Sellers, If You Do Not Tell the Buyer Everything … Your Neighbors Will
Most lawsuits in real estate transactions are the result of buyers feeling that the seller and the real estate agent did not tell them all they knew about the property, before they bought it. Most sellers have no idea how easy it is to land in court with the buyer.
When selling property the seller has a very serious obligation of disclosing in writing to the buyer any and all defects that they know about the property. When selling vacant land, by law, other specific disclosures are required. Disclosure laws vary state to state, you should verify your state’s requirements. Be PROACTIVE, remember YOU ARE YOUR BEST ADVOCATE! Whether you are using the services of a real estate company or for sale by owner, in Wyoming, vacant land disclosure is a statutory requirement of the seller. Buyers look at anything that was hidden from them as cheating them, once they get legal counsel, the nightmare begins, not only does the seller gets sued, most of the time, everybody that was involved on the transaction gets named as co-conspirator.
In court, the attorneys for the buyer will paint this picture of the seller and his agent getting together and plotting their strategy to hide problems with the property from the buyer. Attorneys are usually exempted in these suits, as they are not representing the property or the transaction, they worked for the seller. They will use ugly words like deceit, misrepresentation, fraud, intentional, etc, to describe what you did or did not write in your disclosure. The new buyers will swear that they would NOT have purchased this property had they known the “defect” or “consequence” it had.
Your Realtor will provide you the right forms, it is up to you to fill them out, completely, truthfully and seriously. If your Realtor does NOT provide you with the forms, especially if you are selling certain types of vacant land, ask for them to define the statutory requirement when selling vacant land and to provide such for you (This varies state to state). If you want to keep your money and stay out of court, if providing disclosures follow these simple steps with care:
1. Spend time looking over the Real Estate Disclosure Statements aka Property Condition Statement and make sure you understand every question before you answer it. The questions in these forms are geared toward making sure you don’t miss anything important, however, can be confusing. Keep in mind that there will be a lot of people reading what you wrote: the buyers, the Realtors, attorneys… even the judge!
2. Make sure you use the most updated forms available for these disclosures. Ask your Realtor for the most updated forms available. There are changes made to these documents, those changes are prompted by the new court decisions of the most recent cases. There are thousands of dollars awarded to “injured parties” and their attorneys every year because these disclosures were not filled out properly. One initial in the wrong box could spell trouble in dollar signs! A blank that should have been filled in or failure to provide statutory disclosure can cost treble damages. The rule is simple: “If in doubt, disclose it.”
3. Do not allow anyone to fill them out for you, not the Realtor, or your children or anyone else who is not on title. These are legal documents, treat them with care. Your Realtor can help you understand what information is being requested, and why everything should be disclosed. Your Realtor can fill in portions with information or documentation provided, verify this before you sign it. Even if you know the buyer is a “friend” who you think you know, you will still be treated as the “defendant” if your friend sues you. The rule is simple: “If in doubt, disclose it.”
4. Tell the buyer, by way of disclosure or property condition statements, everything you know about the property, especially if you are the typical DIY (Do It Yourself) type of guy/gal. The rule is simple: “If in doubt, disclose it.” A disclosure should be written in a clear and specific way: “… In 2005 there was a leak under the kitchen sink. We called WER Plumbing and they fixed it” or “… around 2010 during a historic hail storm, the roof and windows on the north side of the residence and garage were damaged, all repairs were made by ASD Exteriors.”
5. If you did not obtain permits or notify the County Assessor’s Office any additions or structural modifications you made to the house, disclose that very clearly. These types of additions or modifications without permit/notification may put the new occupants of the house at risk if they do not know. The rule is simple: “If in doubt, disclose it.”
6. In prone areas, I suggest to my sellers/clients to order a home and a pest control inspection before we put the house on the market. Get a survey if an obvious problem needs resolved. Rural wells and septic systems are best researched and all issues resolved prior to a buyer coming into the picture. These reports, when provided to the buyer, not only offer a professional opinion, but also act as additional disclosures that you, the seller, provided to the buyer. The rule is simple: “If in doubt, disclose it.”
7. Ask for a preliminary title commitment, complete with full copies of filed exceptions. If there is a problem with title, resolve it now. Perpetuating errors in title will eventually cause someone a problem, with you in the chain of title that problem will be yours too! These problems can also cause delays in closing and prompt a quick case of BUYER’S REMORSE and possibly never get to closing.
8. When it comes to disclosing neighborhood noise problems or other nuisances, don’t be shy, if you don’t disclose that the area has problems with airport noises, or garbage odors from a nearby dump for example, not only would the new owners of the property will find that out within days of moving in, your friendly neighbors will spill the beans just as they greet the new owners with a courtesy visit to welcome them into the area. The
rule is simple: “If in doubt, disclose it.”
9. Always make sure that you get a copy of your disclosures signed and dated by the buyers BEFORE ESCROW CLOSES. These signed documents are YOUR best protection against future liability. Keep in mind these signed documents do not free you of liability especially if you failed to disclose accurately and completely.
Buyers do not like to be surprised by material facts that they did not know. In my office, every transaction file contains at least a dozen, sometimes many more, different documents of disclosure.
Actual factual; A lawsuit resulted when a seller gave an answer to a question in the Disclosure that read: Are you aware of any problems with the house before or during your ownership? He answered: NO. The key word here was: before. When the seller had purchased the house the previous owners had disclosed to him that the house has had a problem with the foundation when it was being built… 35 years before! The result of that problem was that the foundation was reinforced better than any other home in the area and the previous owner nor the seller ever had a problem while they lived there. The buyer, however, sued him for non disclosure. After 2 years of depositions, thousands of dollars in legal fees, and countless sleepless nights, the arbitrator awarded the buyers $120,000. (Which they used to upgrade the entire house, because there was nothing wrong with the foundation.) The legal fees for both parties were paid by the home seller. But how did the new owner learn this tidbit of information? The neighbor across the street came to greet the new owners, and as they unloaded their belongings, she told them the history of the house, and how the foundation gave way, and how it was fixed. The new buyers felt they should have been told. They consulted an attorney who made a case and got some money from the seller.
As you can see, you do not have to necessarily do anything wrong, all you have to do to get into legal trouble is to withhold material facts pertaining to the property or not pay attention when filling out Disclosure/Condition Statements. Disclose and let the Buyer decide. If you can correct an error in title or filing, don’t perpetuate a problem, fix it. The unforeseen problems the buyer finds down the road may result in the same lawsuit against a seller. If you are in the middle of a transaction and escrow has not closed yet, go back and do an amended document if you found out that you missed something. Even if you have to renegotiate something with the buyer, it is a lot cheaper than facing him in court.
The rule is simple: “If in doubt, disclose it.”