Full Disclosure: What to do when your seller client gets accused of non-disclosure

Written by Columnist:

Samuel Doncaster

When you find out your seller has been accused of non-disclosure, you may be understandably worried. You may find yourself replaying key moments from the transaction in your mind wondering whether you did the right things to protect the client or yourself. You may be worried about complaints (especially bogus ones) against your license or even getting sucked into a lawsuit. This article will help you navigate that problem, maintain a good relationship with your client, and most importantly, protect yourself. 

You may be the first one informing the seller that a dispute has arisen. If the buyer sends a formal notice of breach, he’s required to send a copy to you as the seller’s agent. And, as a practical matter, the seller’s address is almost never on the contract. Even when it’s filled in, it’s often the property address. By the time a post-closing disclosure dispute arises, the seller isn’t there anymore, so the notice you’re getting may be the client’s best chance to learn of the potential to be sued. Make sure you send a copy of any demand or notice of breach to the seller!

Once you do that, you need to take reasonable steps to protect yourself and your relationship with your client. 

First, encourage the seller to retain counsel. (In case you’re wondering, no, it shouldn’t be this author; I focus on plaintiff/buyer clients.) Offer them a referral to a good real estate lawyer if you know one. In fact, if you really want to give the client white glove service, schedule a call for you to make a warm introduction to the lawyer you’re referring. Getting a lawyer involved early protects you from a liability claim alleging that you handled the dispute poorly, and it’s the ethical thing to do. 

Second, help the client gather a full copy of his file. You’ll want to get the following: 

• Arizona Association of Realtors® contract with all Addenda
• BINSR
• Inspection Reports
• Escrow Settlement Statement
• Appraisal Reports
• All of your correspondence (including texts and emails) with the seller and the buyer or buyer’s agent
• Title report, including Schedule B.

Also, if the seller is a long-time client (e.g., you represented him as a buyer), you’ll want to get the full file from when he bought. The list of documents will be the same, just get the contracts and inspections and appraisals from when the seller was a buyer. 

Turn all this material over to whatever lawyer the seller retains. This will be a huge help to the client, because typical lawyers aren’t attuned to ask for this information early. Getting this into the lawyer’s hands will help the lawyer accurately assess the client’s liability and advise him.  

Third, be clear about your role. One of the most common lies that sellers tell during a disclosure dispute is that their Realtor® advised them not to disclose something. If the seller does that, he’s accusing you of violating Department of Real Estate Rules. To protect your license early, document the fact that you advised the seller to disclose everything. For example, when you gave him the SPDS, it included a warning in giant, bold faced type: “WHEN IN DOUBT, DISCLOSE!” Let the seller’s lawyer know in clear terms that you never recommended non-disclosure. In fact, if the issue came up, let the lawyer know you recommended disclosure.

Finally, help the seller stay calm. You’ll be helping him through a stressful situation. But you’ll be saving his legal fees and helping him put together a more thoughtful defense by gathering those documents and getting them in front of his lawyer. If you handle it right, you won’t just avoid liability. You’ll have a grateful client ready to refer you. 

Samuel Doncaster is the owner and founder of Fraud Fighters Law Firm. He regularly handles cases involving SPDS non-disclosure and fraud. If you or a buyer have an SPDS concern, give the firm a call at 480-666-4054 to discuss how these principles apply to your unique situation.