Monday, May 7, 2012

WV High Court: Lender Not Obligated To Disclose Environmental Tainting At Foreclosure Auction; Ruling Leaves Winning Bidder Holding Contaminated Bag

In Charleston, West Virginia, The State Journal reports:

  • A bank was not required to disclose environmental contamination issues of a Bluefield property purchased at an auction foreclosure sale, West Virginia Supreme Court justices ruled in an April 27 memorandum decision.

  • Danny E. Lusk and Gordon M. Lusk II filed their suit in Mercer County Circuit Court against First Century Bank, Regency Real Estate and Auction Co. and Cooper Industry asserting Cooper negligently contaminated the property and failed to remediate contamination. The Lusks also asserted the bank had a duty to disclose such contamination.
  • The Lusks purchased the Bluefield property in 2006, asserting they received assurance from an auctioneer and a First Century Bank representative that the property was clean, documents stated. According to court documents, the Lusks placed a bid of $49,000 for the property and later received a notice of trustees' sale along with an advertising notice for the sale that stated it was subject to environmental regulations and the property was sold "as is." Therefore, the property would be sold without a warranty.

  • The Lusks also received a notice of potential liability from the U.S. Environmental Protection Agency, which notified the Lusks they may be responsible for the cleanup of the property. Documents note the EPA had not sued the Lusks for remediation costs at the time briefs were filed.
  • On appeal, the Lusks argued the circuit court should not have granted summary judgment in favor of the bank on assertions of intentional failure to disclose contamination and breach of good faith. The Lusks additionally argued a real estate seller has a duty to disclose a property's defects and if a seller fails to do so, it constitutes constructive fraud. The foreclosure deed, the Lusks argued, constituted a contract with the bank and would be sufficient to form the assertion of a breach of duty of good faith and fair dealing.

  • According to court documents, the circuit court found a trust creditor under a deed of trust does not own an interest in the property and concluded a creditor under a deed of trust is not required to make disclosures concerning the condition of a property being sold.

  • The circuit court ruling also held petitioners did not have a contractual relationship with the bank and they purchased the property with constructive notice. The circuit court's ruling noted the Lusks purchased the property "as is."

  • In a 4-1 vote, West Virginia Supreme Court justices said they found no errors in the circuit court's ruling and affirmed the decision. Justice Brent Benjamin dissented from the majority's ruling.
For the ruling, see Lusk v. First Century Bank, NA., No. 11-0665 (WV April 27, 2012).

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