Disclosure in Real Estate Sales - What can be kept confidential?
What is Disclosure?
First of all, a disclosure is a part of the purchase and sale contract that gives the Seller the chance to tell you about any defects he may know about his property. Why would he ever want to do that? Well, because it’s the law. It’s illegal for the seller to hide defects from the buyer. Yet there are some things that the seller doesn’t have to tell you, some things that you may really want to know.
Do you have to tell if you have ghosts in the attic?
Well, I will start with the silly stuff, like is the house haunted? That’s a grey area in disclosure. The courts tend to rule that if the buyer thinks that something is detrimental then it is detrimental. Yet what if the rumor is that the house is haunted but the seller doesn’t believe it? Is he still required to tell you a story he doesn’t believe at all? It would be like me telling you that there was something wrong with the house because it was built while Mercury was in retrograde, if I don’t believe in astrology. There was a case in New York where a seller was sued for not revealing that the house was haunted, and lost. Part of the case hinged on the fact that the seller published a story in Reader’s Digest about the haunted house, so that proved that the seller believed it.
How about a grisly crime, do you have to tell?
But if you take it a little further, there is something a little more serious that the Seller is not required to tell you in Georgia. That is if the home “was the site of a homicide or other felony (including rape) or the site of a suicide.” The argument behind this rule is that these types of events do not affect the physical condition of the property. The effect is more psychological. But here is the twist: The Seller or the listing agent does not have to reveal the information, but if the seller or the agent knows about such information, and is asked, he (or she) is required to answer truthfully. This is an important point. They are not required to reveal the information but are required to answer truthfully if asked.
What if there was a diseased person living in the house?
What else does the seller not have to tell you? Well if the home was occupied by someone with a disease “which has been determined by medical evidence as being highly unlikely to be transmitted through the occupancy of a dwelling” which includes aids, the seller or agent is not required to tell you about that either. Here is another twist: They are not allowed to tell you if the house was occupied by someone with aids. It falls within the jurisdiction of fair housing law, since aids has been ruled to be a handicap. How do they answer? They should tell you that they are not allowed to answer that question.
How about criminal activity in the neighborhood?
It goes on…. What about sexual predators or paedophiles in the neighbourhood? The lawyers that write the Realtor’s contracts in Georgia have actually added a paragraph warning the buyers that if they have concerns they have to go to the website and do their own research. If the seller doesn’t have to tell you about felonies committed in their own house they definitely don’t have to tell you about felonies committed by their neighbours in other parts of the world.
What does this mean to you, the prospective buyer?
What does this mean to the buyer? Do your own research. Call the local precinct and get the crime records for the area. Go to the web and search the sexual predator database. Talk to the neighbors. Find out if there are ghosts, noisy neighbors or suspected drug dealers on the street. Don’t wait until after you close on the house to find out why you might not want it!
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Dan this is one of the best articles I have read in a while. Several years ago I was assisting an attorney with the purchase of a home and disclosed to her and her husband that a particular home was the site of a homicide and suicide. They did not purchase that home, for other reasons, but due to my honesty she has referred several other clients to me. I guess that “Honesty is the best policy”!
Interesting read, Dan. So many gray areas. I have only bought 2 homes in my life – both new construction. Personally I couldn’t bear the thought of someone dying or having been gravely ill in a home. But my new home could be built on an old Indian graveyard, so you never know! I wonder if builders have to research land history and disclose any sacred rituals or such that might have taken place? LOL.
Mack, Thanks for the props,I definitely agree in the honesty is the best policy slogan.
Lynn, I would think that the Indian burial ground is something that could really impact your house’s value. They might try to make you move it, if they every found out! One of those times when title insurance might be the savior!
That haunting case is especially interesting. Would have loved to been i the courtroom for that one.
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Interesting post! It sounds to me like buyers should err on the conservative side and disclose information if in doubt. However with the market the way it is and sellers desperate to move their property, I think we will see more people failing to disclose pertinent information.
Hi Dan,
Great article and it certainly reminds us of the old term “Caveat Emptor” or buyer beware which doesn’t need to play a roll in today’s real estate environment. In Colorado although Sellers are required to disclose any defects they have actual knowledge of Buyers typically rely more on the whole house inspection and the title work rather than what the Seller reveals.
Especially prevalant right now is bank owned (REO) properties with which the bank provides virtually no disclosure at all.
With all the technology available to people there will soon be a way to learn more about the history of a property… I hope!
Bob Maiocco@Denver Real Estate’s last blog post..Denver Average Temperature
That haunting category is interesting, and reminds me of a message from my pastor recently. He was talking not as much about ghosts, but more about evil spirits dwelling in houses and, basically, remaining in the house, after the previous tenant left. Had the previous occupant a grizzly history, the question discussed was whether or not evil spirits remained and needed to be removed.
Interesting stuff to think about when house-hunting…
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Dan,
You indicate that in GA a home seller is not required by law to disclose that the house “was the site of a homicide or other felony (including rape) or the site of a suicide.”
Specifically for suicide, do you know if a landlord does not have to disclose to a potential tenant about the suicide either.
As I understand it, they don’t. I am not 100% sure on that but I think the same rules for sale apply to lease.
Dan – a question about Seller disclosure. Seller had basement partially finished in 2004, same year as she and husband separated. House was ’sold/quit claimed’ over to the wife by husband as part of settlement. In 2009, Seller sold house with Disclosure statement stating and signed by seller under section 4 e, f, g to which she marked ‘no’ ONLY to find that there were additions (finishing off part of the basement to item e) and that there were NO permits obtained for the work, which she marked ‘no’ to item f that there was no work done for which permits/approval were not obtained and to item g she also said ‘no’ to has any work been done to property that was not in compliance with building codes or zoing regs. NOW based on this disclosure we thought we had ‘value’ in the property because of this partially finished basement which complied with codes, had permits for it’s constructions etc. We only found out that none of that was true late last week when we went to swap out a lighting fixture and found no insulation between drywall and cement basement wall which led to us asking the City about any work permit for the project. They came back with NO PERMIT had been issued in 2004 for the work. The Seller now states that it was the responsibility of the Contractor to get the permit and to deal with them. I will not do that because if Seller now has problem with Contractor for not adhering to any original Contract which required that the Contractor get all permits and pay all fees as part of the estimate……….then it’s between Seller and Contractor – that is nothing to do with us. What is to do with us – is that the Seller’s Disclosure statements contained INACCURATE information about additions which will now have to investigated for code adherence, check electric, check plumbing etc so that it is all to 2010 codes and not 2004 codes. We based our purchase on ‘value’ in the basement and that all paperwork and permits had been obtained. Now, if we were to turn around this year and sell it – we now know that there was no permit pulled for the work and the value in the house is NO LONGER there as it was when we bought it. We have been ‘damaged’ by the Seller’s inaccurate Disclosure on her house. What are your thoughts as to what we can do???
Generally with these kinds of questions I would have to suggest showing the original paperwork to an attorney. This is a legal question and we are not able to give legal advice. I would think that there would be some recourse, but it would all depend on the exact wording of the disclosure, the wording of her explanation on the disclosure and the laws in your state.
Hi, Dan,
I wonder if you can answer this question for me? I purchased a home in January of 1999 which was later discovered to have defective lap siding. I was not aware of the class-action lawsuit until the deadline had passed. The class-action lawsuit was initiated in 1997, I believe, and was in full force by some time in 1998. Was the seller required to disclose that this siding was defective? He had to have received notices of the impending lawsuit. At that time there was no evidence to suggest that the siding was defective, but obviously in the ensuing years it has deteriorated. By the way, the seller, out of the blue, approached ME near the end of 1998 to suggest my buying the house, which I had been simply renting since July of 1996. Another bit of information is that the seller is the mortgage holder. I am a widowed mother of two young children and simply can not afford the repairs, and I am desperate to know if there is anything I can do!
Thanks if you can help!
Alison Holland
Alison,
I would have to suggest that you take this to a lawyer first and foremost. I will give you my opinion on this but it is by no means legal advice. I do not believe that people with the defective Louisiana Pacific siding were notified of the class action lawsuit. It was fairly heavily publicized but I never heard that they had any way to identify and give notice to homeowners who had the siding. I also would think that you would have to prove that the homeowner knew about this and withheld the information from you. I don’t know what the statute of limitations on that kind of lawsuit are, that is another question for a lawyer who has a practice in your state.
My guess would be that you will not have recourse, but perhaps since the mortgage holder is the seller really was unaware of the problem, they may have an interest in protecting the value of the collateral on their mortgage, and may be open to getting the repairs done and perhaps splitting the cost with you (by increasing your mortgage, rather than you paying your half).
Good luck!