Estate and mortgage"Tell All" When Selling? You Bet!
Question: Recently, it was reported that baby bones were discovered in the attic of a home. Also, there have been a lot of reports about arsenic and other toxic materials which have been found in a residential area. Exactly what disclosures must be made to a prospective home buyer?
That"s the $64,000 question -- or perhaps even higher, depending on the value of your house.
Disclosure to potential home buyers of pertinent information about problem areas known to the seller has long been a troublesome area of the law. Indeed, in recent years, legislation has been enacted in many jurisdictions requiring certain disclosures to be made at the time a real estate contract is entered into.
Caveat Emptor -- "let the buyer beware" -- used to be the law involving real estate transactions. Unless a buyer specifically asked the seller about potential defects in the house, the seller was under no legal obligation to disclose any such problems.
Over the years, however, the Courts -- and then State legislatures -- began to recognize that this was unfair. If a seller knows about a problem in the house, that problem should either be corrected or disclosed to a potential purchaser.
Modern consumer protection acts have imposed disclosure requirements on sellers (and sometimes real estate brokers).
Although the laws differ somewhat among the various jurisdictions, the basic purpose of these disclosure laws is quite simple. Sellers of residential real estate must disclose to their potential purchasers known defects or information concerning such areas as water and sewer systems, insulation, structural systems (including roof, walls, floors, foundation and basement), plumbing, electrical, heating and air-conditioning systems, fixtures, and much more.
These disclosure laws require the seller -- generally at the time a real estate contract is entered into -- to complete a disclosure form and give it to the contract purchaser. Generally, if the purchaser has not received the form, he/she has the right to terminate the sales contract and receive a full return of the good faith earnest money deposit.
But what is a defect? Must the owner of the property where the bones were discovered in the attic make this disclosure to a potential purchaser?
Recently, the Maryland Court of Special Appeals decided that the purchaser of residential property in a 200 acre subdivision near Ocean City had a cause of action against the developer of that property, for failing to disclose that the land once was a graveyard. This is an interesting case, and needs some explanation.
In l964, Mr. Louis Hickman created and recorded a Plat among the land records creating, among many others, the lot which ultimately was owned by the Plaintiff. Before l964, there was a graveyard on the property in question. When Mr. Hickman developed the subdivision, although he removed the tombstones, markers and other surface evidence of the graveyard with the use of a bulldozer, he left the graves underground.
In the l980s, the Plaintiffs built a house on the lot. However, they did not discover the graveyard until 1995. On December 22, 2000, the Court of Special Appeals held that the Plaintiffs had stated a cause of action against the original developer and sent the case back to the lower Court for a trial on the merits.
This case (Carven v Hickman), involves a highly technical legal concept called the Statute of Repose. Oversimplified, this statute is designed to protect builders from perpetual liability for latent, unsafe or defective conditions arising out of improvements to real property. The Maryland Court found that the graveyard was not an improvement, and thus did not bar the Plaintiffs from attempting to prove that the discovered graveyard diminished the value of their property.
While this case is not technically a "lack of disclosure case", it certainly highlights the fact that potential purchasers should be given as much information as possible. Otherwise, there is the possibility that years later (31 years in the Carven case) you -- or your estate -- can be sued for non- disclosure. According to the Court:
This issue presented by this case is whether the statute of repose...bars a claim against an owner developer who, after allegedly removing the headstones from his family graveyard, sold it, as part of a residential lot, without notifying the purchasers of its existence or removing the graves or their occupants.
When selling a house, disclosure of all pertinent facts actually known to the seller is critical, even though it may impact on the ability to complete the sales transaction or on the ultimate sales price of the house.
In most cases, sellers are not faced with such unusual circumstances as haunted houses or toxic chemicals in the back yard. Usually, the problems are fixable -- such as a leaky roof, a defective hot water heater or a flooding basement. These problem areas can be fixed by the seller, in which case disclosure would not be necessary. If, on the other hand, the seller opts not to spend the money, the seller cannot expect that the purchaser should bear the cost of these repairs, unless the purchase price has been reduced to account for these problems.
Indeed, even with such unusual problems as the toxic chemicals in Spring Valley, real estate agents are reporting that when a potential buyer has all the facts -- and makes their own independent evaluations -- sales are not impacted, and prices remain intact.
Caveat Emptor has no place in the residential real estate market. Disclosure of all known problem areas is not only good public policy, it is also beneficial for the home seller. Mr. Hickman learned his lesson the hard way. Disclosure of the graveyard would have avoided the costly and time- consuming litigation.
For more articles by Benny Kass, please press here.
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Copyright 2001 Benny Kass. Posted by Realty Times with permission.
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