PHOENIX -- An appeals court on Tuesday upheld an Arizona law that says home sellers can't be sued for failing to tell buyers that a sex offender lives nearby.
But the ruling from the Arizona Court of Appeals also said that lying about such an issue could constitute fraud.
The case stems from a lawsuit filed by a couple who didn't know an offender lived next door to a Scottsdale home they bought for nearly $3.1 million in 2008.
A three-judge panel's ruling said a Maricopa County Superior Court judge correctly dismissed most of the case because a 1995 Arizona law says sellers can't be sued for failing to disclose certain things, including that a sex offender lives nearby.
The law doesn't violate Arizona's state constitutional protection for the right to sue for damages because there was no right under pre-statehood legal doctrines requiring disclosures of property defects, the panel said.
But the ruling sent the case back to Superior Court to consider whether the sellers engaged in fraud.
It's up to a jury to decide whether statements by the sellers were false and whether the Lerners relied on them, the ruling said.
One of the panel's three judges dissented from that part of the ruling, saying that the fraud claim was also out of bounds because of the 1995 law.
The couple who sued, prominent personal-injury attorney Glen Lerner and his wife, said they should have been told about the offender living next door and that the sellers lied about why they wanted to move.
The Lerners' suit said the sellers falsely told them they wanted to move to be closer to friends when the actual motive for selling the home was the sex offender's proximity.
The sellers, Jeffrey and Marissa Currier, argued that they legally didn't have to disclose that an offender lived nearby and that the Lerners should have done whatever investigation they thought was necessary to learn whether sex offenders lived in the area.
According to court papers, the offender who lived next door was classified in a low-level category that doesn't require notification of area residents.
The law on non-disclosures regarding sex offender also says there can't be any lawsuits based on a failure to disclose that somebody died in the house or that somebody with AIDS lived there.
Many real-estate laws protect buyers by requiring disclosures but that the law involved in the suit over the Scottsdale home sale tilts toward sellers, said Mark Stapp, a real-estate program director at the W.P. Carey School of Business at Arizona State University.
While the rights and interests of the sex offender and the buyer are relevant, the law reflects a belief that requiring some disclosures can unjustly diminish property values, Stapp said.
``Part of this is the requirement to do your own due diligence,'' he said.
Sometimes it's better to make full disclosures, Stapp said. ``But the law is pretty clear that you're not obligated to do these things.''
Robert Zelms, a lawyer for a real estate brokerage that represented both sides of the transaction, said the law protects agents who shouldn't be expected to know everything about property they sell.
Todd Feltus, a lawyer for the Lerners, said he could not immediately comment on the ruling and on what could happen next. Brian Schulman, an attorney for the Curriers, did not immediately return a call for comment.
Real estate records indicate the Lerners sold the home in 2011 for $1.4 million.
Associated Press researcher Rhonda Shafner contributed from New York.