Seller’s disclosure applies to past flooding too

In the midst of some of the worst flooding ever seen in Pennsylvania, the PAR Solutions Center received a call from a homeowner who was getting water in her basement for the first time. She asked what remedies might be available against the seller who – six years earlier – didn’t tell her there might be flooding problems.

Though the timeline for a suit under the disclosure law had passed for that transaction, it’s worth reviewing some flood-related issues regarding the Seller’s Property Disclosure Statement.

Many of the questions ask whether sellers are “aware of any” information regarding a certain issue. The word “any” means exactly what it says. If sellers know that their property last flooded in 1972, it should be disclosed just as if the flooding occurred last year or last week.

Be sure to fully explain the circumstances behind any flooding damage (if it only happened once, you can say so), and even more importantly, take the time to explain any remediation efforts (cleanup and/or repairs) that were taken.

The Real Estate Seller Disclosure Law requires that sellers inform buyers when the disclosures are “rendered inaccurate prior to final settlement as a result of any act, occurrence or agreement.” If a home was flooded or otherwise damaged after sellers originally filled out their disclosure form, they need to go back and amend the form to reflect the new reality.

There are 10 exceptions to the seller disclosure law (conveniently found in the Notices of the PAR disclosure form and the Agreement of Sale), but none of the exceptions relate to sellers who do not currently occupy the property. Even if the sellers have physically moved out of the property (which would be disclosed in Paragraph 2), they still need to report information they’re aware of. For example, if the property has been vacant, but sellers have been told by a neighbor, their agent or a remediation company about damage to the property, that damage must be disclosed.

Remember both the listing agent and buyer agent both have responsibilities related to the disclosure form. First and foremost, if the listing agent is aware of an issue that requires disclosure, the agent has to disclose it even if the seller will not. In short, if your seller refuses to disclose something covered by the law, you’ll either need to disclose it yourself or send the client out to find another agent.

Just as importantly, remember that agents on both sides of the transaction have a general fiduciary responsibility to ensure that their clients understand the information in the form. On the seller’s side, agents should help explain these issues to their clients, and should review the form with the seller to ensure that the disclosures appear to have been done correctly. On the buyer’s side, agents should be sure that their clients truly understand not just the information in the form, but its impact on the transaction. At the end of the day, agents will be better protected by being very thorough with clients on both sides of the transaction.

In filling out and reviewing the Seller’s Property Disclosure Statement, most agents will gravitate to the flooding and water infiltration questions in Paragraphs 4, 6 and 16.  But remember that there are multiple sections with questions that might apply to damage caused by recent storms.  For example:

• Paragraph 3
  – Roof: The winds associated with Hurricane Irene may have caused roof damage, and the sheer amount of rain from those storms may have caused water leakage that had never happened before.
• Paragraph 6
  – Structural Items: Remember that “any past or present water leakage” covers more than basements.  If the storm caused water to come in under a side door or through poorly sealed windows, that should be disclosed.
• Paragraph 7
  – Additions/Alterations: At a minimum, seller should use this section to disclose any work that required local building permits.  Recovery work may need to be disclosed in this section if it rose to that level, and sellers might choose to list other remediation efforts simply to demonstrate the efforts they put into remediation.
• Paragraph 8
  – Water Supply: Experts have advised that heavy rains and flooding may cause well water contamination. If sellers have recently tested the water those results should be disclosed.
• Paragraph 9
  – Sewage System: Though perhaps not common, septic systems can sometimes be damaged in flood conditions. If sellers notice a drop in performance, or have had the system serviced because of flood conditions, be sure to disclose the circumstances.
• Paragraphs 11-13
  –Water Heating, Air Conditioning and Heating: Various elements of the home’s systems – hot water heaters, compressors, air handlers, etc., may have been affected by the flooding. Disclose the extent of exposure, and whether any inspections or repairs were done.
• Paragraph 14
  – Electrical System: In many homes the electrical box was partially submerged. Sellers of those properties should add that to the disclosure, and should also note whether the box was inspected (which was likely required by the municipality and/or power company).
• Paragraph 17
  – Hazardous Substances and Environmental Issues:  Most homeowners who experienced flooding will be washing the flooded areas with a bleach solution, and may be removing wood/paper/drywall and similar materials.  Some will have air quality testing performed, and even those that don’t are probably on the lookout for mold in the flooded areas. Seller in these circumstances should use the most questions in this paragraph.
• Paragraph 19
  – Miscellaneous:  This paragraph contains a question about insurance claims. If a seller has filed a flood insurance claim, it should be disclosed.