In 2004, Hall Realty signed a transaction broker’s agreement to list and sell the Lake Forest Resort, a 12-unit RV park in Colorado owned by Daniel W. Weddel, which comprised six cabins, a home, a grocery store and an office area.
Hall Realty advertised the resort as a "turn-key business opportunity"; at the time, it was actually operating as an RV park. In 2005, Gilbert Barfield purchased the property.
In 2007, the Colorado Department of Public Health and Environment informed Barfield that the water supply system was improper for the property to operate as a 12-unit RV park. Around the same time, the CDPHE and the county reportedly notified Barfield that the sewage system did not have proper permits for the property to operate as it had been.
Additionally, according to court documents, the county informed Barfield that the property did not have the proper operating permits and ordered him to cease business operations.
Barfield filed suit against Hall Realty, alleging negligent misrepresentation (that Hall Realty was unreasonably negligent in determining the accuracy of its advertisement of the property as a "turn-key business opportunity"), fraudulent misrepresentation (on grounds that Hall Realty either knew the "turn-key" representation was false or was utterly indifferent as to its accuracy), and fraudulent concealment (arguing that Hall Realty either knew or was utterly indifferent to the fact that the seller had never obtained the proper permits, and failed to disclose this fact).
At trial, Hall Realty filed a motion for summary judgment, arguing that its role in the transaction was that of a transaction broker under Colorado Revised Statutes 2009 relating to brokerage relationships in real estate transactions.
As a transaction broker, rather than a fiduciary, Hall argued, its "duty ended by describing the opportunity as it appeared to be when listed: an (ongoing) ‘turn-key’ business opportunity," and it had no duty to investigate or verify anything beyond that.
The trial court agreed and dismissed Barfield’s case.
Barfield appealed, and the Colorado Court of Appeals affirmed the trial court’s ruling. First, the Court of Appeals rejected Barfield’s argument that Hall Realty’s description of the resort as a ‘turn-key’ business opportunity — without investigating further — constituted negligent and fraudulent misrepresentation.
To prove fraud, Barfield would have had to show that Hall Realty either knew that its representations in the property advertisements were false, or was aware that it didn’t know whether the representations were true or false. Photographs submitted by Hall Realty to the trial court clearly showed that the resort was in active operation at the time of the listing.
Accordingly, ruled the Court of Appeals, "the evidence demonstrates that Hall Realty had no reason to believe that the resort was anything but an ongoing, operational RV park," rejecting the fraud claim.
Further, the court rejected Barfield’s argument that Hall violated its duties as a transaction broker by failing to discover the permit issues with the property. On the contrary, found the Court of Appeals, state law expressly states that a transaction broker is not a fiduciary of the parties in the transaction, like a traditional real estate broker would be.
Additionally, a transaction broker, under the same act, is required to "disclose any adverse material facts actually known by the broker," but "is under no duty to conduct an independent inspection of the property for the benefit of the buyer … and has no duty to independently verify the accuracy or completeness of statements made by the seller."
Taken in conjunction, the court explained, the facts that the property was actually in active operations as a 12-unit RV park at the time of the listing, plus the act’s "clear directive that a transaction broker has no duty to investigate," preclude Barfield from showing that Hall Realty’s misrepresentations were either negligent or fraudulent. As a result, the trial court’s ruling was affirmed and Barfield’s case was dismissed.
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." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.