WICHITA, Kan. — A federal judge declined to dismiss a homebuyer’s fraud claims against Chase Manhattan Mortgage Co., saying that 'as is' agreements to a real estate contract don’t protect the seller from intentional wrongdoing. Larson v. Safeguard Properties Inc., et al., No. 05-1005-WEB (D. Kan.).

Erika Jo Larson and Jerod Larson signed a contract on May 4, 2004, to purchase a house from Chase. The couple also signed two addendums: one, agreeing to purchase the property 'as is,' and a second, acknowledging that the property may have mold, agreeing to use due diligence in dealing with it, and absolving Chase and its agents from liability.

Chase retained Safeguard Properties Inc. to make repairs prior to the June 1, 2004, closing. During that time period, carpet cleaners notified Chase about a water leak, which was not repaired.

After closing, the Larsons discovered significant water and mold in the basement which, they maintain, rendered the house uninhabitable and made the family ill. They sued Chase and Safeguard for fraud in the U.S. District Court for the District of Kansas. Both defendants moved for dismissal.

U.S. Senior District Judge Wesley E. Brown granted Safeguard’s motion, finding that Safeguard had no contractual or fiduciary relationship to the Larsons and no duty to disclose the new water leak or mold problem.

Kansas courts have found liability absent a contract, but those cases all involve a vendor failing to disclose defects to a second party, who then sells the property to a third party, Judge Brown said.

'However, it would be an unwarranted deduction to conclude that the case sub judice fits within this exception. Safeguard is not alleged to have ever owned or sold the property in this case. Because this pivotal link is absent, Safeguard had no duty to Plaintiffs to disclose the water leak and mold,' Judge Brown concluded.

But Judge Brown denied Chase’s motion to dismiss, finding that the property owner was not shielded by either addendum to the sales contract.

'Chase’s claims are unpersuasive,' the judge said, citing Alires v. McGehee, 85 P.3d 1191, 277 Kan. 398 [2004]). 'The ‘as is’ clause does not automatically preclude reliance because ‘an 'as is' provision in a real estate contract does not bar a buyer’s claim based on fraud or intentional misrepresentation.’'

Tony L. Atterbury of Depew Gillen Rathbun & McInteer in Wichita is counsel for the Larsons.

Kurt S. Brack and Jeffrey A. Bullins of Holbrook & Osborn in Overland Park, Kan., represent Chase Manhattan Mortgage Corp.
 

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