Full Disclosure: How to vet transactions for disclosure violations

Written by Columnist:

Samuel Doncaster

Arizona’s disclosure requirement is broad enough that most real estate transactions include some form of non-disclosure liability. Sometimes sellers give into the temptation to lie. Other times they fill the form out in a hurry and don’t adequately disclose everything they know. Either way, the seller is failing to honor the warranty to disclose every known material defect.

The list below is based on a checklist my firm uses to thoroughly find all evidence of non-disclosure when we take these cases to trial. It’s a list of things we look at to prove the prior defect existed and that the seller knew about it. Sellers can use this list to search for information they need to disclose. Reviewing these documents may jog their memory of something they must disclose and help them avoid serious liability. 

In addition, buyers who are serious about due diligence can use this list to ask for materials during the inspection period. Getting this information in advance can help them feel more confident in their transactions. And clients will value agents who are knowledgeable enough to raise these issues during the inspection period.  

1. Prior SPDS—Every Seller was once a buyer. Even builders bought the raw land that they subdivided and developed. And in the residential resale market, the seller bought the property under the same rules that exist today; whoever they bought from had a duty to make disclosures to them. 
2. Prior home warranty—If the seller had a home warranty, a claims history from the warranty company often reveals evidence of past or present defects. This is typically the first place a seller will contact when they notice an issue with their home. The warranty company’s records often include a lengthy history of past (and potentially present) problems that the seller will need to disclose. 
3. Title insurance claims—Most sellers disclose their homeowner’s insurance claim history because the CLUE report requires it. But history of title insurance claims is often unaddressed. However, title claims often reveal relevant information about properties because Sellers often try to solve their problem with a title insurance claim. For example, I once worked on a case involving a landlocked property with no valid utility easement. The Seller filed a title insurance claim that was denied; and when I subpoenaed that claim form, it was damning evidence against him. 
4. Prior inspection report—Nearly every buyer has a home inspection. Meaning nearly every seller has a report on the condition of the property dating back to the time they purchased it. Because most of the SPDS questions require disclosure of “past or present” conditions, the inspection report is relevant to a party making the disclosure. Sellers will do well to hand over a copy of their own inspection with the SPDS. 
5. Correspondence with prior broker—The rise of email communication created a mountain of written evidence of communication. A seller’s correspondence, both emails and text messages, will often reveal evidence of the condition of property. People often email or text message their agent about the condition of the property. Especially during due diligence. These documents are great evidence of conditions a seller knew about, and they will often identify issues that should be disclosed.

Samuel Doncaster is a trial lawyer who’s very active in real estate fraud cases. He routinely helps people get their money back when they’ve been cheated in real estate deals. If you have a client who needs help with a disclosure issue, you can help them set an appointment by calling 480-666-4054 for a strategy session. Mention this article to get the strategy session fee waived.