What Should Home Sellers Be Disclosing?

Many states require the home seller to fill in a property disclosure form to help buyers understand the condition of a home.  Lack of disclosures or intentional non-disclosure of material facts can lead to lawsuits and in the extreme can even lead to the home seller being forced to buy the home back from the buyer.  So what exactly must a homeowner disclose to buyers on a home disclosure form and what are the consequences for a lack of disclosure?  This article explores the answer to those questions below.

WHAT IS A RESIDENTIAL PROPERTY DISCLOSURE FORM?

Most states offer some sort of standard residential home disclosure form.  In that form homeowners are able to make note about the condition of things in their home like the roof, foundation, water issues, mold issues, who supplies the water, how is waste water handled, the HVAC system and more.  The disclosure form is sort of like a biographical disclosure of a home listing out the condition on all the important aspects of a home that a buyer would like to know about.  Many home inspectors will review the residential disclosure form to give them an idea of any potential areas they should focus on while inspecting.  

WHO HAS TO FILL OUT THE DISCLOSURE FORM?

While every state has their own laws (and their own forms) on who should be filling out the disclosure form when selling a home there are some general rules that can apply.  If the home seller has lived in the home and is currently living in the home they should be filling out the disclosure form.  If the home seller lived in the home in the past but now no longer lives in the home for whatever reason whether they should fill out the form depends.  If the home seller has been out of the home for a long period of time and has been letting a property manager handle the property they may not have any knowledge to share about the home.  On the other hand if the home owner is acting as their own property manager they may have enough knowledge that they can and should fill out some parts of the disclosure.

Generally tenants should not be filling out the home disclosure as most states require the owner of the home to fill out the form.

Sometimes rehab investors will not fill out the disclosure form because they never lived in the home and the form allows them to notate that.  For those investors they might be using contractors to do the work so they might not know much about the condition of the home.  It still is important for the rehab investor to fill out the form as best as they can as simply ignoring the form can send up more red flags and will not protect them if they or their contractor knew of a condition issue that would be an important material fact for a buyer.  Plenty of rehab investors have been sued for poor work on the rehab due to the fact that they were not properly supervising the work going on in the home.

There may be exceptions for those who came to own a home through inheritance, a lender who owns a home as a result of a foreclosure action, a new construction home that no one has lived in yet, and there may be more exemptions depending on state law. Home sellers should consult with a local real estate attorney or real estate agent when in doubt as to whether or not they should fill out the form.   

WHAT KINDS OF DISCLOSURES ARE REQUIRED?

When it comes to disclosing conditions of a home the courts generally look at whether a particular condition is latent or patent.  A patent defect is one that is obvious to a reasonable person walking through an area as it is noticeable.  If the seller tried to cover up the patent defect by placing something in front of the defect (like stacking boxes in front of a crack in a basement wall) that seller could be found liable in a court if sued by the buyer and the defect was determined to have an material impact on the value of a home.  If the crack is minor and something commonly expected in such a wall, chances are the lawsuit over something like that will not happen.

Latent defects on the other hand are defects that are not readily discoverable by a reasonable person.  Something like a roof leak which can only be detected when it rains or the basement floods during heavy rains may not be discovered by anyone until the buyer moves in and it rains.  Even home inspectors can miss such things especially when sellers actively try to cover up results of the defect, like painting over water stains.  Sellers are required to disclose latent defects that they know about.  If a buyer finds a latent defect after they move in (they also would have to have had the house inspected) they could sue the seller for the costs associated with dealing with the latent defect.  It is not unheard of for a court to order a seller to refund all monies to a buyer and take the home back due to a latent defect.  The buyer has to prove that the seller knew about the latent defect when they were selling the house and that they had performed a home inspection.

CAN YOU JUST SELL A HOME AS-IS?

Sometimes home sellers think they can bypass the home disclosure requirements by selling their home as-is.  Selling a home as-is usually means the seller does not plan on making any repairs to the home and the condition is usually less than good.  Homeowners may do this because deferred maintenance has caught up to them and the costs of repairs are not something the can afford.  Just because a home is being sold as-is does not exempt the owner from filling out the disclosure form.  Homeowners who live in the home are still required to fill out the home disclosure form to the best of their knowledge.  If there are latent defects the homeowner knows about they must declare those defects to any buyer of the home in order to avoid liability.  So while a seller may sell a home as-is and a buyer may agree to the as-is terms that does not mean the seller cannot be sued at some later date for latent defects that should have been disclosed.

BOTTOM LINE

The real estate residential disclosure form is an important part of the real estate transaction.  It provides buyers with an idea of the condition of the home which allows them to determine if the home is worth it to them or not.  When the seller does not fill out a disclosure form they are not necessarily escaping any liability that could arise from non-disclosure of latent defects.