The state Supreme Court has agreed to hear arguments over whether the seller of a house is required to disclose to potential buyers what the state Superior Court called “psychological damage,” such as a murder or suicide that occurred on the property.

After a split three-judge Superior Court panel in Milliken v. Jacono ruled in November 2011 that a jury should decide whether the seller of a $610,000 home had a duty to disclose to the buyer that a murder-suicide had occurred in it, a divided en banc panel reversed the ruling on reargument last December, finding that the occurrence of a murder-suicide does not constitute a material defect to real estate that requires disclosure under the Real Estate Seller Disclosure Law.

The panel ruled 6-3 to affirm a Delaware County trial court’s grant of summary judgment to the defendant sellers and real estate agents.

In a two-page order issued Wednesday, the Supreme Court limited its allocatur grant to whether material issues of fact existed with regard to plaintiff Janet S. Milliken’s claims of fraud, negligent misrepresentation and Unfair Trade Practices and Consumer Protection Law violations arising from the defendants’ alleged failure to disclose the murder-suicide.

In December, the Superior Court majority, led by Judge Kate Ford Elliott, said the RESDL does not require the disclosure of psychological damage to a home.

“Sellers should only be required to reveal material defects with the actual physical structure of the house, with legal impairments on the property, and with hazardous materials located there,” Ford Elliott said. “To allow consideration of possible psychological defects opens a myriad of disclosures that sellers will need to reveal, and starts a descent down a very slippery slope.”

Ford Elliott was joined by Judges John L. Musmanno, Christine Donohue, Jacqueline O. Shogan, Anne E. Lazarus and Judith F. Olson.

Judge John T. Bender, joined by Judges Sallie Updyke Mundy and David N. Wecht, penned a dissenting opinion, arguing that “the financial penalty Mrs. Milliken has suffered was entirely avoidable had the sellers from whom she bought her home merely exercised a little more integrity and a little less greed.”

“The majority’s ruling, which deprives Milliken of any legal remedy, rewards those sellers and short-circuits the legislative intent of the Real Estate Seller Disclosure Law,” Bender said. “Not surprisingly, it also truncates the ability of homebuyers across this commonwealth to avoid potentially catastrophic losses in purchasing a home.”

In Milliken, according to the court documents, Milliken, the purchaser of the home, alleged that she thought the sellers, Kathleen and Joseph Jacono, bought the house at a foreclosure auction. The property was actually purchased at an auction from the estate of the murder-suicide victims.

Milliken’s expert witnesses said in their reports that the murder-suicide reduced the value of the home by 10 to 15 percent, according to court documents.

Prior to the sale, the Jaconos and their real estate agents at defendant Re/Max Town & Country — defendants Fran Day and Thomas O’Neill — each sought advice from various authorities, including the Pennsylvania Real Estate Commission and the Pennsylvania Association of Realtors, as to whether the murder-suicide needed to be disclosed and were told it did not, according to court documents.

Milliken closed on the property for $610,000 in August 2007, but claimed she did not learn of the murder-suicide until September 2007, according to court documents.

In August 2010, Delaware County Court of Common Pleas Judge George A. Pagano granted the defendants’ motion for summary judgment, but Bender, leading a 2-1 majority, reversed the ruling in November 2011 and remanded the case back to the court for trial.

Ford Elliott dissented, arguing that the sellers had no duty to disclose the murder-suicide under the RESDL.

In her majority opinion following reargument, Ford Elliott reiterated this point, noting that each of the mandatory disclosures under RESDL are related either to the physical structure of the property, the potential legal impairments related to the property or hazardous substances on the property.

“A requirement that sellers of real estate reveal that a murder once occurred on the property goes to the reputation of the property and not its actual physical structure,” Ford Elliott said. “Plainly, the legislature did not require disclosure of psychological damage to a property.”

Ford Elliott disagreed with Milliken’s argument that if the legislature had intended to exclude from the mandatory disclosures psychological damage to a house, it would have done so explicitly.

Ford Elliott also questioned what limits would have to be placed on the mandatory disclosure of psychological damage to a house, noting that Milliken was one buyer removed from the murder-suicide.

Ford Elliott said requiring a seller to disclose psychological damage to a property would raise concerns in cases where a murder had occurred 100 years ago or there had been numerous owners of the home in the interim.

“This sort of psychological damage to a house will obviously decrease over time as the memory of the murder recedes from public knowledge,” Ford Elliott said. “Requiring a seller to reveal this information may force the seller to sell the house under market value and allow the buyer to realize a windfall when the house is resold 10 years later and memories have faded. The passage of time has no similar curative effect on structural damage, legal impairments or hazardous materials.”

Ford Elliott was also skeptical of assigning a monetary value to psychological damage to a home caused by a murder.

“The psychological effect will vary greatly from person to person,” Ford Elliott said. “There are persons for whom no amount of money would induce them to live in such a house, while others may not care at all, or even find it adventurous.”

In addition, Ford Elliott wondered what other crimes would need to be disclosed if the mandatory disclosure of murder was required by law.

“A buyer might want to know that a house has been burgled five times in the last year because that might indicate that the neighborhood is dangerous,” Ford Elliott said. “What about crimes that did not occur on the property itself? Suppose there had been a number of shootings in the neighborhood. Further, a buyer might want to know that a child molester lived in the neighborhood.”

Because the court found that Milliken had no claim under the RESDL, Ford Elliott said Milliken likewise did not have a valid claim for fraud under the Unfair Trade Practices and Consumer Protection Law.

“Sellers simply did not engage in any deceptive conduct,” Ford Elliott said. “Sellers merely declined to inform buyer about a factor of which they were under no obligation to disclose.”

But Bender argued in his dissent that the RESDL must be read in conjunction with the Residential Real Estate Transfers Law, which defines a “material defect” as a “problem with a residential real property or any portion of it that would have a significant adverse impact on the value of the property or that involves an unreasonable risk to people on the property.”

“To the extent that a reduction of almost $100,000 in value can be deemed a ‘significant adverse impact on the value of the property,’ the RRETL, considered in conjunction with RESDL, mandates that the cause of the stigma be disclosed,” Bender said.

Milliken’s attorney, Timothy Rayne of MacElree Harvey in Kennett Square, Pa., said he was “extremely pleased” that the Supreme Court granted allocatur in the case.

Counsel for Re/Max and its agents, Abraham C. Reich of Fox Rothschild in Philadelphia, said he believed the Superior Court majority “got it right” on reargument and that its opinion “reflected decades of real estate practice” in Pennsylvania.

Counsel for the Jaconos, J. Scott Watson of Glen Mills, Pa., could not be reached for comment.

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI. •