The doctrine of caveat emptor (let the buyer beware) in the sale of residential real estate has been eroded steadily over the years by changes in the law. One of the most significant changes has been an increased responsibility for sellers to timely disclose to buyers defects and other issues which affect the value of the subject property. More and more, buyers are pursuing lawsuits where they feel a seller was less than honest about the condition of real estate they purchased. Increasingly the law is favoring the buyer who can show that the seller was not forthcoming in properly disclosing defects.
While many lawsuits brought by buyers will also include claims for common law fraud, breach of the agreement of sale, and violation of the consumer protection law, a fairly simple and direct claim for failure to disclose may exist under the Pennsylvania Real Estate Seller Disclosure Law; 68 P.S. — 7301, et seq. (the “Disclosure Law”). Under the Disclosure Law, there is no need to prove fraud but merely that the seller did not provide adequate disclosure as required.
The Disclosure Law is intended to require sellers of residential real estate to disclose all known defects in order to allow a buyer to fairly evaluate the property. It applies to all residential real estate transfers with a couple of minor exceptions(including that it does not apply to transfers of new residential construction and transfers by a decedent’s estate). The Disclosure Law provides that a seller must provide a buyer, prior to entering into an agreement of sale, with a written disclosure statement disclosing all known material defects about the property being sold.
The Disclosure Law defines a material defect as “a problem with the property or any portion of it that would have a significant adverse impact on the value of the property or that involves an unreasonable risk to people or the property.” It provides a sample seller’s property disclosure statement which requires the seller to disclose facts relating to the property including occupancy, roof, basements, crawl spaces, termites, structural items, additions/re-modeling, water and sewage, plumbing system, heating and air conditioning, electrical systems, other equipment and appliances included in the sale, land (soil, drainage and boundaries), hazardous substances, and legal issues affecting title or use and enjoyment. Sellersshould be aware that many of the questions require the seller to explain whether there has ever been a problem.
From the seller’s standpoint, the Disclosure Law makes it reasonably clear what is required and therefore compliance by the seller can actually be used as a means of defense to any claims later raised by a buyer. It can further serve as a defense for Realtors who in the past were frequently drawn into disputes about undisclosed defects. The Disclosure Law puts the burden of disclosure directly on the seller, rather than on the Realtor. Most Realtors will refuse to fill out the disclosure statement and will insist that the seller supply all information and fill out the statement independently. However, if the agent knows of any material defect not disclosed or any misrepresentation, that person may still be liable with the seller.
It is very important that the seller carefully prepare the disclosure statement and disclose anything even marginally affecting the property. It is preferable to negotiate about issues of potential or arguable defects up front rather than being subject to a lawsuit after the sale has been completed. The buyer has two years from final date of settlement to bring a lawsuit under the Disclosure Law. It is thus very likely that a buyer will discover any defects which were not disclosed in time to pursue legal action. However, by the time a lawsuit is threatened or instituted, the seller is at a distinct disadvantage trying to handle claims which, if raised before settlement, could have been easily resolved on a negotiated basis.
From the buyer’s perspective, the Disclosure Law has become a very powerful tool for a buyer who discovers that the seller has been less than honest and forthcoming in the sale of residential real estate. The seller has significant legal exposure especially where it can be confirmed through contractors, neighbors, and others that the seller was or should have been aware of defects not disclosed. Also, the Disclosure Law does not limit pursuing common law claims and therefore the buyer will usually bring an assortment of other claims against the seller. If a defect is discovered after purchasing a property, the buyer should immediately refer back to the disclosure statement and agreement of sale toconfirm that the seller fully complied with the law.
– Curt Ward