misleading sales material. Home improvement contractors will be penalized for mere technical violations, and even financial lenders are now deemed subject to the Act’s requirements. A recent trial court opinion, Matera v. M.G.C.C. Group, Inc., has further expanded the scope of the Act and should be a cautionary tale for anyone who participates, however indirectly, in selling real estate.

In Matera, a lender acquired Phase III of a residential development by deed in lieu of foreclosure after the original developer defaulted. The lender appeared before the planning board in 1996 to obtain a compliance letter to allow Phase III to be constructed. Allegedly, the lender failed to disclose drainage problems affecting homes already constructed in Phase II by the original developer, and also misrepresented drainage information in the plans presented to the board. After the board granted the compliance letter in 2002, the lender sold Phase III to a builder. During construction of Phase III, water flooded the homes in Phase II.