Illinois Construction Law Blog : Illinois Construction Lawyer & Attorney : Foran Glennon Palandech Ponzi & Rudloff Law Firm : Chicago IL

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When the parties to a real estate contract know that the buyer intends to raze the only structure located thereon and redevelop the property, is the Illinois Residential Real Property Disclosure Act applicable to the transaction?

Yes, according to Skarin Custom Homes, Inc. v. Ross (Doc. No. 02-08-0061, 2^nd Dist.).

In Skarin, the parties entered into a residential real estate contract and the sellers checked the box on the disclosure form showing they were aware of flooding or recurring leakage problems in the basement of the property. They explained the leakage as “some seepage in the basement during heavy rains.”

The parties closed on the contract. Sure enough, the buyers soon found out that there was a history of severe flooding in the basement. Arguably, it could have been worse:

The buyers sued for breach of contract and breach of the Disclosure Act. The trial court dismissed the claims based on the buyers admission during the case that their original intent in purchasing the property was to tear down the house, build a new house, and sell the property for profit. This is likely what they had in mind.

The trial court found that the intent of the buyers to raze the property removed the transaction from the Disclosure Act. The buyers appeal and the appellate court disagreed.

The appellate court found that the act applied because the house was being used as a residence at the time of the sale, was fully functional, and none of the nine exceptions listed in the act were met.

These nine exceptions are:

Sec. 15. The provisions of this Act do not apply to the following:
    (1) Transfers pursuant to court order, including, but not limited to, transfers ordered by a probate court in administration of an estate, transfers between spouses resulting from a judgment of dissolution of marriage or legal separation, transfers pursuant to an order of possession, transfers by a trustee in bankruptcy, transfers by eminent domain, and transfers resulting from a decree for specific performance.
    (2) Transfers from a mortgagor to a mortgagee by deed in lieu of foreclosure or consent judgment, transfer by judicial deed issued pursuant to a foreclosure sale to the successful bidder or the assignee of a certificate of sale, transfer by a collateral assignment of a beneficial interest of a land trust, or a transfer by a mortgagee or a successor in interest to the mortgagee's secured position or a beneficiary under a deed in trust who has acquired the real property by deed in lieu of foreclosure, consent judgment or judicial deed issued pursuant to a foreclosure sale.
    (3) Transfers by a fiduciary in the course of the administration of a decedent's estate, guardianship, conservatorship, or trust.
    (4) Transfers from one co‑owner to one or more other co‑owners.
    (5) Transfers pursuant to testate or intestate succession.
    (6) Transfers made to a spouse, or to a person or persons in the lineal line of consanguinity of one or more of the sellers.
    (7) Transfers from an entity that has taken title to residential real property from a seller for the purpose of assisting in the relocation of the seller, so long as the entity makes available to all prospective buyers a copy of the disclosure form furnished to the entity by the seller.
    (8) Transfers to or from any governmental entity.
    (9) Transfers of newly constructed residential real property that has not been occupied. (765 ILCS 77/15)

The court made specific note of the fact that “a buyer’s intent to tear down a residential structure and rebuild on the property is not listed as an exception.”

We wonder why they would bother filling out the form in the first place if they didn’t think the act applied. The better question is why they would down-play the amount of the flooding if they figured the house would be torn down. We realize this is a punt… but the lesson here is “don’t lie” and don’t assume that someone’s representations are true… get it in the contract.