In Jones v. Wells Fargo Bank, N.A., No. 15-30031, — F. App’x —, (5th Cir. Sept. 29, 2015), the Fifth Circuit reversed the dismissal of a lawsuit against Wells Fargo for its alleged failure to disclose known mold problems, even though the sales contract contained an “as is” waiver that specifically addressed mold. Jones is thus a reminder that merely including an “as is” waiver in a sales contract will not bar all litigation arising from an alleged failure to disclose known material facts.

In September 2010, Wells Fargo foreclosed upon a home in Bossier City, Louisiana. The plaintiff, Britney N. Jones, alleged that Wells Fargo was alerted that the house contained black mold in January 2010 (before the foreclosure) and in October 2010 (after the foreclosure). Jones further alleged that, on both occasions, Wells Fargo was provided with a mold remediation plan but chose to do nothing. Instead, Wells Fargo actually performed cosmetic work to conceal the mold.

In December 2011, Wells Fargo sold the home to Jones. The sales contract included an “as is” waiver stating that Jones was purchasing the house without any warranties or representations. It also included a waiver that specifically address the possibility that mold might exist:

Buyer is hereby advised that mold and/or other microscopic organisms may exist at the property . . . . Buyer acknowledges and agrees to accept full responsibility/risk for any matters that may result from microscopic organisms and/or mold and to hold harmless, release, and indemnify Seller and Seller’s managing agents from any liability/recourse/damages (financial or otherwise). Buyer understands that Seller has taken no action to remediate mold. . . . The purpose of this disclaimer is to put Buyers on notice to conduct their own due diligence regarding this matter using appropriate, qualified experts. . . .

After her children developed respiratory problems, Jones obtained an environmental assessment that disclosed the mold. She then sued Wells Fargo in federal court alleging claims for fraud and redhibition under Louisiana law. Wells Fargo moved to dismiss the complaint under Rule 12(b)(6), arguing that the “as is” language and the language that Wells Fargo had “taken no action to remediate mold” barred Jones’s claims. The district court agreed and dismissed the lawsuit with prejudice.

On appeal, the Fifth Circuit reversed, concluding that, under Louisiana law, the waivers were ineffective to bar Jones’s claims. First, the Court noted that the wavier language—which merely noted that mold “may” exist—was insufficient to disclose the mold problem, especially in light of Wells Fargo’s knowledge that mold did, in fact, exist. Second, citing several Louisiana state-court cases, the Court noted that a seller may not use a contractual waiver to avoid disclosing known material defects. Accordingly, the Court held the “as is” waivers in the sales contract were unenforceable.

Jones is a potent reminder to lenders that “as is” language in a contract may not foreclose potential liability arising from an alleged failure to disclose material information during a sales transaction. While the Fifth Circuit’s opinion turned on Louisiana law, the result might be the same in other states throughout the Southeast. For example, Florida law appears to be similar to the Louisiana law cited in Jones. See Bowman v. Barker, 172 So. 3d 1013, 1016 (Fla. Dist. Ct. App. 2015) (“The fact that this house was sold ‘as is’ does not make summary judgment appropriate. The duty to disclose known defects . . . continues to exist for a home sold ‘as is.’”). On the other hand, such waivers would appear to effectively foreclose liability under Alabama law, see Cornelius v. Austin, 542 So. 2d 1220, 1223 (Ala. 1989) (“Alabama retains the caveat emptor rule with regard to the resale of used residential real estate.”), though the Alabama Supreme Court has suggested that “as is” language might not absolve a seller from disclosing known material defects that might impact a buyer’s health and safety in some circumstances, see Blaylock v. Cary, 709 So. 2d 1128, 1131 (Ala. 1997). Accordingly, lenders should be mindful that merely including “as is” language in a sales contract may not bar all litigation arising from an alleged failure to disclose.

The full opinion in Jones v. Wells Fargo Bank, N.A. is available here.