Selling Darkness: Home Sellers and Traumatized Homes

Disputes regarding failures to disclose material facts are common in residential real estate transactions. A number of courts have considered the issue of whether a seller is obligated to disclose the existence of paranormal or violent occurrences on the property. Perhaps the best-known of these cases is the 1991 New York decision in Stambovsky v. Ackley. 169 A.D. 2d 254 (N.Y. App. Div. 1991). Some of the notoriety of this case is due to the court’s colorful opinion, with references to the movie Ghostbusters and its determination that home was haunted “as a matter of law.”

For years prior to the sale of the home in Stambovsky, the sellers had reported the existence of numerous paranormal occurrences in the house. The hauntings ranged from unexplained sounds to full body apparitions. During the time they owned the home, the sellers had disclosed these paranormal activities not only to a local newspaper, but the activities had also been the subject of a Reader’s Digest article. Whether the sellers disclosed the hauntings to the buyers, however, was hotly contested. The buyers claimed they learned of the activity only after they had signed the purchase agreement, and then refused to close as a result. The buyers filed an action requesting recission of the agreement and damages for fraudulent misrepresentation. The trial court dismissed the action finding that the doctrine of caveat emptor (buyer beware) barred the buyers’ claims. 

The appellate court reversed the trial court and reinstated the buyers’ claims. The Stambovsky decision is most famous for its finding that “. . . as a matter of law, the house is haunted.” To the disappointment of ghost hunters, however, the court never determined whether the house was truly haunted. Rather, its finding that the house was haunted “as a matter of law” merely conveyed its determination that the sellers were prevented from denying that the house was haunted as a result of their previous claims of hauntings made to the local paper and Reader’s Digest. 

Other cases have dealt with homes that were the scenes of violence or otherwise associated with death. In Reed v. King, a California appellate court reversed a lower court’s dismissal of a claim by a homebuyer that his seller should have disclosed that the home was the site of multiple murders. 145 Cal. App. 3d 261, 193 Cal. Rptr, 130 (1983). The Reed court emphasized that the “murder of innocents is highly unusual in its potential for so disturbing buyers they may be unable to reside in the home where it has occurred.” The Reed court also gave weight to its view that “reputation and history can have a significant effect on the value of reality.”

In 2008, a Maryland appellate court took a similar view and reversed a lower court’s dismissal of a homebuyer’s claim that his seller fraudulently concealed that his yard was the site of a desecrated and abandoned cemetery. Rhee v. Highland Development Corp., 958 A.2d 385 (Md. Ct. Spec. App. 2008). The Rhee court rejected the seller’s argument that the existence of “some human remains” would not influence a reasonable person’s decision to purchase. The court also found unpersuasive the argument that because the remains were not in the footprint of the home, their non-disclosure was immaterial. With a possible nod to the 1982 movie Poltergeist, the court noted that the use of the land for a swimming pool could be affected by existence of the former cemetery, and could therefore impact the property’s value. 

The courts in all of the cases cited above commented about the impact of the non-disclosed information, whether by reputation or limitations on physical use, on the value of the property and its re-sale potential.” For instance, the Stambovsky court stated its belief that the reputation of the house as being haunted would “greatly impair the value of the property and its potential for resale.” Interestingly, however, the court missed the mark on this point. After the parties in Stambovksy settled their claims, the house was sold to a third party at a $600,000 premium! This is just one example of the potential increase in value of a property that may be suitable as a “dark tourism” site. 

“Dark tourism,” including allegedly haunted attractions, have become increasingly popular. Haunted attractions alone generate approximately $300 million in annual revenue in the Unites States alone. A good example of the economic potential of spooky old buildings is the Ohio State Reformatory in Mansfield, Ohio. In order to save this 1896 structure from the wrecking ball, a local preservation society purchased the former reformatory for $1. Despite the building’s beautiful Romanesque architecture, its new owners quickly discovered that ghost tours were the most lucrative use for their new purchase. The reformatory currently attracts about 120,000 visitors annually.

Some states have attempted to provide clarity in the area of disclosure of the paranormal or criminal acts by statutory enactment. For example, Minnesota Statute § 513.56, Subd. 1, makes clear that Minnesota’s general duty of disclosure does not create a duty to disclose that the home was the “site of a suicide, accidental death, natural death or perceived paranormal activity.” Interestingly, Minnesota’s statute leaves open the question of whether a death by homicide must be disclosed. Other states have taken different approaches. California sellers must disclose deaths in the home in the last three years, but only have to disclose paranormal activity if the buyer inquires about it. See Cal. Civ. Code § 1710.2. In South Dakota, a seller must disclose homicides or suicides on the property during the time it has been owned by the seller. S.D. Codified Laws § 43-4-44.