A lot should be considered when purchasing land (which may contain a residence, accessory structures and/or is otherwise vacant). It is important that the language of any purchase agreement is carefully reviewed and/or drafted by an experienced real estate attorney, especially when questions arising regarding the legal meaning of this language. Realtors are very knowledgeable, but the legal ramifications of the language in a court of law may not be their strong suit.

Absent some exceptions, in connection with a purchase agreement, the seller of residential property in Michigan is required to provide a sellers disclosure statement to the purchaser. This imposes an affirmative duty on the seller to disclose known adverse conditions regarding the property, which ranges from the appliances to major systems of the home and potential property line encroachments. In many cases, standard purchase agreements will provide that the purchaser is taking the property “AS IS” upon after or upon certain conditions being satisfied, including inspection(s), a survey and/or a title insurance policy being completed. Under the law, “AS IS” clauses do not allow the real estate seller to intentionally misrepresent or deceive the purchaser regarding the property’s conditions – but does give some protections if it is found that a seller innocently makes a misrepresentation of an adverse condition, which hinges on whether the seller actually knew about said
condition.

A recent case in the Michigan Court of Appeals, Coosard v Tarrat, No 357950 (August 18, 2022) addressed this issue. In that case, there contained an ”AS IS” clause in the purchase agreement, and on the sellers’ disclosure statement, the Defendant-sellers stated that it was “unknown” whether there were any property line encroachments. The Defendant-sellers in the case owned the property for approximately 11 years at the time of the sale. The purchase agreement advised the purchasers to get survey performed, and the purchaser decided not to. The Defendant-sellers’ advertisement posted with the multiple listing service online implied that the home contained a garage. After the sale was completed, the Plaintiff-purchasers discovered that a 14-foot strip of
land, including a portion of the garage, was actually owned by the neighboring property. Testimony of relevant witnesses found that the Defendant-sellers were provided information through a third party that the neighbors had claimed that they owned a portion of the land that the garage was sitting on, and asked the Defendant-sellers to remove the garage.

The trial court in ruling that the Defendant-sellers had no knowledge of the property line issue, found it important that the Defendant-sellers were never provided with a copy of the neighbor’s survey, which would have otherwise confirmed the encroachment, which made the neighbor’s claim, from the Defendant-sellers’ perspective, speculative, since they had no actual knowledge of the encroachment. Further, this was supported by the “unknown” statement on the sellers’ disclosure statement. The trial court held that “AS IS” clauses are intended to allocate the risk of unknown losses, because otherwise, an innocent misrepresentation claim would universally make “AS IS” clauses a farse. Court of Appeals agreed.

The moral of the story is, and evidence problems aside with proving the seller’s knowledge in a court of law, there is no guarantee that a seller of real estate, even if owning the property for many years, will actually know about an adverse condition on property they are selling. If they do not know about an adverse condition, they will not be liable to the purchaser for said for conditions that could have been discovered by the purchaser exercising reasonable diligence, such as having a survey performed.