Court upholds home developer's liability

Jennifer Nelson
January 1, 2007
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The Court of Appeals upheld the trial court judgment in favor of homeowners against the developer of their neighborhood, affirming the developer is liable for misleading the homeowners as to what type of homes would be built in the new neighborhood.

In Robert K. Yeager, et al. v. David A. McManama, et al., 49A02-0607-CV-614, the Yeagers, sole members and owners of Yeager Realty, the developer, planned to build Emerald Highlands in the residential neighborhood Murphy's Landing. The developer executed and recorded the Declaration of Covenants and Restrictions of the Murphy's Landing Ownership, and included specific language applying to Emerald Highlands and a site plan for the area.

The McManamas and Cotteys agreed to purchase lots and build homes in the new neighborhood, relying on information from the developer and its exclusive builder, Steven Morse, that the neighborhood would be a high-quality, exclusive, upscale neighborhood. Once the plaintiffs built their more than 5,000-square-foot homes in the neighborhood, they noticed that the other homes being built were less than half the size of their homes, causing their home values to decrease.

The plaintiffs filed a complaint alleging fraud, constructive fraud, or fraudulent concealment, and breach of fiduciary duty. The developers were sole members of the Architectural Review Board, which was to regulate the design, appearance, use and location of homes in the neighborhood to maintain and enhance values and appearance.

The Yeagers filed a motion for summary judgment, arguing that because the doctrines of fraud and constructive fraud do not apply, there is no fiduciary duty between the parties; and fraudulent concealment is not procedurally applicable in this case.

The trial court ruled the defendants owed the plaintiffs "a duty of fair dealing and honesty" and "a duty of good faith and fair dealing, as well as 'contractual obligations,' pursuant to the Declaration" and concluded the evidence showed the fraud and a failure to meet contractual and fiduciary duties.

The Court of Appeals upheld the trial court's decision. The Yeagers were the sole owners and developers of the project and had drafted, executed, and recorded the neighborhood's declaration. The Yeagers were also sole members of the Architectural Review Board and were responsible for enforcing the standards of the homes constructed in Emerald Highlands.

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