In Hunt v. Elephant Real Estate, a home was purchased in a foreclosure proceeding in April 2005. After the purchase, leaks were discovered in the roof and the basement. The leaks were repaired and the property was put up for sale again.

The buyer, Antoinette Hunt, had a contract to purchase the property from the seller that allowed for an inspection, and provided that she had the right to either back out of the sale or request a repair credit against the purchase price if her inspections uncovered work that needed to be done and made her request within a certain number of days.

The purchase contract also included an as-is clause, stating that if Hunt agreed to purchase the property notwithstanding the disclosures and results of her inspections, she would be taking the property as-is and would have no legal claims against the seller or brokers involved.

In Hunt v. Elephant Real Estate, a home was purchased in a foreclosure proceeding in April 2005. After the purchase, leaks were discovered in the roof and the basement. The leaks were repaired and the property was put up for sale again.

The buyer, Antoinette Hunt, had a contract to purchase the property from the seller that allowed for an inspection, and provided that she had the right to either back out of the sale or request a repair credit against the purchase price if her inspections uncovered work that needed to be done and made her request within a certain number of days.

The purchase contract also included an as-is clause, stating that if Hunt agreed to purchase the property notwithstanding the disclosures and results of her inspections, she would be taking the property as-is and would have no legal claims against the seller or brokers involved.

Hunt had a pre-purchase inspection conducted, which indicated that the items the seller had repaired were resolved, but that there was moisture and water damage along the basement floor.

Because Hunt allegedly believed the moisture was from the air conditioner, she did not pursue it further, or express any dissatisfaction with the property’s condition. She also did not conduct a walkthrough inspection just prior to closing, nor did she come to the property on closing day.

After moving in, Hunt allegedly learned that the basement was contaminated with toxic mold, and moved out of the home when she noticed that her children were becoming sick, according to court documents.

Hunt sued the seller, seeking rescission of the purchase contract. At trial, the court rescinded the contract, finding that since both Hunt and the seller were unaware of the toxic mold at the time of the purchase contract, the contract was based on mutual mistake. The trial court made clear that Hunt had no other causes of action against the seller. …CONTINUED

The Michigan Court of Appeals, though, overturned the trial court’s ruling in an Oct. 13, 2009, opinion. While mutual mistake can be grounds for rescission of a contract, the appellate court explained, the sort of mutual mistake that warrants rescission is a mistake as to the "the basic essence, form or substance of the contract, not some collateral aspect affecting quality or value."

In this situation, the court ruled, there was no mutual mistake as to the basic essence of the contract, so rescission was not warranted under this line of reasoning.

The court went on to explain that even if a mutual mistake warranting relief for Hunt had existed, her claim would fail because the contract’s as-is clause had "specifically allocated the risk of loss to plaintiff." Accordingly, Hunt had no successful causes of action against the seller, and the lower court’s ruling was reversed.

Elephant Real Estate Inc. served as the leading defendant and appellant in the case, and other defendants included Eastern Savings Bank, General Motors Acceptance Corp., Pat Parrott, RE/MAX Acclaim, and Great Lakes GMAC Real Estate.

 

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.

***

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