Minimize your risk in potential disclosure cases

Written by Brett Woodburn, Esq. and Thomas S. Lee, Esq.

How do you avoid getting sued for failure to disclose? Disclose everything, right?  What if the defect at the core of the lawsuit is something you didn’t know about?  Are you safe? 

Under the Real Estate Seller Disclosure Law, the listing broker is required to provide the seller with the disclosure form and advise him of his responsibility to disclose all known material defects.  It’s only when a Realtor® knows of a material defect that the seller refused to disclose, or if the seller misrepresented information relating to the disclosure, that the Realtor® is obligated to “speak up” to avoid being found liable for fraud.

However, courts are allowing buyers to sue sellers, listing brokers and agents, and even buyer’s brokers and agents for negligence.  Negligence is defined as the failure to do something that a reasonable person, guided by those ordinary considerations that ordinarily regulate human affairs, would do or doing something which a reasonable and prudent person would not do.  What does this mean to you?

Oftentimes, lawsuits filed against brokers and agents for negligence flow from a problem that came to light after settlement – a wet basement, a leaky roof, a substandard septic system.  The standard PAR Agreement of Sale is an essential document to aid every transaction; and while no document can address every issue, used correctly, the PAR Agreement can help minimize your exposure. Use the various contingencies to augment the information provided by the sellers through the Disclosure Statement. 

As experienced real estate licensees, you should have a pretty good idea of the types of cases that lead to lawsuits.  Leaky roofs, wet basements, failed septic systems and the dreaded missing refrigerator are all prime topics for lawsuits.  Remember that the Seller’s Disclosure Statement is a representation that discloses material defects with the property.  As an agent, you are charged with knowing a couple of things. 

First, items that are identified as being sold with the home through the Seller’s Disclosure Statement are not part of the Agreement of Sale unless they are separately included in the Agreement. 

Second, while you are permitted to rely upon the seller to accurately complete the Seller’s Disclosure Statement, you cannot turn a blind eye to statements made or omitted by the seller.  If you know something is incorrect or left off of the Seller’s Disclosure Statement, you – the listing agent – have a responsibility to correct the disclosure.  Prudence suggests that you give the seller the opportunity to make the correction first, but if the seller refuses (and you want to keep your real estate license), then you would be wise to supplement the Seller’s Disclosure with one of your own. 

Lastly, as buyer’s agent, the “ostrich approach” to selling real estate is not one that is well-honed to longevity within the business.  You need to review the Seller’s Disclosure Statement with your buyer before the Agreement is signed.  Remember, the Real Estate Seller Disclosure Law requires that a signed and dated copy of the property disclosure statement shall be delivered to the buyer prior to the signing of an agreement of transfer.  This is your opportunity, as the buyer’s agent, to insure that all of the items identified in the Seller’s Disclosure Form have been completed and where left blank to see that you receive supplemental information.

Being aware of the types of claims that lead to litigation will help you understand how to minimize your risks.  In today’s economy, litigation is more prevalent than one might realize.  You can work to prevent possible lawsuits by minimizing your risks and improving the defensibility of potential claims.