ISSUE:

The seller of a vacant lot knows that the vacant lot is in the flood plain, but intentionally and fraudulently fails to disclose that the vacant lot is in the flood plain. Although the buyer could easily discover during the inspection period by inspection of county records that the vacant lot is in the flood plain, the buyer did nothing. After close of escrow, the buyer learns that the vacant lot is in the flood plain and that the buyer will not be able to build a home on the vacant lot. Is the seller liable for the intentional and fraudulent non-disclosure of the flood plain status, even though the buyer may have been negligent in failing to investigate the flood plain status of the vacant lot?

ANSWER:

Probably. The general rule is that the recipient of a fraudulent and intentional misrepresentation occurring either by commission or omission is justified in relying upon the truth, although the recipient may have ascertained the false representation had the recipient made an investigation. Restatement (Second) of Torts §540; Barnes v. Lopez, 25 Ariz. App. 477, 544 P.2d 694 (Ct. App. 1976) (after seller made a fraudulent and intentional misrepresentation as to the zoning status of the property, the buyer was entitled to rely on this misrepresentation and had no duty to make further inquiry)

Arizona REALTOR® Digest July 2006