Case Focusing on Septic Systems- Highlights Tips for Buying Real Property

22 Jun

If you are considering purchasing lake property or a home with a septic system, or if have done so within two years of reading this, you may be interested in a Minnesota Court of Appeals’ ruling made in April 2009.  In JEM Acres, LLC v. Bruno, 764 N.W.2d 77 (Minn. Ct. App. 2009), the purchaser of a resort found that one of the two septic systems was backing up just two days after closing, and ultimately both systems failed an inspection within a month after it purchased the property.  In connection with the sale, the seller had provided the buyer with a “current” certificate of system compliance for the septic systems.

 

Minn. Stat. § 115.55, Subd. 6 requires any seller of real property to disclose to the buyer in writing whether a septic system (or “individual sewage treatment system”) is in use on the property and is “in compliance with applicable sewage treatment laws and rules.”  As in the JEM Acres case, the seller may offer to present a certificate issued under Subdivision 5 of the statute as proof that the system is in compliance.  A certificate issued for an existing system is valid for three years.  A certificate issued for a new system is valid for five years.

 

Due to the length of time that a certificate of compliance of remains technically valid, the septic system may start to fail while the certificate is still “valid.”  Knowing this, a seller may try to provide a certificate of compliance to the buyer even though the septic system is not actually in compliance.  Fortunately, in JEM Acres, the Minnesota Court of Appeals held the sellers liable for failure to advise the buyer of a failing or non-compliant system when they had reason to know of that condition –even though they had a current certificate of compliance.

 

According to Minn. Stat. § 115.55, Subd. 6, if a seller violates the statute’s disclosure requirements, the buyer has the right to recover its costs related to bringing any septic system into compliance with applicable rules, and to recover its attorneys’ fees.  The statute of limitations for an action relating to an inadequate disclosure regarding septic system compliance is just two years from the date of closing, even though the statute of limitations for most cases of non-disclosure (or fraud) is six years from the date the misrepresentation is discovered.

 

The buyer in the JEM Acres case also alleged breach of a warranty that the sellers made in the purchase agreement regarding the compliance of the septic system.  The sellers argued that their representation in the purchase agreement was no longer binding because the doctrine of “merger” states that claims arising under a purchase agreement for real property do not survive delivery of the deed.  The sellers pointed to language in the purchase agreement itself that appeared to bar the buyer’s claims.  However, the Court of Appeals property noted that the doctrine of merger does not apply to fraudulent statements.

 

This case serves as an important reminder of three lessons that apply to all real property transactions.  First, be vigilant in the months after closing to ensure that any undisclosed problems are not lurking, many of which are not or cannot be revealed by a typical pre-closing inspection.  Second, do not be deterred from pursuing justice because of the presentation of technical evidence of compliance where common sense says you have been wronged.  Third, you must act promptly to ensure your rights are protected; memories fade, evidence is lost, sellers disappear, and –most importantly– statutes of limitations can expire resulting in a bar against your claim(s).

 

The case (JEM Acres, LLC v. Bruno, 764 N.W.2d 77 (Minn. Ct. App. 2009)) can be found here:   http://www.lawlibrary.state.mn.us/archive/ctappub/0904/opa080735-0414.pdf

 

The statute (Minn. Stat. § 115.55) can be found here:  https://www.revisor.leg.state.mn.us/statutes/?id=115.55.

 

Entry by Matt Drewes.  Matt is a shareholder at Thomsen & Nybeck, P.A. and head of the firm’s Community Association Representation Group and Co-chairs the firm’s Construction Defect Litigation Group.  He practices primarily in the areas of real estate litigation, townhome and condominium law, construction litigation, debtor/creditor law, insurance litigation and employment law.  For more information on our general real estate services, please visit:  http://www.tn-law.com/CM/Real-Estate/Real-Estate-Law.asp, or visit this page for information about real estate litigation:  http://www.tn-law.com/CM/Custom/TOCLitigation.asp.

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One Response to “Case Focusing on Septic Systems- Highlights Tips for Buying Real Property”

  1. Philippines properties for sale March 22, 2010 at 9:23 am #

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