A New Jersey appeals court recently clarified the circumstances under which New Jersey real estate disclosure is required for a property’s tragic past. In Petrosino v. Ventrice, the court held that agents were obligated to disclose a tragic elevator accident that claimed the lives of two small children because it was not solely a “psychological impairment.” In addition, disclosure was warranted because the buyers had expressly asked about the safety of the elevator.

Plaintiffs Alexandra and Louis Petrosino purchased a $2,275,000 home in Colts Neck from defendant-sellers Kevin and Grace Ventrice in November 2011. Shortly after the closing, the buyers learned that a tragic and deadly accident occurred on the property involving the house’s elevator. According to the court’s opinion, when Kevin Ventrice and his daughter and real estate broker, defendant Kimberly Mulligan, were showing the home to Louis Petrosino, he asked Mulligan whether the elevator was safe, citing that he had several small children. Ventrice told Petrosino the elevator was safe and demonstrated how it worked. Mulligan said nothing. On the explicit advice of Mulligan’s employer, Coldwell Banker Real Estate, L.L.C., Ventrice did not tell Petrosino that two little girls of almost the same ages of his children had died horrible deaths in the elevator after getting trapped between the cab and the wall of the elevator shaft nine years before. After learning of the elevator accident, the plaintiffs had a local elevator company examine the elevator. The elevator mechanic conducted an inspection, explained how the tragic accident had occurred, and told the plaintiffs that he believed that the elevator still posed serious risks. The plaintiffs moved out of the house and later filed suit. Their complaint alleged that they were completely unaware that two little girls had been crushed to death by the elevator when they purchased the house, that they had specifically inquired of the sellers as to the safety of the elevator, that the sellers falsely represented that the elevator was safe, and that had they known of the accident they would never have purchased the house. The suit named the sellers, as well as both real estate agents involved in the transaction. Claims included negligence, consumer fraud and conspiracy to defraud.

The Legal Background & Real Estate Disclosure

Under N.J.A.C. 11:5-6.4(b), licensed agents must make a reasonable effort to ascertain the physical condition of a property. The statute specifically mandates disclosure of “all information material to the physical condition of any property which they know[,] or which a reasonable effort to ascertain such information would have revealed[,] to their client or principal and when appropriate to any other party to a transaction.” Pursuant to the New Jersey real estate law, psychological impairments, such as "a murder or suicide which occurred on a property, or a property purportedly being haunted," are not considered information which affects the physical condition of a property. However, when asked by a prospective buyer, real estate disclosure is required for whatever information they know about the…psychological impairments that might affect the property.”

The Court’s Decision

The Appellate Division rejected the real estate brokers’ contention that the children's deaths in the elevator in 2002 represented only a "psychological impairment" to the Colts Neck property, which they were under no duty to disclose. According to the appeals court, the defendants “misapprehend both the nature of the condition and their duties to plaintiffs.” In reaching its decision, the appeals court noted that “[t]he issue is not only that two children perished on the property but that they died by being crushed in the malfunctioning elevator.” As further explained by the panel: As the history of the elevator's dangerously defective operation is information concerning the physical condition of the property, which would certainly be material to a reasonable person notwithstanding any repair, and was clearly, in any event, important to plaintiffs given their questions as to its safety, we hold the broker defendants had a duty to disclose the information to them. The court further noted that even if the elevator accident was considered a “psychological impairment,” the agents still had a duty to disclose the information to plaintiffs when they asked whether the elevator was safe.