Saturday, May 20, 2017

Should I Trust the Seller's Property Disclosure Statement?

Under Florida law, as in many other states, a seller of a residential property has an obligation to disclose to the buyer all known facts that materially affect the value of the property being sold and are not readily observable. The Florida Association of Realtors has a standard property disclosure form that is provided to sellers as a convenient way to comply with the legal obligation of disclosure, and realtors encourage their sellers to use them. Completing the form is actually not a requirement, but deciding to not fill out and sign the form does not get a seller out of their obligation to disclose. Plus, it makes a buyer very suspicious of the property.

“The number one reason for a lawsuit after a real estate transaction in Florida is a lack of disclosure,” and selling the house with an “As Is” contract does not eliminate the disclosure requirement. But decisions by Florida courts have made it clear that the seller is not responsible for something they “should have known”; only for known defects and hazards that were not easily discernible and not disclosed. If a real estate agent, knowing places a property “For Sale” and the permits were not pulled by the building department for work completed by the seller (i.e., electrical, HVAC, Drywall, Plumbing or Roof replacement) the agent is going to be liable!!! Agents should get in the habit of requesting permits for the work completed.

A recent case in the Central Florida area, in which the seller received a settlement from their insurance company for repair of a sinkhole below their house (shown in the photo above), then made only cosmetic repairs to the home and sold it without telling the buyers about the sinkhole, has resulted in a criminal conviction in Federal Court for wire fraud. While the case highlights the possible legal consequences, it was an unusual situation because the lack of disclosure was so significant and easily proved. Most lawsuits are in civil court, and not that straightforward.

Disclosure is often complicated by the fact that many sellers do not have first-hand knowledge of defects in a home because they have never occupied it. Banks selling a foreclosure, investors disposing of a rental property, and the children of deceased parents selling their retirement condo to settle the estate are three examples. Also, sometimes people just forget about problems that occurred years ago and are unaware of current defects in their home. For all of these reasons, realtors encourage buyers to get a home inspection.

Any professional home inspector will tell you that they are not going to find everything that is wrong with a house in a two to three-hour examination. But a home inspection provides the homebuyer with a good understanding of the overall condition of a house and adds an additional layer of “disclosure” that is a sensible part of due diligence in buying a home. SitePro inspection reports typically average between 80 to 120 pages, with over 300+ pictures with narratives under each picture.

February 2016 UPDATE

We inspected a home today in a neighborhood known to have a high incidence of foundation problems due to underlying veins of clay soil. The buyer informed us that the seller’s disclosure stated that previous structural settlement/heaving had been repaired, but wanted a careful examination of the house anyway. An itemization of the work, including a diagram with the location of piers and total cost of the project, was attached to the disclosure.

SitePro always does a permit search in the public-access database of the local building department before each home inspection and found it odd that there was no building permit for the extensive foundation work outlined in the documentation. Also, although there was plenty of cosmetic repairs, clear evidence of structural distress was still visible.

Because of the concerns we raised, the buyer called the foundation repair company after our inspection to figure out what was going on. They advised him that the paperwork he had was only a proposal, and they had never done any work at the home.

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