Latent Defects are concealed (visually unapparent) defects known or even unknown by sellers that a buyer would not reasonably be expected to ascertain or observe by a careful visual inspection of the property. These are also defects that would pose a direct threat to the health or safety of the purchaser or an occupant of the real property, including a tenant or invitee of the buyer. Sellers are required to disclose all defects. For example: While in the process of “flipping” a manufactured home, a real estate investor, who is also the listing agent, notes a small patch of mold growing on a wall hidden behind the water heater. Later, while in the transaction process, the agent/investor does not disclose that the mold existed. When a real estate broker or agent is involved in a transaction, and he or she has personal knowledge of latent defects, he or she is legally obligated to disclose those defects to the potential buyer regardless of whether the seller discloses or disclaims. The agent/investor should disclose the mold, however, insignificant he or she feels it is.
Common Source of Lawsuits
Some real estate professionals suggest that the single most common source of lawsuits associated with real estate transactions is the direct result of poor disclosure on behalf of sellers. Of course, this means that the most effective defense against a buyer, if and when they sue you after the purchase of a home that you have represented the selling/owner principal is to do everything you can to ensure the seller has correctly and adequately disclosed the true condition of his or her property. Unfortunately, this process is not all black and white. Lawsuits are commonly filed by buyers who dispute the level of information the seller had about the property at the time of the sale. When the buyer can prove that the seller had knowledge of a problem that was not adequately disclosed on the seller’s disclosure form, the buyer may have strong grounds to sue the seller. Within the lawsuit process the listing broker and agent will be included in the lawsuit, and then it will be your job to show that you responsibly worked to ensure the seller did reveal the property’s condition as carefully, completely, and accurately as was reasonably possible. The best proof that a buyer was adequately informed as to the condition of a property is to have a copy of the completed Seller’s Property Disclosure Statement (SPDS) countersigned by the buyer with initials on all pages. This document shows that the buyer had reasonable opportunity to review the disclosure of known property defects.
Seller Disclosure Form Topics
Typically disclosure forms require a description of the current condition of the property including a thorough listing of the property’s history. Examples of common disclosure queries include questions about:
- Environmental factors associated with the property include but are not limited to flood plain, draa inage problems, mold, past water intrusion, and any repairs that have taken place to remedy any past problems that may have occurred.
- Appliances and amenities include items like the water drainage systems, dishwasher, and the microwave. Along with providing the seller with an opportunity to identify the available features, the list also provides space to indicate the working condition of these amenities and space to comment.
- Electrical systems including items such as light fixtures, garage doors, aluminum wiring, telephone jacks, smoke detectors, and outlets.
- Irrigation water and sewer systems.
- The condition of the roof.
- Heating and cooling of the property and the current condition of these appliances including heater, attic fans, independent room air conditioners, central air, fireplaces, humidifiers, etc.
The condition of the siding.
- Hazardous conditions including lead paint that may have been used in the property’s construction. This section commonly includes questions pertaining to drug manufacturing, history of insect extermination, and damage that may have occurred as a result of the wind, fire, or flood.
The owner’s ability to clear title.
- Improvements that have been made without a building permit. Transfer of title or additions to title without being recorded.