September 09, 2019

Seller Beware: Legal Issues Arising from Seller’s Disclosures (or Lack Thereof) in Residential Real Estate Transactions

By Jacqueline K. Holmes, Esquire (formerly with Norris McLaughlin, P.A., now the Associate Corporate Counsel at Avantor)

On its face, a residential real estate transaction seems fairly straightforward – potential buyers tour a home on the market, they decide to make an offer to buy the home, and they eventually agree on a purchase price with the sellers. Once the purchase price is determined, the parties execute certain standard documents to effectuate their agreement, namely the agreement of sale and a seller’s disclosure statement. While the seller’s disclosure statement may fit into the process like just another form document to be signed, it is, in fact, a legal document of great significance that, if not addressed properly, can give rise to various legal issues. Behold, the increasingly common lawsuit borne out of residential real estate transactions: the failure to disclose case.
It’s no secret that sellers of residential real estate are required to complete the seller’s disclosure statement, through which the seller must disclose to the buyer any “material defects” of the property “known to seller.” Certain questions then follow: What constitutes a “material defect?” What encompasses defects that are “known to seller?” For example, as it relates to “material defects,” does a seller have to disclose that water leaked into the basement of the property on two occasions over a period of fifteen years where the water was only an inch deep each time? What if water leaked into the basement just once but it was two feet deep? And what does “known to seller” mean? Does the seller have an obligation to conduct an inspection of every nook and cranny of his or her home to determine whether there are any existing defects? Further, completion of the seller’s disclosure statement may become more complicated for sellers who have resided in a home for a longer period of time. How far back must a seller recall any defects at the property for purposes of the seller’s disclosure statement? All of these questions may create legitimate uncertainty to a seller who wishes to complete the seller’s disclosure statement with accuracy and completeness.