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It's not easy to sell a haunted house.

It's not easy to sell a haunted house

Getting Down to Cases

Mr. Stambosky of New York City signed a contract to purchase a house in Nyack, New York from Mrs. Ackley. The purchase price was $650,000 and the down payment deposit made by Stambosky was $32,500.

Prior to closing, Stambosky was horrified to learn that the house was known throughout the community to be haunted by ghosts. The purchaser, coming from New York City, had no awareness of the folklore of Nyack which fostered the house's reputation that it was haunted. The purchaser also didn't know at the time he signed the contract that articles and reports of the presence of poltergeists in this house appeared in the Reader's Digest as well as in the local press. These published articles were contributed by the seller who reported that she encountered ghosts in the house. Stambosky found out about the ghosts approximately two months after the contract was signed when he read in a local newspaper about a walking tour which included this house which was described as haunted.

When the purchaser learned of this reputation, he sought to rescind the contract and secure the return of his $32,500 down payment. He sued to recover his down payment, alleging that he would not have entered into the contract had he been advised that the house was haunted and that as a result of the poltergeist activity, the market value and the re-saleability of his house were greatly diminished.

The Appellate Division, by a three to two decision, agreed with the purchaser and ordered the contract rescinded and the down payment returned to him. (Stambosky vs. Ackley et al. New York Law Journal July 22, 1991, pg. 21 col. 2).

The court held that the seller, having engaged in publicizing the house to be haunted could not now deny the existence of ghosts, and therefore, as a matter of law, the court declared the house to be haunted. It was the seller's promotional efforts in publicizing her encounters with ghosts which fostered the home's reputation in the community as a haunted house. The impact of the home's reputation went to the very essence of the bargain between the purchaser and the seller, greatly impairing the value of the property and its potential for resale.

Generally, the court said, the rule of caveat emptor (buyer beware) prevails in real estate transactions, and while the seller did not fraudulently misrepresent the status of the house to the purchaser, the spirit of equity moved the court to grant recision of the contract of sale and the recovery of the down payment.

New York law adheres to the doctrine of caveat emptor in real estate transactions and imposes no duty upon the seller to disclose adverse information concerning the property. However, the doctrine of caveat emptor is not so all-encompassing so as to make every act of non-disclosure immune from redress. While the courts would award damages to a purchaser against the seller because of concealment of facts, yet if the purchaser refused to complete the contract by taking title because of concealment of a material fact, equity and fairness would prompt a court to refuse to compel the purchaser to do so. Only a contract which is fair and open and where all material facts known to each have been communicated to the other can be required to be performed.

The doctrine of caveat emptor requires that a buyer act prudently to assess the fitness and value of his purchase. A buyer cannot complain about the bargain he has made if he fails to exercise due care in evaluating the property before he signed contract. In this instance however, the buyer did meet his obligation to conduct an inspection of the property and to search available public records with respect to title. However, the most meticulous inspection and search would not reveal the presence of ghosts in the property or unearth the property's reputation as a haunted house in the community. Therefore, the purchaser should not be denied relief for failure to discover that the house was haunted, since most prudent purchasers would not be expected to even contemplate such a condition.

While most cases dealing in failure to disclose information to the buyer involve physical characteristics of the property or defects in recorded title, this case is unique since the allegation made by the purchaser is that the value of the property was impaired as a result of the reputation created by information deseminated to the public by the seller. Where a condition, which has been created by the seller, materially impairs the value of the property and is peculiarly within the knowledge of the seller and is unlikely to be discovered by the purchaser, such nondisclosures constitutes a basis for rescission of the contract as a matter of equity.

In this case, the court ruled that the seller, having deliberately fostered the public belief that her home was possessed by ghosts and having undertaken to inform the public at large about the supernatural occurrences on her property, she owes no less a duty to the purchaser of the property for such disclosed information. Where the seller not only takes unfair advantage of the buyer's ignorance but has created and perpetuated a condition about which the buyer is unlikely even to inquire, then the enforcement of such a contact of sale is offensive to the court's sense of fairness.

Accordingly, the court awarded judgment in favor of the purchaser, rescinded the contract of sale and required the return of the down payment deposit to him.

While the facts in this case are not likely to re-occur, a seller cannot on the one hand, disclose information to the public which will adversely effect the value of the property and on the other hand, withhold that information from a purchaser.

Edward L. Schiff, Esq. Partner, Edwards & Angell
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Copyright 1991, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Getting Down to Cases
Author:Schiff, Edward L.
Publication:Real Estate Weekly
Date:Oct 30, 1991
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