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The previous owner of the property passed away in the master bedroom. The son inherited the home shortly thereafter. Apparently, the deceased was not discovered until eight days after he passed away. Consequently, the son filed a claim with the property insurance policy for death remediation and cleanup. The damage and remediation is now identified in the insurance claims history . The remediation and cleanup was extensive and the subject of the damage was identified as “physical peril.” In selling the property, is the son required to disclose that a death occurred in the property? If not, is the son required to disclose the damage and remediation? Finally, is the son also required to provide the insurance claims history?

ANSWER:

Pursuant to A.R.S. § 32-2156, a seller and broker are not required to disclose that the property was the site of a natural death, suicide or homicide. In other words, the seller or broker cannot be liable for failing to disclose that the property had been the site of a human death.  Id.  In this case, the father passed away naturally in the master bedroom of the property.  As such, the son and/or the broker are not required to disclose this fact to a potential buyer.

With respect to the insurance claims history, Section 4b of the purchase contract provides, in pertinent part, the seller must provide to the buyer a five-year insurance claims history.  In this case, the son is contractually obligated to provide the insurance claims history. The insurance claims history identifies the subject of the remediation as “physical peril.” Despite the subject of the remediation being identified, the son is still contractually bound to provide the insurance claims history.

Quick Quiz

Fill in the Blank:
Despite the of the remediation being identified, the son is still contractually bound to provide the insurance claims .

In the summer of 2006 the seller’s Bermuda grass lawn had some brown spots. The landscaping company treated the brown spots at a cost of $75. The seller did not disclose these brown spots or the treatment in the SPDS. When the buyer purchased the home the winter lawn was in excellent condition. The brown spots are now again in the Bermuda grass lawn, and the problem has been diagnosed as being caused by pearl scale insects. The treatment will take at least two years and will cost approximately $2,500-$3,000. Is the seller liable to the buyer for the failure to disclose this pearl scale insect problem?

ANSWER:

Brown spots in a Bermuda grass lawn are probably not a material fact requiring disclosure. Any treatment taking at least two years at a cost of $2,500-$3,000 is a material fact, however, and requires disclosure by the seller of these brown spots due to the pearl scale insect. In order for the seller to be liable to the buyer for this treatment, the buyer must show that the seller knew that the problem was not simply brown spots in the lawn, but a material problem that would be both expensive and time-consuming to treat.

The buyer and seller enter into an AAR Residential Resale Real Estate Purchase Contract (Contract). The seller provides to the buyer the Seller’s Property Disclosure Statement (SPDS). The SPDS does not disclose any notice to the buyer regarding the necessity to paint the property. When the buyer receives paperwork from the HOA, the HOA notifies the buyer that the exterior of the property will need to be painted. When the buyer’s agent asks for more information from the listing agent, it is discovered that the seller had received notices in the mail from the HOA informing the seller of the need to paint the exterior of the property. The seller states the seller was under no obligation to disclose this to the buyer as it was “none of the buyer’s business. Is the seller required to disclose to the buyer that the exterior of the property needed to be painted according to the HOA?

ANSWER:

Yes.  A seller must disclose known material facts. See Hill v. Jones, 151 Ariz. 81, 85, 725 P.2d 1115, 1119 (App. 1986). A fact is material if it is one to which a reasonable buyer would attach importance in making a decision as to the consideration to be paid for the property. Id. Since the buyer would be required to paint the property immediately and at their own expense, the information should have been disclosed to the buyer. As such, the seller should update the SPDS.

Quick Quiz

Fill in the Blank:

A seller must disclose known facts.

A designated broker represented the buyer in attempting to purchase a to-be-constructed home on a vacant lot. The parties utilized the standard-form purchase contract for new home (with lot). After executing the contract, the buyer learned from a “local” that the new home would be built on an old landfill. Thereafter, the buyer cancelled the contract and sought a return of the earnest money deposit. The seller claims that he was not obligated to inform the buyer of the landfill because the contract does not contain a specific obligation to disclose the existence of a former landfill. Is the seller obligated to disclose the existence of a former landfill, even though the standard-form contract does not address this precise environmental issue?

ANSWER:

Yes. A seller has a duty to disclose known facts materially affecting the value of the property that is not readily observable and are not known to the buyer. Thus, although the Purchase Contract for New Home (with a lot) does not specifically address each and every conceivable issue with a property, Arizona law requires the disclosure of environmental conditions – particularly if the condition materially affects the value of the property.

In the two years that the seller owned the home the seller paid monthly sewer bills to the local municipality. Therefore, in the SPDS and in the Contract the seller represented that the home was connected to the sewer. After close of escrow the buyer discovered that the local municipality was erroneously sending monthly sewer bills because the home had a septic tank, and was not connected to the sewer. Is the seller liable to the buyer for damages because the home was not connected to the sewer?

ANSWER:

Probably not. In the Contract, the seller warranted that any information regarding sewer connection was correct to the best of seller’s knowledge. See Contract, Section 5b. Inasmuch as the seller had been paying monthly sewer bills to the local municipality, the seller probably believed that the home was connected to the sewer. Furthermore, the Contract states in bold and capitalized print that, if sewer connection is material to the buyer, the buyer must make an investigation during the inspection period. See Contract, Section 6f (initialing required by buyer). Therefore, the buyer probably has no claim against the seller for damages because the home is not connected to the sewer.

Quick Quiz

Fill in the Blank:
Therefore, the buyer has no claim against the seller for damages because the home is not connected to .

The seller and the buyer signed a Contract for the sale of a small office building. Although there was physical access to a nearby roadway, the seller did not know that there was no legal access. During the inspection period the buyer learns that there is no legal access, and demands that the seller pay for the cost of legal access. Does the seller have to pay for the cost of legal access?

ANSWER:

Probably not. Although the seller did not know of the lack of legal access, and therefore could not disclose the lack of legal access, the buyer’s only remedy is to cancel the Contract. Alternatively, the buyer has the right to close the transaction and pay for the cost of legal access by private condemnation, i.e., an easement by necessity.

Note: Both legal and physical access by the seller is required, however, for the sale of the subdivided and unsubdivided property.

The seller’s next-door neighbor has an adult son who has exhibited intimidating and criminal behavior. The next-door neighbor’s son chases and threatens neighborhood children without any reason, and on at least one occasion has been caught walking around the neighborhood without any clothes and mumbling incoherently. Is the seller required to disclose to prospective buyers the conduct of the next-door neighbor’s adult son?

ANSWER:

Probably not. Under the Fair Housing laws, the disclosure of a “mentally disabled” individual in the neighborhood is prohibited. “Mental Disability” is defined as a mental impairment that substantially limits at least one major life activity, or has a record of such an impairment, or is regarded as having such an impairment. The conduct of the next-door neighbor’s adult son is probably evidence of a “disability.” Therefore, disclosure would probably be prohibited.