If you have recently bought or sold a house, you may be worried about the possibility of a failure to disclose.
One of the scariest parts about buying a house is paying for all repairs and issues on your own. Not knowing about the necessary repairs before buying the house can cause animosity and questions about who should pay for it. If a seller fails to disclose a defect they knew about, they can be responsible for footing the bill.
Understanding when this may be the case can be important for new homeowners and those considering selling their homes. This article will outline the duty to disclose as it applies to real estate transactions, noting that each state will have a specific statute outlining the duty.
It will also include a discussion of a material defect, which is vital to understand when there is a duty to disclose it. Finally, it will discuss the process and considerations that should occur after a failure to disclose from both the buyer and the seller.
The Duty to Disclose:
Buyers need to understand the potential costs of buying a new home and the necessary updates. Therefore, states require that sellers disclose certain defects to the buyers before buying the home to ensure that they are fully aware of any known issues. This is known as the duty to disclose and is present in some form in every real estate transaction. Several elements need to be present for a disclosure to be necessary. These elements include:
- Material Defect: Most laws require that there is a defect in the home and that this defect be material. This means that there needs to be something that could affect the buyer’s use of the home and the purposes for which the buyer bought the home. Some examples of this will be discussed further below.
- Existed at Sale: The defect at the heart of the issue must have been a defect at the time of the sale. This means a buyer will not have a claim if the defect arises after the buyers take possession. Whatever causes the issue must have been present in the home when the buyers take possession.
- Knowledge: Most laws require that the seller knows about the defect at the time of the sale. This means that the buyer has to prove that there was no way that the sellers did not know about the defect. This can often be demonstrated by the severity and open nature of the defect. Occasionally, sellers may admit they knew, but this is usually the case when arguing about other elements.
- Failure to Disclose: Finally, the buyers will need to prove that the sellers wither failed to disclose this defect, usually by submitting the disclosure sent to the buyers, or that the sellers sought to hide the defects from being discovered actively, which is usually demonstrated by ways that the parties attempted to cover up the defect without making attempts to repair it.
Because these are elements, all of them must be proven for a person to collect on their claim. Therefore, it is important to check individual state statutes to determine the exact requirements. Still, this basic outline is usually present in some capacity.
Material Defects Explained:
A key aspect of a claim for failure to disclose is a material defect, but what a material defect is can be challenging to pin down. Typically, a material defect will affect the buyers’ use and enjoyment of the home or the purposes for which they bought the house.
This means that the defect needs to go to the very heart of the contract to buy the house and interrupt the reasons the buyers would like to have the home. Of course, this can mean something different for each buyer, but most states will also have a list of things that will always be considered material. These lists often include:
- Death: Each state will have different requirements for deaths in the home that need reporting. But most states will have a rule that the sellers must disclose a death within a certain amount of time that has to do with the home’s condition or a violent crime. The idea with this is that if the home caused the death, the buyer should know, and they should know about violent crime in the area.
- Repairs: If significant repairs are needed, they should be disclosed to the buyers. This includes water damage that needs to be repaired. There should also be a disclosure of recent repairs to ensure they were completed correctly.
- Hazards: It should be disclosed if the house has an increased risk of natural or chemical hazards, such as lead paint.
- Restrictions: In some historic districts, the buyers may be restricted.
- Homeowners Association: If the home is within a homeowner’s association, that should be disclosed to the buyers because it increases their costs and could impede their desire to renovate the home.
- Nuisances: Most states will require that the sellers disclose neighborhood nuisances, which are businesses that will cause disturbances to the neighborhood, such as farms, airports, and loud businesses. If there is a business that will disrupt the neighborhood, it may be safe to disclose it.
- Missing Items: If there are items that will not be in the home when the home is sold, that should be in the disclosures. Occasionally, sellers will take items with them for various reasons. Still, buyers may expect these items and should be communicated to avoid any issues.
There are often other things that may be required to be disclosed, but it is dependent on each state.
Verifying with a realtor is the best way to ensure all required disclosures are made.
How to Handle the Failure to Disclose:
If there is a failure to disclose, it is essential to understand how to move forward. This depends on which side of the sale you are on. Suppose you are a seller and realize that you failed to disclose a defect. In that case, it may be a good idea to contact your realtor and let them and the buyers know about the defect to resolve the issues. It may not fully protect the interests of the sellers, but it will show good faith.
On the other hand, if the buyer discovers a defect that the seller did not disclose, they will often have the ability to recover from the seller in a lawsuit. This can include the cost of repairs, a deductible for insurance, or the costs associated with the reasons for nondisclosure.
This can be resolved through various forms of alternative dispute resolution, often with the sellers agreeing to pay for repairs or cancel the contract if they have not traded possession. However, if the parties cannot agree on a resolution, the best form of recourse is to proceed with a lawsuit.
To avoid this type of lawsuit, be upfront about the issues with the home, ensuring that everyone goes into the contract in total agreement.