How to avoid buying a Stigmatized House

stigmatized ghost house

[UPDATE: The Last Word on Stigmatized Homes in BC]

There are many stigmatized properties all over the world.

These properties are “stigmatized” due to circumstances or events which transpired in or around them. For example:

  1. The home could have been the scene of a murder;
  2. It might have been occupied by a serial killer or sex offender;
  3. The former resident was a member of an organized crime group or gang;
  4. The property was robbed or vandalized on prior occasions as it was used to carry out criminal activities;*
  5. The property is alleged to be haunted or plagued by other paranormal phenomena;
  6. The former owner committed suicide on the property;

In BC a seller of property is not legally obliged to disclose any of the above circumstances to a potential buyer.

This is because such circumstances do not at law constitute a material latent defect.

As noted by the judge in the decision referred to below:

A vendor has an obligation to disclose a material latent defect to prospective buyers if the defect renders a property dangerous or unfit for habitation. A latent defect is one that is not discoverable by a purchaser through reasonable inspection inquiries. See McCluskie v. Reynolds (1998), 65 B.C.L.R. (3d) 191 (S.C.), and Cardwell et al v. Perthen et al, 2006 BCSC 333 [Cardwell SC], aff’d 2007 BCCA 313 [Cardwell CA].

This term is also defined in the standard Property Disclosure Statement in use in most residential real estate transactions in BC:

material latent defect means a material defect that cannot be discerned through a reasonable inspection of the property, including any of the following:

(a) a defect that renders the real estate

(i) dangerous or potentially dangerous to the occupants,

(ii) unfit for habitation, or

(iii) unfit for the purpose for which a party is acquiring it, if

(A) the party has made this purpose known to the licensee, or

(B) the licensee has otherwise become aware of this purpose;

(b) a defect that would involve great expense to remedy;

(c) a circumstance that affects the real estate in respect of which a local government or other local authority has given a notice to the client or the licensee, indicating that the circumstance must or should be remedied;

(d) a lack of appropriate municipal building and other permits respecting the real estate.

However, the aforesaid standard Property Disclosure Statement approved by the Real Estate Board does not contain any mention of circumstances which would or could render a home a stigmatized property.*

Thus the doctrine of caveat emptor (buyer beware) is applicable when purchasing a property in this province.

In the recent case of Wang v Shao (BCSC 2018 377) contains an extensive summary of the law concerning the disclosure of stigmatizing circumstances by sellers.

In said case the seller failed to disclose that her husband, Raymond Huang was the victim of a targeted murder likely by a criminal organization just outside the gates of the property.

Although the judge found that this did NOT in itself constitute a legal reason for the buyers to renege on the purchase, he ruled that the vendor’s partial answer as to why she was selling (her daughter was being transferred to another school where she could improve her English skills) amounted to a fraudulent misrepresentation.

At paragraph 217 the judge stated:

[217] As Ms. Shao acknowledged, the inquiry about why the owner was selling is a general question, rather than a specific inquiry about deaths at or near the property, or latent defects. However, having put the question to the plaintiff through her agent, Ms. Shao was entitled to an accurate answer, rather than one calculated to conceal Mr. Huang’s death as a reason for the plaintiff’s decision to sell the property. Ms. Shao did not ask if the daughter’s change of school was the only reason why the plaintiff was selling the property because she believed the representation made by the plaintiff through Mr. Yee. For Ms. Shao, the representation was material, and she relied upon it as an inducement for her purchase of the property.

In other words, an incomplete although technically or partially true representation can amount to a fraudulent misrepresentation in some circumstances –like these.

The vendor sought then to rely on the “entire agreement” clause in standard BC real estate contracts as stated below, but the judge gave short shrift to that argument:

[38] Clause 22 of the agreement of purchase and sale, which is Exhibit 3 in these proceedings, is the “entire agreement” clause. It provides, in part, that:

There is no representation, warranty, collateral agreement or condition, whether direct or collateral or expressed or implied, which induced any party hereto to enter into this Agreement or on which reliance is placed by any such party, or which affects this Agreement or the property or supported hereby, other than as expressed herein.

This clause is vitiated by fraud and it is not open to the defendant to rely upon it in the circumstances. See Ballard v. Gaskill (1955), 14 W.W.R. 519 (B.C.C.A.).

As this case was just reported a few days ago, it is not clear whether the vendor will appeal the decision, as there is about $600,000 on the line depending on the final outcome.

In my view the case could have gone either way, as the failure to disclose was not that blatant and the representation that was made was partially true.

The moral of this story is that it is much better to make NO REPRESENTATION than a half or incomplete representation which can be construed as fraudulent or misleading. Had the seller said nothing about her reasons for selling this would have been an open and shut case –the plaintiff would have lost.

THUS, HOW CAN A PROSPECTIVE PURCHASER AVOID BUYING A STIGMATIZED PROPERTY?

First, advise your realtor that you don’t want to buy a stigmatized home and let him or her know what that subjectively means to you. Ask the realtor to make inquiries with the vendor’s realtor.

Second, do a GOOGLE search of the property to see if the subject property comes up with a story about an unsavory event or circumstance. I have never tried it, but there is a website called www.housecreep.com which purports to have over 25,000 listings of stigmatized properties across North America.

Third, write a representation into your offer to purchase which covers off any of the circumstances which are important to the purchaser (“the vendor warrants and represents that to the best of his knowledge, information and belief that the subject property was a) not the scene of a murder, b) not previously occupied by a sex offender, member of a gang or organized crime, serial killer or other criminal, c) not a former marijuana grow-op, drug lab or place for the manufacture, storage or distribution of illicit substances, guns or explosive devices or illegal products or services, d) not used for other criminal activities, e) not haunted or subject to other paranormal phenomena.”)

Even in these days of “no subject offers” vendors don’t seem to mind making warranties and representations about the property –but they often balk at any “subject conditions” which could allow the buyer the opportunity to lawfully walk away from the purchase.

Fourth, if time permits, which is usually not the case, talk to the neighbors who invariably know what is going on next door.

Given that any kind of purchase in BC involves a lot of money, the more due diligence you can do the less chance you have of being surprised.

And as I have said many times before, in real estate no surprise is ever a good surprise.

*With respect to a property that was formerly used for criminal activities such as a grow op or meth lab, if such activities rendered the home dangerous, unfit for habitation or otherwise defective, that could well be construed as creating a latent material defect in the home (as is often seen in former grow-ops which may have mold, mildew, unsafe electrical wiring etc. which may not always be discerned by a routine building inspection). For that reason the standard PDS used in the real estate industry does contain a question to be answered by the seller as to whether he was aware that the property was formerly used to grow marijuana or to manufacture illegal drugs.

Disclaimer: The foregoing is for information purposes only and not intended as legal advice to the reader. Always consult with an experienced real estate lawyer when modifying the standard real estate contract in use in BC. In addition statutory law as well as case law may change from time to time which could render this analysis inaccurate in the future. 

(C) 2018 Pazder Law Corporation