Proper disclosure can prevent lawsuits

 

Seller beware: the onus is on you to disclose facts

 

HONOLULU ADVERTISER   July 29, 2007

 

BY LISA SCONTRAS

 

Custom Publishing Group

 

Buying a home these days involves filling out and signing mountains of paperwork — much of which goes unread. But there is one document in the stack that both buyers and sellers should take some extra time with. It’s called the Seller’s Real Property Disclosure Statement.

 

 

In the state of Hawaii, sellers are required by law to disclose any material facts about the property and the neighborhood on this four-page form.

 

According to Helen Lindemann, principal broker at Prudential Locations LLC , the seller’s disclosure form is one of the most important documents in the contract because of all the specific information it provides to the buyer about the property.

 

“The statement provides information relating to the condition of the property that can be important to the buyer to help them decide whether to continue with the purchase or not,” says Lindemann, who adds that the buyer can opt to nullify the contract within a designated time period if they decide they don’t want the property after reviewing the disclosures.

 

The form is intended to prevent the buyer from being misled into thinking the property was structurally sound, in good repair, or in a quiet neighborhood, if it in fact is not. The standard disclosure in Hawaii requires the seller to specifically comment on everything from pending lawsuits or nearby developments, existing asbestos, whether the home has ever been damaged by fire, has permitted renovations, even whether there has been any settling or landslides. Anything that is considered a “material fact” must be disclosed.

 

“A material fact, as defined by law, is any fact, defect or condition — past or present — that would be expected to measurably affect the property value to a reasonable person,” Lindemann says. “What is specified in the law is whether the property is in a special flood hazard area, within the boundaries of a noise exposure area around airports and military bases, or in a tsunami inundation area.”

 

According to the National Association of Realtors, failure to disclose material facts about a property is the leading cause of lawsuits filed against sellers and their real estate agents, making it more and more difficult for sellers to run for cover under the “I didn’t know” umbrella.

 

Even if the property is a rental unit, the owner/landlord would have knowledge of any repairs made to the property and is required to fill out the form.

 

“If you have a property manager, you would receive a monthly report that would also provide you with invoices on repairs made,” she clarifies. “You still need to answer the questions that you have knowledge about.”

 

With the increase in prices and the growth in complexity of real estate transactions and purchase documents, there is a strong emphasis on seller disclosure. It is a way to be up front with buyers on issues which may not be readily observable. And while the concept of caveat emptor (buyer beware) is still good commonsense practice, with regard to real estate, the onus has legally shifted from the buyer to the seller, making the seller responsible for disclosing known defects — even if the problem has been “remedied.”

 

Buyers are encouraged to effectively use the seller’s disclosures to red flag possible problem areas. Lindemann strongly suggests buyers hire their own professional home inspector to conduct a thorough check up. This way, the buyer can potentially have the problem fixed before closing and ask the seller to pay a portion of or the entire bill.

 

“The disclosure statement is not a substitute for any expert inspection, professional advice or warranty that the buyer may wish to obtain,” she adds. “The buyer should still have their own experts review the property and do their own check of public records.”

 

So whether you’re the seller, interested in avoiding litigation, or the buyer, interested in not being misled about a property, the disclosure statement is one document you should plan to read very carefully.

 

 

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