Court upholds homebuyer win in disclosure dispute

Listen to this article

Sufficient evidence existed for a jury to side with a homebuyer on claims that the sellers failed to disclose the issues they knew existed with the property, the South Carolina Court of Appeals has ruled, affirming the denial of the seller’s judgement notwithstanding the verdict (JNOV) motion following a verdict for the buyer.

In June 2019, Dr. Barbara Sarb entered into a contract with Julie and Joseph Phillips for the sale of a home in Florence.

As required by state law, the Phillipses provided Sarb with a Residential Property Condition Disclosure Statement representing that they did not have actual knowledge of any “defects, malfunctions, damages, conditions or characteristics” with the property.

Prior to and shortly after moving in, Sarb experience flooding in the basement, problems with sewage disposal systems and plumbing and an infestation of cockroaches.

Sarb filed suit against the Phillipses. At trial, she testified that she personally inspected the house with her Realtor and visited the house five or six times but did not notice any issues. Her inspector asked the Phillipses whether there was “any water in the” house and they responded, “Water never came in the house.”

After she moved in, Sarb testified there was consistently standing water in the basement, and that flooding occurred any time there was a moderate amount of rain. She moved out of the property because of the high moisture levels and the related health issues she was experiencing.

Julie Phillips testified that despite having water in the basement on “two occasions” while they lived in the house, they did not disclose this issue; she also acknowledged “maybe three to four sewage issues” which they also did not disclose.

The jury sided with Sarb, awarding her $71,000 in damages. The Phillipses filed a motion for JNOV, which the court denied.

Sarb and the Phillipses filed for attorneys’ fees, which the court granted in the same amount for both sides. Both parties then appealed.

In an opinion authored by Chief Judge H. Bruce Williams and joined by Judges John D. Geathers and Matthew P. Turner, the court affirmed in part and reversed in part.

The per curiam, nonprecedential decision is Sarb v. Phillips, No. 2023-001713.

In the light most favorable to Sarb, the court found sufficient evidence for the jury to have found the Phillipses failed to disclose the issues they knew existed with the property.

“Julie testified that water infiltrated their basement on two different occasions while they owned the Property,” the court wrote. “She admitted they did not disclose this on the Disclosure Statement.”

In addition, a neighbor testified that she observed standing and flowing water in the basement and Julie also testified as to sewage issues.

“We find the evidence yields more than one reasonable inference regarding whether [the Phillipses] knew about any of these issues and failed to disclose them,” the court said.

The court also found that the trial court erred when it denied Sarb’s JNOV motion as to the Phillips’ counterclaim for failing to adequately inspect.

Under the purchase agreement or the disclosure statement, Sarb did not have an obligation to adequately inspect the property, the court explained.

“[Paragraph 9] affords [Sarb] the opportunity to inspect the property if she so chooses,” the court said. “We do not interpret this provision as creating a responsibility to conduct an adequate inspection — only that the Disclosure Statement does not allow [Sarb] to solely rely on the disclosures made by [the Phillips].”

Even if Sarb did have an obligation to inspect, “we find she conducted an adequate inspection,” the court added, personally inspecting the property numerous times and hiring two companies to conduct inspections.

As for attorneys’ fees and costs, the court erred in awarding any to the Phillipses, the court found.

According to the purchase agreement, the Phillipses were not entitled to fees and costs unless Sarb was found to have violated the agreement. Since the court determined that the trial court erred in not granting JNOV to Sarb on the Phillipses’ counterclaim, they were not entitled to fees.

On the other hand, while the trial court correctly awarded attorneys’ fees and costs to Sarb as the prevailing party, it abused its discretion in determining the fee amount, the court found.

Although the trial court “purported to have taken all six Baron factors into consideration, the order consisted of a brief discussion of only three” of the factors, the court said. “Additionally, we did not find evidence in the record to support the court’s award.”

The trial court awarded Sarb and the Phillipses the same amount of attorneys’ fees (which was the amount the Phillips had requested), but did not explain the method it used to determine the amount or why it awarded the parties equal amounts, despite the attorneys charging different hourly rates and reporting different numbers of hours billed.

“Furthermore, the parties received different verdicts and damages awards from the jury — a factor not seemingly contemplated by the court’s fee award,” the court said. “Because there is no explanation of how the trial court determined the amount and there is a lack of evidence in the record to support the determination, we hold the court erred.”

The court reversed the award of fees to the Phillipses and Sarb, remanding for a recalculation of the award for Sarb.

Valerie G. Giovanoli, of McCabe, Trotter & Beverly, in Columbia, who represented Sarb, was “pleased that the Court of Appeals corrected the Florence County Court’s clear errors.”

She also highlighted the decision’s holding that the standard real estate purchase contract — a form prepared by the South Carolina Real Estate Commission and used widely in the industry — does not put an obligation on buyers to “adequately inspect property” they are purchasing.

In addition, lawyers should take note that “a seller may be found liable for a violation of the Residential Property Condition Disclosure Act without the buyer proving reliance on the violation,” Giovanoli said.

Florence attorney Edward A. Love, of King, Love & Hupfer, who represented the Phillipses, did not respond to a request for comment.