Knowledge of defect must always be disclosed

A recent Legal Hotline caller presented an interesting scenario: a husband and wife owned a house together. Unfortunately, marital bliss was not everlasting, the couple separated and the wife moved to a new residence. For six years the couple enjoyed their version of “modified bliss,” never divorcing and never reconciling. Before they felt compelled to pursue legal finality, the husband passed away. The property was still jointly owned by them as husband and wife, so title was vested in the wife. Not needing two homes, the wife listed the property for sale with the caller’s brokerage. The listing agent provided the wife with a copy of the Seller’s Property Disclosure Statement and (presumably) explained to the wife her obligations as the seller. The wife executed a blank Seller’s Disclosure Statement.  She concluded that because she had not lived in the property for six years, she was not in a position to disclose anything about the property.  The listing agent presented the Disclosure Statement to a buyer’s agent who wanted to know why nothing was answered.

Many of you know that there are certain circumstances under which a seller is not required to complete a Seller’s Property Disclosure Statement. Do you know where those exceptions are listed? Turn the form over! The statutory exceptions to a seller’s disclosure obligations are listed on the back of the PAR Seller’s Property Disclosure Statement. If the listing agent or the seller had taken a moment to review the back of the form, they would have realized that, although the wife’s knowledge may have been limited, she still had to disclose whatever information she had about the property. Remember, under this scenario, the wife was the record title owner under operation of law (she held the property as tenants by the entireties as husband and wife) and was not the administrator of her husband’s estate.

Understandably, the wife’s knowledge of the property may have been limited or severely outdated after not residing in the home for several years. Nonetheless, the law requires that the wife fill out the seller’s disclosure form to the best of her ability. Perhaps she should have noted on the form that she had not lived in the property for the last six years and her information may be incorrect or outdated. Had she or the agent done that, then both the buyer and the buyer’s agent would have been able to more accurately consider how they wanted to approach making an offer on the property.

The Seller’s Disclosure Law does not impose strict liability on a seller; disclosing a condition of the property incorrectly or inaccurately does not necessarily create liability on the seller. A buyer would still have to prove that the seller knew that his answer was wrong when he made the disclosure, or that the seller learned of the error but failed to timely correct the disclosure statement.

The listing agent’s obligation was to provide the seller with the disclosure form and explain the seller’s obligations to complete the form. Did the agent discharge his or her duties in this instance? A lack of understanding of what the law requires is generally not a defense to a claim, whether made by a consumer or prosecuted by the State Real Estate Commission. As licensees, it is important for you to understand, generally, what the laws affecting your real estate practice require. It is also incumbent upon you to know what your licensing laws and regulations dictate.

As an aside, the Seller’s Disclosure Law does except “transfers by a fiduciary during the administration of a decedent estate…”  Understand, though, that if the administrator of an estate has actual knowledge of a material defect with the property, they still have a common law duty to disclose the existence of the defect!  There is no blanket exception from a duty to disclose material defect… regardless of who the seller may be – individual, organization or corporate entity – actual knowledge of a material defect must always be disclosed to a prospective buyer.