Sale to trust creates first impression

A sale of a home to a trust that included disputed errors in a sales disclosure form presented an issue of first impression for the Indiana Court of Appeals Monday.

Indiana Code Section 32-21-5 spells out when an owner isn’t liable for any errors, inaccuracies, or omissions of information in the disclosure form. It also states when Chapter 1 of the statute doesn’t apply, and that includes transfers to a living trust.

Rebecca Hoffmeister-Repp sold her lake-front home to Rex Breeden, who bought the home through his revocable trust. When she was preparing the home for sale, she signed a seller’s residential real-estate sales disclosure form saying that there weren’t any moisture or water problems in the basement, crawl space area, or any other area.

More than 10 years before she sold the home, Hoffmeister-Repp saw water in a floor vent and heating duct. She and her husband had a sump pump installed and after that, she never noticed water in the ducts and assumed the issue was fixed.

Breeden saw the sales disclosure form, saw issues with the roof and siding, and got the home at a reduced priced to cover the costs of repairs. Breeden also hired an inspector, who advised Breeden to hire someone else to determine if there was actual water penetration in some decayed wood trim in the house. Breeden didn’t follow through with that recommendation and purchased the home.

He later discovered damage to some structural walls and defective conditions of the duct work. On behalf the trust, he sued Hoffmeister-Repp alleging her statements on the form constituted fraud to allow for damages or rescission, and there was a mutual mistake in the contract which entitled the trust to rescission of the purchase agreement.

The trial court granted summary judgment for Hoffmeister-Repp, which the Indiana Court of Appeals affirmed. The suit brought up for the first time what liability a seller to a trust would have for errors contained in the form.

Both sides argued the statute was not ambiguous, but both interpreted it differently. The trust claimed it wasn’t required to establish that any error was within actual knowledge of Hoffmeister-Repp because of the exception involving trusts. She claimed application of the exception to include selling to trusts would allow buyers to avoid the terms of the statute by creating a living trust and having the trust act as the purchaser of record for residential real estate.

In Rex E. Breeden Revocable Trust v. Rebecca Jane Hoffmeister-Repp, No. 03A04-1003-CT-185, the judges found the statute to be ambiguous and ruled in favor of Hoffmeister-Repp. They noted that exceptions to the requirement of a disclosure form are based on a special relationship between the buyer and seller, and some exceptions take into account that the seller is unlikely to have actually lived in the home such that knowledge of the home’s components can’t be assumed.

“Because I.C. § 32-21-5-10 requires this Disclosure Form to be completed and signed prior to an offer for the sale of the residence is accepted, the ninth exception—transfer to a living trust—can necessarily only come into play if the residence is purchased by the seller’s own living trust,” wrote Judge Patricia Riley. “If the sale is occasioned between a seller and a non-related living trust, the seller will always include a Disclosure Form as he is unaware as to the identity of the prospective buyer.”

The judges also held the trust failed to show Hoffmeister-Repp had actual knowledge of the moisture problems in the duct work at the moment she completed the disclosure form, and that there was insufficient designated evidence to support a finding of mutual mistake.