Full Disclosure

Written by Columnist:

Samuel Doncaster

One of the number of common misconceptions I’ve seen handling real estate fraud cases relates to the duty to disclose past defects on a property. Sellers must disclose anything material related to a property. And, in general, a history of problems or a prior need for repair fits the bill.

Arizona’s general disclosure obligation leads to that result. For example, a history of roof leaks is relevant to the quality of a roof. If a roof has leaked and required repair in each of the past several years, that indicates the roof is near the end of its life and likely to require full replacement soon. That remains true even if the Seller fully repaired the leak, and assuming the water intrusion didn’t cause mold. Any history of problems is relevant to the Buyer’s prediction of whether the problem will recur, and it needs to be disclosed.

1.  SPDS questions asking about past damage bolster that requirement.

The SPDS recognizes this. That’s why many questions specifically ask about past or present problems. At a basic level, if a Seller is answering a question about plumbing problems, they need to check “yes” even if the problem is long in the past and they believe it’s been fixed. They also need to provide a reasonable explanation of what happened.

One of the most common misconceptions about disclosure obligations is that they only apply to the current condition of a property. So, one of the most common truths that Buyers need to hear is that they can recover even if the Seller had some slipshod repair in place that managed to hold up through inspection and closing.

Buyers need to know that when that “no” box gets checked, the Seller is certifying no knowledge of any history of problems whatsoever. That goes back to anything disclosed to the Seller on their SPDS that they’d received when buying the property. It includes problems the Seller thinks were resolved. At a minimum, the Seller should have disclosed the history. And if it was repaired, the Seller should have explained what was done to repair it.

Any evidence that a problem has existed in the property before closing is evidence that the problem should have been disclosed.

2. The SPDS further requires disclosure of any work done on the property.

The SPDS requirement to disclose any work done on a property also ensures that past issues get disclosed. For example, I once tried a case where the Seller personally relocated the main water line prior to the sale. He claimed he thought it was ok and that there was no issue with the water. Of course, he did the repair wrong; the Seller wasn’t a licensed contractor and botched the job.

But the Buyers were protected. The mere act of moving the water line, regardless of whether it was done right or wrong, was subject to mandatory disclosure. In fact, not only did the Sellers have to disclose doing the work, they also had to disclose that they did the work without having a license. Even though Arizona law allows homeowners to work on their own homes without licenses, the SPDS requires they disclose that they have done so prior to sale of a home. The Seller must further disclose whether permits were obtained.

Even if the Seller believes they’ve repaired a problem correctly, they must disclose that it occurred and what they did about it. Historical problems are among the most common omissions from SPDS statements. But when the property has a related problem, it’s also one of the most common sources of seller liability.

Samuel Doncaster is the Owner and Founder of Fraud Fighters Law Firm.  He also recently released the Arizona Guide to Real Estate Fraud.  This comprehensive guide covers 7 often overlooked strategies for proving the Seller had culpable knowledge.  It also includes a detailed checklist that buyers should go over to ensure they ask for everything they deserve.