Litigation

ILLINOIS APPELLATE COURT SAYS "AS IS" NOT A DEFENSE IN FRAUD CASE INVOLVING SALE OF PROPERTY WITH BAD ROOF

By Mark P. Loftus, Esq.

There was an important decision recently handed down by the Illinois Second District Appellate Court involving the sale of property on an "as is" basis. In Napcor v. JP Morgan, the defendant was the trustee of a 72,000 plus square foot commercial building in Aurora, Illinois. Howard Preis, a member of defendant's Trust Dept. was responsible for the real estate assets held in trust, and took over the management of the building. The building was targeted as one defendant wished to sell.

To prepare the building for sale, Paine/Wetzel, the broker for the building, provided Preis with an Inspection Report which showed the roof was absorbing water. The Report concluded the roof should be torn off and replaced. After reviewing several bids for the roofing work, Preis recommended that another roof be placed over the existing roof. Prewitt Construction did the work under the supervision of Glen Prentice. Prentice claimed he also told Preis the roof should be torn off but that Preis said a tear off was not in the budget. Prentice also claimed he told Preis reroofing would leave the structure vulnerable to wind damage. After the roofing work was done, the broker advised Preis of on-going roof leaks. Later Paine/Wetzel sent a letter describing a major roof leak was discovered during a showing to a client. Defendant then switched brokers and hired Frain, Camins & Swartchild [FCS]. During an initial meeting with the FCS, Preis was asked if the roof was a tear-off and indicated it was. Preis also approved a listing indicating the roof was a tear off.

In 1996, plaintiff Napcor submitted an offer for the building. The defendant countered and ultimately a deal was struck. A contract was drafted. The contract noted that the plaintiff was accepting the real estate in its "As Is" condition. Plaintiff inspected the building and found no evidence of any leaks. Plaintiff did not, however, retain a specialist for a roof inspection, claiming that it relied upon the listing showing a tear off had been recently done. A sale was consummated in 1996.

And, as predicted, the roof begins to shed. The first incident occurred in March, 1998. In June, 1998, another portion of the roof blew off. A third episode occurred in 1999. Aditionally, the roof continued to leak. Plaintiff sued for, amongst other things, fraudulent misrepresentation. At trial there was evidence that plaintiff had already paid $25,000 plus in repairs. Additionally an expert testified for plaintiff that proper repair of the roof would total over $2 million dollars. A jury concluded that there had been fraudulent misrepresentations and awarded plaintiff $1.2 million dollars in damages.

The defendant appealed, and as one of its arguments claimed the "as is" language defeated any claim for fraud. The Appellate Court however flatly disagreed. The Court concluded that defendants being sued for fraud cannot hide behind "as is" language in the real estate documents.

Full post as published by Illinois Lawyer Blog on March 07, 2011 (boomark / email).