Seller's Beware of Loose Lips

During World War II the phrase “Loose lips sink ships” became a mantra in the defense of the country.  In this time of litigiousness and consumer protectionism, the same mantra should be repeated by Real Estate Sellers and their attorneys.  Many real estate sales contracts and deeds are incorporating the “as-is” clauses to provide the seller with some modicum of protection against the buyer’s remorse when something about the property does not meet the buyer’s expectations (real or imagined.)  The standard TREC and State Bar of Texas earnest money contract forms allow the insertion of an “as-is” clause. And no doubt, most sellers should insist upon the inclusion of the clause in one form or another in the sales contracts.  However, the “as-is” clause alone does not provide the fullest degree of protection against buyer’s remorse or aggressive buyer’s attorneys who often attempt to get around the clause by alleging “negligent misrepresentations,” a species of fraud.  A recent Appeals Court decision has lent some support to this tactic.

In Oat Note, Inc. v. Ampro Equities, Inc., 141 S.W. 3d 274 (Tx. App.-Austin, July 15, 2004) on admittedly egregious facts, the Appeals Court held that the “as-is” clause in the sales contract did not preclude the buyer suing the seller for negligent misrepresentations.  The seller had misrepresented to the buyer of a second tract from the seller that the buyer of the first tract had waived the timely completion of a low water crossing.  The seller’s “loose lips” in making the representation to the buyer concerning the low water crossing “sank” the seller’s ship.

The instructions to be taken from this current case are: 1) that sellers should keep their mouths shut regarding the property and its condition and 2) that sellers should incorporate a “no representation” clause in the contract. By such clause a buyer confirms, warrants and represents that the seller has made no representations to buyer and buyer is not relying upon any statements or representations by the seller, but is relying upon buyer’s own independent investigation of the property in making the purchase.  This type of clause will not save the fraudulent seller or the seller with “loose lips,” but may protect the good-faith seller from an aggressive buyer suffering from buyer’s remorse.