Disputes regarding failures to disclose material facts are common in residential real estate transactions. A 1991 New York case dealt with the much less common issue of whether a home seller is required to disclose the presence of paranormal activity. In Stambovsky v. Ackley (169 A.D. 2d 254 (N.Y. App. Div. 1991)), the court found that a home was “haunted as a matter of law.”
For years prior to the sale of the home in Stambovsky, the sellers had reported the existence of numerous paranormal occurrences in the house. The hauntings ranged from unexplained sounds to full body apparitions. During the time they owned the home, the sellers had disclosed these paranormal activities not only to a local newspaper, but the activities had also been the subject of a Reader’s Digest article. Whether the sellers disclosed the hauntings to the buyers, however, was hotly contested. The buyers claimed they learned of the activity only after they had signed the purchase agreement, and then refused to close as a result. The buyers filed an action requesting rescission of the agreement and damages for fraudulent misrepresentation. The trial court dismissed the action finding that the doctrine of caveat emptor (buyer beware) barred the buyers’ claims.
The appellate court reversed the trial court and reinstated the buyers’ claims. The Stambovsky decision is most famous for its finding that “. . . as a matter of law, the house is haunted.” To the disappointment of ghost hunters, however, the court never determined whether the house was truly haunted. Rather, its finding that the house was haunted “as a matter of law” merely conveyed its determination that the sellers were prevented from denying that the house was haunted as a result of their previous claims of hauntings made to the local paper and Reader’s Digest. Substantively, the appellate court found that while the principle of caveat emptor would normally bar a rescission action, the court was able use its equitable powers to do justice. In so finding, the court commented that the reputation of the house as haunted would “greatly impair the value of the property and its potential for resale.” The court, however, missed the mark on this point. After the parties in Stambovksy settled their claims, the house was sold to a third party at a $600,000 premium!
The decision in Stambovsky illustrates the inconsistent results in non-disclosure cases involving non-physical conditions. Some states, including Minnesota, have attempted to provide clarity in this area by statutory enactment. For example, Minnesota Statutes § 513.56, Subd. 1, makes clear that Minnesota’s general duty of disclosure does not create a duty to disclose that the home was the “site of a suicide, accidental death, natural death or perceived paranormal activity.” Interestingly, the statute leaves open the question of whether a death by homicide must be disclosed.