What does "knowingly" mean under the Illinois Residential Real Property Disclosure Act?

What exactly is the burden of proof under the Residential Real Property Disclosure Act, 765 ILCS 77/1, [“the Act”]? The operative language, found in Section 55, specifies that a personwho knowingly violates provisions of the Act is liable for actual damages, court costs and possibly attorney fees incurred by the prevailing party.

But what does “knowingly” mean? Does the buyer have to demonstrate direct knowledge that the seller knew of the defect? The Appellate Court in Kroot v. Chan, recently clarified things a bit. In Kroot, the defendant owned a home on North Claremont in Chicago. The defendant resided there from 2002 to 2011. In 2013, the defendant executed the Disclosure Report required by the Act. He denied having any knowledge of flooding or leakage problems in the basement. He also denied any knowledge of any defects in the walls or floors. You can likely guess where this is headed…

Within 24 hours of purchasing the home the plaintiffs experienced water intrusion in the basement through the walls and floors. In their lawsuit, the plaintiffs alleged that there had been chronic water intrusion into the basement, and, as a result, the defendant was likely aware of the presence of mold in the basement. Plaintiffs prevailed at trial and were awarded $64,518.67 in damages. Additionally, the trial court awarded $28,130.16 in attorneys fees to the plaintiffs. The defendant appealed, claiming that while water infiltration had occurred, he was unaware of that fact until destructive testing took place after plaintiffs moved into the home.

The Appellate Court discussed the trial evidence at length. The Opinion noted that after an pre-purchase inspection, the plaintiffs noted a discolored area along the lower portion of a wall in the basement[telltale signs of water intrusion]. They made the defendant aware of that finding. On a subsequent inspection, that same wall featured a new coat of paint. When questioned why the wall had been painted, the defendant explained the wall had been painted to make it look nice for the plaintiffs. After this issue came up, pursuant to plaintiffs’ request, the defendant again represented, in a supplemental letter, that that he had no knowledge of mold in the basement.

The trial evidence also revealed that after plaintiffs had taken possession and learned of the leaking, they retained a contractor to do necessary repairs. The contractor, during the repairs, pulled carpet and noted major water damage to the subfloor. In the contractor’s opinion, the damage had been present “for a while.” The contractor also found mold on the subfloor, rotting plywood under the carpet; moisture and mold on basement walls; standing water behind a wall plate and evidence of leakage in an area where new carpeting had been put down.

Additionally, a neighbor testified he saw water damaged carpet and a water damaged chair in the defendants garbage approximately a year before the sale. The defendant insisted however that he never saw any stains on any carpet or furniture. While the defendant admitted to hearing about discoloration on a basement wall, he testified he never saw it. Friends of the defendant also testified they had been in the basement on multiple occasions and never noticed any indication of water intrusion. In summary, the defense in this case, which I see in most of these cases, amounted to: “Sure, there was some water damage down there, but you can’t prove I knew about it.”

The trial court decided that the plaintiffs were believable while the defendant was not. And the Appellate Court, after considering the evidence agreed, affirming the trial Court’s judgment.

It appears that the plaintiffs did not present any evidence that a contractor told the plaintiff prior to the sale – “Hey, your basement leaks like a sieve” – which would be the best evidence one could have regarding a “knowing” violation.

But there was some important circumstantial evidence presented that helped plaintiff demonstrate knowledge. First, the plaintiffs observed evidence of water on a basement wall and complained about it. And that same wall was later painted over – suggesting concealment. And concealment infers knowledge of a problem. Additionally, the neighbor – a disinterested third party – offered testimony regarding water damaged carpet and furniture in the garbage shortly before the sale. That testimony certainly raises eyebrows. Finally, the contractor’s testimony regarding extensive, long-standing water damage is additional circumstantial evidence of knowledge. So while there was no direct evidence, plaintiff’s counsel, to his credit, created sufficient circumstantial evidence of knowledge to secure a verdict.

As a side note, at least one Illinois Appellate Court had suggested that the burden of proof in a case under the Act is “clear and convincing evidence” – a rung up from the preponderance of evidence standard. See Butler v. Harris 2014 IL App (5th) 130163. Trial lawyers taking these cases should bear that in mind.

The clip above is from The Money Pit, a 1986 movie staring Tom Hanks and Shelley Long. That movie demonstrated that Tom Hanks, currently one of the best actors alive, can occasionally make a bad movie.