Violating the Virginia Consumer Protection Act has Never Been Easier

As the real estate market continues to rebound from the 2008 recession, more and more homes are being sold each year. In this new recovering market, caveat emptor—or “let the buyer beware”—has been the mantra of the real estate world and the magical words “as is” find their way into virtually every residential sales contract. For centuries, the law has embodied the principle of caveat emptor in most respects with very few exceptions.

Buyer Beware Trap Turned Upside Down
The Supreme Court of Virginia carved out one such exception in Van Deusen v. Snead where Mr. and Mrs. Van Deusen bought a house from Mr. and Mrs. Snead. After the Van Deusens bought the house, they discovered differential settlement of about 4 to 5 inches, out of the level floors and tension on the roof resulting in a lateral shift of the soffit and soffit brick molding. The Van Deusens accused the Sneads of putting new mortar in the cracks around the foundation and placing objects in front of the cracks in the basement to prevent the Van Deusens from noticing the defects and making the proper inquiries about the defect.

The Van Duesens filed a lawsuit to set aside the contract for the sale of the real estate and for damages caused by fraud and misrepresentations made by the Sneads and their real estate agents. The trial court dismissed the complaint and the Van Deusens appealed.

“Fraud” and How to Prove It
The Supreme Court explained that the “party alleging fraud must prove by clear and convincing evidence (1) a false representation, (2) of a material fact, (3) made intentionally and knowingly, (4) with the intent to mislead, (5) reliance by the party misled, and (6) resulting damage to him.” In response to the Van Deusens’ lawsuit, the Sneads invoked the doctrine of caveat emptor.

While the trial judge agreed with the Sneads, the Supreme Court took a different approach. The Supreme Court explained that “a very important exception to that rule is that the seller must not say or do anything to throw the purchaser off his guard or to divert him from making the inquiries and examination which a prudent man ought to make.” The Court also said that concealing a material defect “is as much a fraud as if the existence of the fact were expressly denied, or the reverse of it expressly stated.”

Reversing the trial court, the Supreme Court emphasized a common law remedy for fraud that, under the facts of that case, was available to the Van Deusens. But the problem with common law fraud is that there are difficult elements to prove and an extremely high burden of proof. In fact, the burden of proof is so high under the common law that many home buyers lose their cases as a result.

VCPA Creates a New Remedy
Recognizing the difficulty of proving a common law fraud claim in a consumer transaction, our General Assembly created a new remedy in the form of the Virginia Consumer Protection Act (VCPA). The VCPA applies to consumer transactions that are defined as, among other things, the sale or lease of real estate “to be used primarily for personal, family or household purposes.” The statute now lists 54 different potential violations of the Act but, most importantly, it creates civil remedy for actual damages if the seller uses any “deception, fraud, false pretense, false promise, or misrepresentation . . . .”

This language is borrowed from some of the old common law terms but the VCPA is very different than common law fraud. In fact, the VCPA is replete with violations for contractual matters, the regulation of half-truths, misrepresentations or any type of deception, including but not limited to full blown fraud. Thus, even though common law fraud would be sufficient to prove a violation of the VCPA, it is not necessary.

Even more important than the lessening of what one has to prove to be successful in court is how much evidence one needs to prove it.

In every case, there are three different possible burdens of proof that may apply. We have all heard of the standard in criminal cases where the state is required to prove “guilt beyond a reasonable doubt.” In most civil cases, though, the burden of proof is a preponderance of the evidence, which simply means guilt is 51% likely, or, more likely than not. But in common law fraud, the burden of proof is clear and convincing evidence, which is somewhere in between the first two definitions.

The VCPA does not specify what the burden of proof is when a person goes to court for a violation against a seller. This issue came to a head last year when I argued to the Supreme Court of Virginia in Ballagh v. Fauber Enterprises, Inc.—a case very similar in facts to Van Deusen v. Snead—that the VCPA creates a separate remedy from common law that was intended to make proving fraud easier. The Supreme Court agreed and decided that the VCPA “creates a new, statutory cause of action, distinct from and in addition to common law fraud. The elements of the two claims are different.”

The Court concluded that “a plaintiff must prove a violation of the VCPA by a preponderance of the evidence rather than by clear and convincing evidence.”

Violating the VCPA has Never Been Easier
This victory for the consumer has great meaning in the real estate market here in Virginia. Now that the VCPA is easier to prove than common law fraud, a violation in the context of the sale of a house creates much more risk from the seller’s perspective than the buyer’s perspective. If a seller lists and sells a house with a leaky basement but uses air-fresheners, shop vacs and fresh paint to cover up the latest water leak, then a buyer can easily make out a case of concealment which is the same as a misrepresentation and now a violation of the VCPA. Even if the house was sold “as is,” if that sale was induced by a concealment or misrepresentation, then there is a strong likelihood that the seller will be liable for the actual damages and legal fees incurred by the buyer in addressing and rectifying the defect(s). If that concealment or misrepresentation was willful, then the seller has to pay the buyer three times their actual damages.

Violating the VCPA has never been easier and, now, proving the violation has also never been easier. Seller beware.