Disclosure Obligations of Sellers and Realtors

By David Parker, Esq.

Effective October 1, 2005, Maryland law changed to now require the disclosure of certain property defects, even if the Seller elects not to answer certain questions about the property condition and instead completes a Disclaimer Statement. For a number of years, Sellers of residential real estate in Maryland have been required to provide to the Purchaser either a Property Condition Disclosure Statement that gives detailed answers to many questions regarding the property condition, or the Seller can sign a Disclaimer Statement electing not to reveal the known condition of the property being sold. The original law, as amended, exempts certain Sellers such as estate representatives or foreclosure trustees who are unlikely to be familiar with the condition of the property.

However, due to the recent change in Maryland law, whether the Seller decides to complete a Disclosure or a Disclaimer Statement, the Seller must now disclose to the Purchaser, in writing, any latent material defects of which the Seller has knowledge. The law further specifies that the disclosures which the Seller is required to make are of those “latent material defects” which would pose a direct threat to the “health or safety” of the Purchaser or an occupant of the real property, including a tenant or guest of the Purchaser.

Did the law actually change the obligations of Sellers in Maryland? In reality, the answer to that question is no. With or without the change in the law, a Seller has always been required to disclose latent or hidden material defects. In fact, the only difference that the change in the law makes is to emphasize to Sellers and their agents the essential obligation to make full disclosure of hidden or latent defects. The failure to do so constitutes fraud or misrepresentation.

A latent defect is one that is not readily ascertainable by a reasonable visual inspection of the property. Examples of latent defects would be periodic flooding of the basement, or structural deficiencies that are not easily discoverable. A material defect is one that is significant in terms of impact to the consumer. It is virtually impossible to conjure an image of a latent material defect that would not affect the health or safety of a Purchaser. Therefore, the language in the law discussing health and safety cannot be deemed to minimize or lessen the Seller’s disclosure obligation. The new law just emphasizes a disclosure obligation that has always existed for the Seller.

The wording of the Disclosure Statement asks if there are, in effect, current problems such as leaks in the roof or basement. In order for the agent and Seller to be protected under the law, it is recommended that any past repairs and/or corrections of latent material defects be disclosed. This is not to suggest that every single repair that has ever been made to the house must be disclosed. However, if a material defect that would otherwise be hidden or latent, such as a chronically leaking basement, has been repaired and the problem has been solved, then the Seller should so disclose.

It must be understood that the Purchaser will be relying on the Seller’s disclosures or the Seller’s silence as to a defect. If there was a major issue in the past that was repaired but not disclosed, the Purchaser is thereby deprived of the opportunity to further investigate the problem and to make a fully informed determination whether to proceed past the Home Inspection period. The Seller’s silence will have misled the Purchaser into thinking that there was never a leaking basement problem when in fact one did exist for many years. Additionally, the failure to disclose any past water related problems could inevitably lead to a failure to disclose a serious mold issue hidden beneath the repair. While we recognize that the transaction will run more smoothly if these significant items are not discussed, the later discovery by the Purchaser of a problem could lead to some serious liability for the Seller and perhaps the agent.

Coupled with the Seller’s obligation to disclose is the agent’s inherent obligation not only to disclose known defects, but to disclose defects of which the agent knew or should have known of, based upon the agent’s superior knowledge in the profession. It may be tempting for the agent to look the other way or ignore subtle signs of a problem, whether the problem has been remedied or not. However, in today’s litigious society, it is always better to disclose all hidden or latent defects, even if they have already been repaired. The agent should work with the Seller to make sure that they are in agreement as to what must be disclosed. This will allow a Purchaser to make a fully informed decision and may prevent a complaint against the agent, or even worse, a lawsuit. When in doubt, remember the three most important rules of real estate law… disclose, disclose and disclose.

Copyright 2008. Village Settlements Inc. All Rights Reserved.

FB
Real Estate Title Company in Gaithersburg, MD
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