Is It Too Late To Sue My Prior Owner?
Maricopa County is America’s fastest-growing county.1 So it is no surprise that real estate litigation filings in Maricopa County Superior Court increase each year at an increasing rate.2 It may surprise most readers, however, to learn that approximately 77% of real estate lawsuits filed in Arizona this year involve (often primarily) disclosure issues.3 In other words, the growing trend in Arizona real estate litigation is buyers suing sellers over information not disclosed or misrepresented regarding the purchase of real property.
In many situations, after discovering an undisclosed defect, property owners ask whether it is too late to sue their prior owner? Like many legal questions, the answer depends on the circumstances.
What Claims Do Arizona Property Owners Often Have Against the Seller?
First, let us assume that the buyer has legally cognizable claim against the seller due to their disclosures (or lack thereof) pursuant to the relevant documents from the transaction. In that case, the legal claim likely includes one or more of the following causes of action: breach of contract, common law fraud, negligent misrepresentation, and consumer fraud.
Each of these four claims is subject to a statute of limitations that precludes the buyer from asserting it against the seller after a certain amount of time has passed since the claim arose. In general, the statute of limitations ranges from 12 months to six years from the discovery of the defect under Arizona law. However, there are complex nuances involved in each, which this article addresses in a concise, yet not complete, fashion.
Under Arizona law, a seller of residential real estate generally has a duty to disclose known material facts affecting the value or desirability of the property.4 A “material” fact is one that would influence a reasonable buyer’s decision whether to purchase the property or the price the buyer is willing to pay. As a result, residential disclosure disputes frequently focus on two questions: (1) whether the undisclosed condition was material, and (2) whether the seller knew, or reasonably should have known, of the condition before the sale.
The types of defects that most commonly give rise to litigation include roof leaks, water intrusion, mold, termite damage, structural movement, drainage issues, defective
plumbing or sewer systems, septic failures, boundary disputes, unpermitted improvements, and environmental hazards. In many cases, the defect remains hidden until months or even years after closing. Once discovered, buyers often face substantial repair costs and seek compensation from the seller based upon representations made during the transaction and disclosures contained in the Seller’s Property Disclosure Statement (“SPDS”).
When Is There An Applicable Statute of Limitations Deadline For My Claims?
A claim for breach of a residential real estate purchase contract generally must be brought within six years after the cause of action accrues. A.R.S. § 12-548(A)(1). These claims arise when a seller violates a specific obligation contained in the purchase contract itself. For example, assume a seller receives written notice from a neighboring property owner asserting a boundary dispute shortly before closing. Rather than disclose the dispute, the seller proceeds with the transaction and certifies compliance with the contractual disclosure obligations contained in the purchase contract.
After closing, the buyer incurs substantial attorneys’ fees defending the claim. Because the seller’s liability arises directly from obligations imposed by the purchase contract, the buyer may pursue a breach-of-contract claim, provided the action is filed within the applicable six-year limitations period.
Claims alleging that a seller knowingly concealed or misrepresented a material fact are generally governed by Arizona’s three-year statute of limitations for fraud. A.R.S. § 12-543(3). The three-year period does not necessarily begin on the date of closing. Instead, Arizona courts apply the discovery rule, meaning the limitations period generally begins when the buyer discovers the claim or, through reasonable diligence, should have discovered it.
Suing Sellers for Fraud Under Arizona Law
To prevail on a fraud claim, a buyer must generally establish a false representation or concealment of a material fact, knowledge of its falsity, intent that the buyer rely upon the representation, actual reliance, and resulting damages. Consider the example of a seller who receives a demand letter from a neighboring property owner claiming ownership of a portion of the property. The seller participates in discussions regarding the dispute but later answers “No” on the SPDS when asked whether any boundary disputes exist. Because the seller knew of the dispute and intentionally failed to disclose it, the buyer may have a claim for fraudulent concealment if suit is filed within three years after the dispute is discovered or reasonably should have been discovered. In particularly egregious cases, punitive damages may also be available.
Negligent misrepresentation is different. Arizona courts treat negligent misrepresentation as a tort claim, making it subject to the two-year statute of limitations applicable to most tort actions. A.R.S. § 12-542. Unlike fraud, negligent misrepresentation does not require proof that the seller intentionally deceived the buyer. Instead, liability may arise when a seller provides false information without exercising reasonable care in obtaining or communicating that information.
For example, imagine a seller receives a survey identifying a potential encroachment issue but never reviews the document carefully. Years later, when completing the SPDS, the seller answers “No” to questions concerning encroachments or boundary issues because she assumes everything is fine. The representation is false, but not intentionally so. In that circumstance, the seller may be liable for negligent misrepresentation because she failed to exercise reasonable care before making the disclosure. The buyer’s claim, however, must generally be brought within two years after discovery of the defect or after the defect reasonably should have been discovered.
Finally, Arizona’s Consumer Fraud Act provides another frequently asserted cause of action in residential disclosure litigation. Consumer fraud claims are generally subject to a one-year statute of limitations running from the date the buyer discovers the fraudulent conduct. See A.R.S. §§ 12-541(5), 44-1522. The statute prohibits deceptive acts, misrepresentations, concealment, suppression, or omission of material facts in connection with the sale of merchandise, including residential real estate.
Consumer fraud claims are often valuable to the buyer because Arizona courts do not require private plaintiffs to prove every element of common-law fraud. As a result, a buyer may be able to pursue a consumer fraud claim even where proving the seller’s precise state of mind would be difficult. If a seller omits information concerning a material defect and the buyer relies upon that omission when purchasing the property, the omission itself may constitute actionable consumer fraud. Consequently, consumer fraud claims are frequently pleaded alongside breach-of-contract, fraud, and negligent misrepresentation claims.
The principal distinction among these causes of action is not the underlying defect but rather the level of culpability that must be proven, the time within which suit must be filed, and the remedies available to the buyer. Because the true extent of a seller’s knowledge often remains unknown until discovery is completed, experienced real estate litigators frequently plead multiple causes of action arising from the same transaction.
As a practical matter, the most persuasive evidence in real estate disclosure litigation is often proof that the seller possessed actual prior knowledge of the undisclosed condition.
Emails, contractor reports, repair invoices, insurance claims, HOA correspondence, municipal notices, surveys, title reports, text messages, and testimony from neighbors or prior contractors frequently become the centerpiece of these cases. Once actual knowledge is established, a case that initially appears to involve mere negligence can quickly evolve into a much stronger claim involving allegations of intentional concealment and fraud.
Do Not Assume Your Claims Have Expired
Discovering a serious defect in your property after you purchase it does not mean the opportunity to pursue the seller has expired. Buyers can often still take legal action. Arizona law provides multiple potential avenues for recovery. Each carries its own limitations period, accrual rules, and evidentiary requirements. Buyers who discover a potentially undisclosed or misrepresented condition should act promptly by contacting a real estate attorney to preserve evidence, determine when their claim accrued, and evaluate all causes of action before the limitations period expires and precludes any potential claims to which they may be entitled.
Ryan W. McDowell earned his Bachelors of the Arts and Bachelors of the Sciences at Pepperdine University as a Regent’s Scholar, where he studied Business and Economics before attending law school at the University of Tennessee, where he earned his Juris Doctor. In law school, Ryan was a Tennessee Law Scholar, an Editor on the flagship Tennessee Law Review, a Moot Court National Finalist, a twice-published Law Review Author, and clerked for the world’s largest breakbulk shipper for over two years. After graduating law school in 2021, Ryan was admitted to the Tennessee Bar, where he continued to practice maritime law and private funds law before moving to his hometown of Scottsdale, Arizona to join Provident Law’s Real Estate and Commercial Litigation Department. Ryan is also a member of the Arizona Bar. Ryan can be reached at Ryan.McDowell@ProvidentLawyers.com or at (480) 388-3343.