Many lawsuits in real estate land come down to a claim of fraud. Fraud, broadly speaking, is the act of lying to another person in a way that was intentional or negligent. Alternately called a “misrepresentation,” the concept is founded on the belief that, at law, two parties in a contract are telling one another the truth and not trying to be deceptive. Misrepresentations are complicated to prove at law, with an 8-part test that requires a yes answer on all of the following:
- Was there a representation of some kind?
- Oral statements, written messages, gestures, and even silence can be a representation. The representation doesn’t even need to be a specific one statement, but rather can be a series of statements over time. Williams v. Philip Morris Inc., 182 Or App 44 (2002). One area of particular interest is “fraud through omission,” or the idea that it is a form of misrepresentation to not say something when a reasonable person would otherwise have said something. This does not inherently impose a greater duty to the world around you, but if someone comes up and says “I want to buy your house because it was the place where the Goonies was filmed!” and you know it’s not the Goonie house… You are expected to inform them of their mistake [unless you are actually that one person who sold the Goonie House a few years back].
- Was the representation false?
- Even if the statement was “literally true” but created a false impression, it would be a “false representation.” Heverly v. Kirkendall, 257 Or 232 (1970). Lies, half-truths, and misleading statements can all be misrepresentations.
- Was the representation material to the contract?
- It has to be relevant to the contract in such a way that the parties would not have consummated the contract without the accuracy of the statement. E.g. If Seller says “that there wall is eggshell white,” but it turns out to be off-white or bone white, there is a misrepresentation because Seller is objectively fibbing, but the misrepresentation is in no way material to the contract unless the Buyer has an expressly stated, albeit deeply unsettling, focus on the shade of drywall that Seller is disregarding.
- Did the speaker know that the statement was false, or were they otherwise ignorant of the truth of the statement?
- Speakers who flippantly say things without any fact-checking or background information are considered to have been ignorant of the truth. E.g., Seller says “there’s water rights on this land,” because they have always turned on the hose and water came out, the seller is likely stating something that a reasonable person would not say without being certain.
- With this said, if the client deliberately withholds information from you, the agent, so that you, the agent, can make statements innocently unaware that you are misrepresenting facts, the agent is not going to be considered liable for fraud. Rather, the client who lied to the agent would be responsible for the factual misrepresentation they were trying to slip in through the agent as a patsy.
- Did the speaker intend the other party to act upon the statement?
- Fraudulent intent is drawn from this element of a misrepresentation. If the Seller was just mumbling things to themselves quietly and the Buyer overheard, the Buyer will rarely be able to claim the Seller lied to them. There was no intent that the mumblings be acted upon, and in most circumstances, it would not be considered negligent to mumble in public while selling a home.
- Was the injured party ignorant of the falsehood?
- If you know that the thing is a lie, you can’t claim you were lied to. It’s more like you were lied at, but not lied to. Being in the presence of a lie that is a known falsehood will not spark misrepresentation claims because it is expected that the knowing injured party here would have avoided the harm from the lie by nature of simply knowing that it was not true. E.g., Seller foolishly says “there are water rights,” but buyer knows there are none. Buyer can’t buy the property then sue for the missing water rights, they were aware their deal was water rights-less at the start, so the buyer gets exactly what they expected from the deal and has not lost out on value they were expecting to have.
- Did the injured party rely on the truth of the statement?
- Was the injured party reasonable to rely on the statement?
- Reasonability is a sliding scale based on the sophistication of the injured party. It is more difficult for a real estate agent to allege they were reasonable in relying on fantastical statements about property because the real estate agent carries a greater pool of knowledge about properties and knows better how to perform due diligence to ferret out falsehoods. Lenders are equally expected to take a greater degree of sophistication and to perform a greater degree of diligence before relying on statements of an applicant. Vasquez-Lopez v. Ben. Or. Inc., 210 Or. App. 553 (2007).
If you are not able to check every single one of the above 8 boxes, the claim of misrepresentation will typically fail.