A Psychological Thriller – The Case for Liability for Undisclosed Psychological Defects in Residential Sales
A murder/suicide previously occurring in a home is not a “material defect” and does not need to be disclosed by a seller under the Pennsylvania Real Estate Seller Disclosure Law (“Disclosure Law”). In Milliken v. Jacono, a case arising out of Delaware County, Pennsylvania, the Jaconos bought a home in which a murder/suicide had occurred, renovated it and ‘flipped it’ for a substantial profit to Ms. Milliken. The media had highly publicized the underlying crime, but Milliken arrived from California and purchased the home without direct knowledge of the crime and without a disclosure by the Jaconos under the Disclosure Law, or otherwise.
In the disclosure provided to Milliken, and under Pennsylvania law, a material defect is defined as:
“Material defect.” A problem with a residential real property or any portion of it that would have a significant adverse impact on the value of the property or that involves an unreasonable risk to people on the property. The fact that a structural element, system or subsystem is near, at or beyond the end of the normal useful life of such a structural element, system or subsystem is not by itself a material defect.
68 Pa. C.S. § 7102. Naturally, the focus here is on the defect having a “significant adverse impact on the value of the property.” It is noteworthy that the Jaconos’ attorney, the Pennsylvania Real Estate Commission, and the Pennsylvania Association of Realtors Legal Hotline, all advised them that a murder/suicide did not constitute a material defect because it would not impact the value of the property. Ultimately, the Jaconos’ real estate agent recommended that making the disclosure would be a good idea, but the Jaconos elected not to do so.
Upon her discovery that this murder/suicide occurred in the $600,000 home she just purchased, Milliken filed suit against the Jaconos and their real estate agent, Re/Max, on the basis that they committed fraud, negligent misrepresentation and a violation of the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”).[1] Milliken contended that the murder/suicide psychologically stigmatized the property, reduced its value, and that she would not have purchased it had she known of the crime prior to closing.
The Delaware County Court of Common Pleas disagreed with Milliken’s claims and found no liability against the defendants. The Pennsylvania Superior Court on appeal, initially reversed the county trial court, but, after reconsideration before the full appellate court, affirmed the trial court’s decision. The Superior Court specifically determined that the non-disclosure of the murder suicide did not constitute a material misrepresentation of a material fact. See Milliken v. Jacono, 60 A.3d 133 (Pa. Super. Ct. 2012) (en banc). Milliken pursued an appeal to the Pennsylvania Supreme Court.
On appeal, the Supreme Court pointedly focused on the central question of its review, whether psychological stigmas constituted material defects. Milliken v. Jacono, 628 Pa. 62, 103 A.3d 806 (Pa. 2014).
The Court’s opinion acknowledges, as Milliken’s expert did, that a psychological stigma may have the potential impact on the value of property, but some buyers may not view the property as stigmatized, or sufficiently stigmatized, to impact value. Turning to Greek mythology, the Court identified the “Sisyphean task”[2] of attempting to identify those traumatizing events that would or would not warrant mandatory disclosure. In a macabre turn to the hypothetical, the Court queried if it mattered (for purposes of psychological stigma, and therefore for purposes of disclosure) if the deaths were bloodless, or if poisoning or an overdose is less of a defect than a bloody death? Did rape, assault or home invasion matter for purposes of disclosure? What if a sadistic killer lived at the home, but horrible killings occurred elsewhere? The variety of scenarios defy quantification in terms of psychological impact, and therefore, a bright-line rule making a murder/suicide a material defect which must be disclosed unworkable.
The Court also focused on the impossible burden creating such a duty to disclose would place on sellers of real estate, and the possibility that over time, the stigma may fade. Finally, turning to the long standing legal defense of caveat emptor, or buyer beware, the Court held that even if the murder/suicide were a material defect requiring disclosure, it was not latent – that is, it was highly publicized and Milliken possessed the tools to discover the murder/suicide, but did not, even after suspecting that the something was afoot. The Supreme Court affirmed the trial court’s dismissal, and held “purely psychological stigmas are not material defects of the property that sellers must disclose to buyers.”
An earlier 2007 Pennsylvania case arising from Beaver County addressed an undisclosed suicide in a home’s master bedroom. Bukoskey v. Palombo, 1 Pa. D&C 5th 456 (Beaver Co. 2007). As to the seller, the court in Bukoskey, dismissed all claims against the sellers, determining, as to the suicide in the master bedroom, that the buyers could not demonstrate the misrepresentation “of any condition of the property that was material to the sale of the house.” The court acknowledged that “[a]lthough [buyer] may be disturbed by the fact that a suicide occurred in the master bedroom, this does not make it a material fact.” Id. at 466-7.
Other states are not in completely in accord with Pennsylvania. For example, as far back as 1983 the Court of Appeal of California reversed a county trial court and held that a seller’s failure to disclose to a buyer that murders had occurred in the home buyer purchased was material to the real estate purchase contract. Reed v. King, 145 Cal. App. 3d 261, 193 Cal. Rptr. 130 (1983). Similarly, allowing rescission but not money damages, the Supreme Court of New York, Appellate Division, reversed a trial court’s dismissal of a complaint suing to rescind the sale of a haunted house. Stambovsky v. Ackley, 169 A.D.2d 254, 572 N.Y.S.2d 672 (1991). In Stambovsky, caveat emptor prevented an action for damages, but allowed the equitable remedy of rescission, where the buyer did not know of the home’s haunted reputation[3] and the seller herself helped create and perpetuate that reputation. Some states have also enacted statutes that address psychological stigma.[4]
However, there is a 2007 Alaska Supreme Court case addressing a sale of a home where the prior owner had died and decomposed in the home, damaging the home’s sub-floor. The buyer waived the state’s statutorily mandated disclosures. After discovering blood in the home, buyer found the damaged sub-floor. The Alaska Supreme Court determined that seller had no liability under the waived statutory disclosures or under the common law. Deptula v. Simpson, 164 P.3d 640 (Alaska Supreme Ct. 2007).
Eight years after Milliken, can we envision a circumstance in Pennsylvania where a “psychological stigma” is a material defect for which disclosure under the Disclosure Law is required. As we consider the positive reputation of real estate that may add to its value, should we also consider the known negative aspects of real estate that may “have a significant adverse impact” on its value? Would known false advertising by a seller that “George Washington slept here,” driving up a sale price, be actionable, but, non-disclosure of a horrific crime or death, in a home, driving down the home’s value, not be actionable? If the buyer pleads and can demonstrate by competent evidence, likely by an expert, that in fact a crime or death in a home would have had a significant adverse impact on the home’s value if disclosed, could the claim potentially succeed? Or, are psychological stigma so exceptionally buyer specific that evidence of adverse impact on value is speculative? Does the Unfair Trade Practices and Consumer Protection Law after Gregg v. Ameriprise Financial, Inc., 245 A.3d 637 (Pa. 2021),[5] now provide relief for such a buyer? Does equity create any avenue for relief to a buyer? What if the crime or death caused structural damage? Must both be disclosed?
In conclusion, the current status of the law is that a crime is not a material defect of real estate required to be disclosed to potential buyers. Although the law is settled, it is in need of further development. For example, if the crime or death does impact the structure, habitability, title, boundaries, or the occupancy and quiet enjoyment of the home, disclosure almost certainly would be required. Before making a decision of whether or not to disclose a matter, or, if you feel that you were a victim of a material non-disclosure, consult an attorney promptly.
If you have a question concerning a real estate matter, please contact Eric B. Smith, Esquire, 215.540.2653 or esmith@timoneyknox.com.
Mr. Smith, a partner of the firm of Timoney Knox, LLP, serves as the Chair of the firm’s Litigation Group. He has been consistently recognized by Super Lawyers and Best Lawyers and served as President of the Montgomery Bar Association in 2017. For more information about Mr. Smith, please click here.
[1] The Supreme Court did not review whether the Jaconos were required to disclose the crime under the Disclosure Law, however, the Pennsylvania Superior Court, upon reconsideration en banc, rejected Milliken’s claim under the Disclosure Law.
[2] For the story of Sisyphus, see https://en.wikipedia.org/wiki/Sisyphus.
[3] For a deeper dive about the only house declared “legally haunted,” see these interesting articles at House Beautiful, Wikipedia and People, and an Apple podcast.
[4] See for example, under Minnesota law, the fact or suspicion that the property “was the site of a suicide, accidental death, natural death, or perceived paranormal activity” is not a material fact relating to the real property offered for sale. Minn. Stat. § 82.68(b)(2).
[5] For more information about the strict liability standard established by the Supreme Court in Gregg, see Strict-liability: Leveling the Playing Field for Consumers.
Published Oct 28, 2022
About The Author(s):
Eric B. Smith
Mr. Smith, a partner of Timoney Knox, LLP, serves as Chair of the Firm’s Litigation Group and has been consistently recognized by Super Lawyers and Best Attorneys since 2005. In 2017 Mr. Smith served as the President of the Montgomery Bar Association. His commercial and real estate litigation practice spans across the Commonwealth of Pennsylvania.
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