SELLER DISCLOSURE – ONE MORE TIME!
By James Goldsmith
The leading cause for real estate malpractice suits is agent failure to know the exceptions to the Disclosure Law. There is no excuse and there are consequences for this failure to know! Just last week an E&O insurer hired me to defend two new cases where disclosures were not given prior to sale.
In the first case, the seller signed the disclosure form, but written over each page, in the agent’s writing, were the words “Seller has not lived in the property.” Not a single question was answered on the disclosure form! In this case, the seller was a rehab company that bought, repaired, and sold the property. The seller obviously knew a lot about the property having assessed its pre-repair condition and then having corrected all the problems (or mostly all) before selling it.
In the second case, a four-unit “commercial” apartment house was sold without a disclosure form. The defendant agent’s reasoning here was that because the property was commercial (after all, the Agreement of Sale was written on a PAR “commercial” standard form), no seller disclosure was required!
Now, I really should not get exercised about these agent failures. I am getting paid reasonably well to defend them and I have got a bag of defenses that frequently work (e.g., the buyer knew of the problem even without the disclosure; the listing agent was unaware of the defects so even if the seller had completed the disclosure the agent would not have been able to correct it, etc.). Regardless, I do get exercised about these suits and it is time that they stop.
So how do we stop these suits? It is really quite simple: know the rules about seller disclosure, know the rules about seller disclosure, know the rules about seller disclosure.
Assuming you want to do this right, it is very easy to know the exceptions to the rule that a seller must complete a disclosure statement. They are printed in every Agreement of Sale. Look for them. There are nine (9) exceptions. There is no exception for sellers who never lived in the property; there is no exception for an apartment building with four or fewer dwelling units; there is no exception for a seller who granted power-of-attorney status to another; there is no exception for an out-of-state owner; and there are no exceptions other than the nine listed in the law that are also reprinted in the Agreement of Sale!
Yes, I know that it is not always simple. The old man who is in a nursing home and has appointed a representative under a power-of-attorney will still have to provide a disclosure. If that seller is competent and can complete the disclosure, so much the better. If the seller is incompetent, and assuming that the power-of-attorney is durable, then the attorney-in-fact will have to complete the disclosure form. Sometimes the attorney-in-fact knows a lot about the property (e.g., a child of the incompetent who once lived in the property or who may still be paying bills) and sometimes the attorney-in-fact will have no knowledge. Regardless, the attorney-in-fact should complete the form as accurately and completely as is possible, making liberal use of “unknown” or the like. A seller who has never lived in the property will have to do the same thing. It is not as though a non-resident seller does not have more knowledge about the property than the buyer. The seller has paid bills and perhaps has repaired the property or taken complaints from tenants. Even a seller who has used a property manager can obtain information that renders the seller’s disclosure a more useful tool than nothing.
In addition to knowing when to use the form, you have to know how to use it. Whether a listing or selling agent, you should read every line of the disclosure to make sure it is completed and that it makes sense. If not, send it back to the seller, or if you are a buyer’s agent, send it to the listing agent, to be completed. Ask questions when answers do not make sense. Make sure that if the form bears an older date that it is re-dated by the seller to assure that it is not “stale.”
For those of you who know this stuff and are incredulous that there are those among you who do not understand seller disclosure, help me out. Give a copy of this article to every licensee in your office. I am really not worried about going out of business. In fact, I am reasonably certain that in the next several weeks I will once again be incredulous when another suit is assigned alleging that the agent did not use the form, read the form, understand the law or its exceptions!
Copyright © James L. Goldsmith, Esquire, CALDWELL & KEARNS, P.C., 2011
All Rights Reserved
Jim Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends REALTORS® in disciplinary hearings conducted by the Real Estate Commission. He routinely counsels employers on employee relations issues and is one of the voices of the PAR Legal Hotline. He may be reached at www.realcompliance.com.