A homebuyer's claims of fraudulent concealment and misrepresentation against the seller of a custom-built residence in Washington State were revived after the Court of Appeals reversed a trial court's summary judgment. At the center of the dispute was whether the seller failed to disclose a known and serious structural issue that was identified years earlier by engineers, but never corrected. The appellate court found sufficient evidence that the seller misled the buyer about the home's stability; despite having been warned that without further remediation, the property could face future foundation failure.
Background Facts
In 2001, Camille Evans hired a contractor to build a custom home. She moved in the following year, but by 2003 began noticing significant foundation cracks and voids inconsistent with normal settling. Evans retained Forsgren Associates to investigate. The engineers found fill material beneath the home and evidence of water movement through the soil, including cattails growing on adjacent property, suggesting the presence of water. Forsgren concluded the foundation required stabilization through two measures: (1) installing helical piers to lift and support the settled portion, which was completed in 2003; and (2) constructing a subsurface pile wall to prevent future sliding of the unstable fill. A declaration in Evans' 2004 lawsuit against the contractor emphasized that without slope stabilization, the piers could buckle, jeopardizing the structure.
A second engineering firm, Nelson Geotechnical Associates (NGA), conducted its own extensive analysis and concurred. NGA reported that the home sat atop a thick layer of unstable fill that was slowly shifting. While the movement was minor, NGA warned it could accelerate and cause a major failure without warning. It also recommended a subsurface pile wall, stating the fill would continue to move without such reinforcement. Evans eventually settled her lawsuit but elected not to install the pile wall.
Evans listed the home for sale in 2017. In her Form 17 disclosure, she acknowledged the presence of fill, the 2003 helical pier installation, and stated she had no reason to believe the foundation was unstable. She included letters from engineers and the pier-installation contractor indicating that the home appeared stable as of 2011. None of the documents addressed the uninstalled pile wall or the ongoing risk identified years earlier by engineers.
The buyers, Robert Lions, Nicole Moore and Darlene Moore (collectively "Moore") retained a home inspector who observed gaps between the foundation and surrounding soil and recommended a geotechnical evaluation. Moore contacted several engineering firms. One, Pacific Engineering, advised that a full inspection would be time-consuming and expensive, and suggested Moore contact NGA. NGA declined to provide an opinion without Evans' written permission and quoted a fee of $2,000-3,000. Evans offered to pay half the cost. Ultimately SPL, another firm, proposed using polyurethane foam to fill the gaps, which Evans paid for in June 2017.
Two years after the sale, Moore observed new signs of settlement. After obtaining Evans' permission, NGA released its 2004 report confirming the need for a subsurface pile wall. Moore filed a lawsuit against Evans claiming fraudulent concealment, fraudulent misrepresentation, and negligent misrepresentation. Evans moved for summary judgment, arguing that Moore had notice of the issues and failed to pursue an adequate inspection, as recommended. The trial court granted summary judgment and dismissed the claims. Moore appealed.
Fraudulent Concealment
Applying the test established in the Washington State Supreme Court decision Alejandre v. Bull, 159 Wn.2d 674 (2007), 153 P.3d 864 (2007), a seller may be liable for fraudulent concealment if five elements are met:
- A concealed defect exists
- The seller knows of the defect
- The defect poses a danger to property, health, or life
- The defect was unknown to the buyer, and
- The defect would not be revealed by a reasonable inspection.
Concealed Defect: Evans argued that no defect existed when she sold the home in 2017, as no new settling had been observed until two years after closing. The court rejected this argument, citing Evans' own 2004 declaration in a prior lawsuit, where she admitted that a second phase of engineering work meant to stabilize the fill under the home, was necessary to save the house. That work was never completed. The 2004 NGA report, which Evans received, warned that the fill continued to shift and could eventually compromise the foundation. These concerns were echoed by Moore's pre-purchase inspector in 2017. Evans' failure to complete the recommended slope stabilization constituted a concealed defect. Her claim that she 'forgot" about the second repair phase was not persuasive.
Seller's Knowledge: Evans also claimed she was willing to disclose the 2004 NGA report, but the court noted a text exchange between Evans and her realtor, in which it was disclosed that NGA's president required written email consent to speak with Moore. Evans never provided that consent. The court found this could support an inference that Evans intentionally withheld the report to avoid jeopardizing the sale.
Danger to the Property: Evans maintained that no court found the defect posed a danger. The appellate court clarified that such a finding wasn't necessary on summary judgment. The 2004 NGA report clearly warned that continued fill movement could cause the helical piers to buckle, threatening the stability of the entire home. This was sufficient evidence of danger.
Defect Unknown to Buyer: The trial court concluded Moore had some knowledge of foundation issues and had been advised to consult a geotechnical engineer. The appellate court emphasized that general knowledge of a problem does not equate to knowledge of the concealed defect. The court reasoned that Moore received reports from Forsgren and SPL indicating that previous repairs had resolved the issue. SPL even issued a letter shortly before closing, assuring Moore that the polyurethane foam injection would provide lasting stability. Moore was never told that the 2003 pier work was only a partial solution and that a critical stabilization step remained unaddressed.
Reasonable Inspection: Evans argued that Moore failed to conduct a reasonable inspection because he did not hire a geotechnical engineer. The court disagreed that this could be resolved as a matter of law. Relying on Atherton Condo. Apartment-Owners Ass’n v. Blume Dev. Co., 115 Wn.2d 506, 524, 799 P.2d 250 (1990), the court reaffirmed that the doctrine of caveat emptor does not relieve sellers from disclosing latent defects. Buyers are not required to engage in exhaustive or highly specialized inspections to uncover defects hidden beneath a foundation. Moore's actions which included: engaging a home inspector, consulting four engineering firms, and agreeing to the foam injection repair, were deemed sufficient to create a factual question about the reasonableness of his inspection.
The appellate court concluded that Moore presented sufficient evidence on each element of fraudulent concealment to allow the claim to proceed. The trial court's dismissal of this cause of action was reversed.
Misrepresentation Claims
The appellate court also reversed the trial court's dismissal of Moore's claims for both fraudulent and negligent misrepresentation, finding that sufficient evidence existed to support each element required to prove these causes of action.
Relying on Ross v. Kirner, 162 Wn.2d 493, 172 P.3d 701 (2007), the appellate court noted negligent misrepresentation requires proof that:
- The defendant supplied false information to guide another
- The defendant knew or should have known the information would be used for that purpose
- The defendant acted negligently in providing the information
- The plaintiff relied on the information
- That reliance was reasonable, and
- The false information proximately caused the plaintiff's damages.
Fraudulent misrepresentation, as outlined in Stiley v. Block, 130 Wn.2d 486, 925 P.2d 194 (1996), contains nine similar elements including that the defendant knowingly made a false and material representation intending the other party rely on it, and that the plaintiff reasonably did so to their detriment.
Here, Evans' misrepresentation centered on her Form 17 disclosure. While she acknowledged the home had been constructed on fill and that helical piers had been installed to address early foundation issues, she concluded "I have no reason to believe that there are any issues with the stability of the foundation of the home."
The court found this statement misleading. When viewed in the light most favorable to Moore, ample evidence suggested Evans knew that a critical second phase of repair, a subsurface pile wall, had never been completed. Both her own 2004 declaration and engineering reports she received warned that without the installation of that wall, the home remained at risk of future settlement potentially compromising the residence. By asserting there were no known stability issues, Evans failed to disclose this material information.
Evans' defenses largely mirrored those she raised against the fraudulent concealment claim: that she forgot about the second phase; that Moore had access to inspection reports; and that any reliance by Moore was unreasonable. The court rejected these arguments, noting that on summary judgment, all reasonable inferences must be drawn in the non-moving party's favor. When those inferences are properly applied, the evidence supports the conclusion that Evans made false and misleading statements in her disclosures, that she either knew or should have known they were misleading, and that Moore relied on them in deciding to purchase the home.
Accordingly, the court held that genuine issues of material fact remained for the jury and reversed the trial court's dismissal of the misrepresentation claims.
Conclusion
This case underscores, and perhaps heightens, the legal obligations of sellers in residential real estate transactions, particularly when it comes to disclosing material facts not readily observable during inspection. The appellate court's ruling clarifies that even in the presence of partial disclosures and pre-sale inspections, sellers may be held liable when they omit or misrepresent facts critical to a property's structural integrity. As the case proceeds to trial, it serves as a cautionary tale for sellers who assume that what buyers don't know, or can't easily uncover, won't hurt the sellers in court.