Renovation Contractors: Be Careful How You Disclose Your Projects

In Palu and Beyer v. Toney, 2011 WL 2560249 (Bankr. D. Colo.), the United States Bankruptcy Court for the District of Colorado determined that a Colorado District Court order granting summary judgment in favor of plaintiff homebuyers was binding on the Bankruptcy Court in the defendant contractor’s bankruptcy proceeding based on issue preclusion.[1]

Pertinent to this column is the subject matter of the summary judgment motion: Colorado’s Seller’s Property Disclosure (Form LC-18-5-04). In the underlying state court action, the plaintiff homebuyers filed a motion for summary judgment contending that the defendant contractor represented to them, through the Seller’s Property Disclosure, that there were no present or past conditions involving moisture or water problems, roof problems or leaks, skylight problems, or gutter downspout problems.

In granting plaintiffs’ motion, the state court determined that the defendant contractor made these representations on her Seller’s Property Disclosure despite witnessing water leaking from the skylight onto the floor and being aware of repairs to the roof, skylight, and interior drywall prior to the sale of the property. The state court also determined that the past water damages and repairs were material facts, because “any past water damages and resulting repairs are information a reasonable person under these circumstances would regard as important in deciding what to do.” Additionally, the state court determined that the defendant contractor intended for the plaintiff buyers to rely on her representations, and that the plaintiff buyers did so.

Notably, there is a “Seller’s Advisory” contained on Colorado’s Seller’s Property Disclosure which indicates that “failure to disclose a known material defect may result in legal liability.” Although the Palu case is an example of a renovation contractor’s blatantly false disclosure, the lesson is still clear: Colorado courts will treat the representations made on your next Seller’s Disclosure very seriously.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.