Disclosures Scenarios-2017 AAR PC

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Scenarios

Scenario #1

The seller is an investor who does not want to provide an SPDS to the buyer and is demanding that lines 154-156 of the contract requiring a SPDS be deleted.  Does Arizona law require a seller to deliver an SPDS to the buyer of a home?

Answer: No.  Under common law disclosure principles, images (2)a seller of real property must disclose to a buyer any material, adverse fact affecting the value of the real property.  Unlike some states, in Arizona a formal SPDS is not required by statute.  Note: The seller’s SPDS, however, is valuable for disclosure of more than just the material, adverse facts, e.g., the identities of utility providers and any transferable termite warranty. 

Scenario #2

In the seller’s property disclosure statement (“SPDS”), the seller denied that the home had ever been treated for termites. After the inspection period expired, the buyer learned that the seller had the home treated for termites. The buyer no longer wants the home. After being contacted by the buyer, the seller admits that he “forgot” to disclose in the SPDS the prior termite treatment. Can the buyer cancel the contract and get the return of the earnest money?

Answer:  Yes. Under lines 154-156 of the contract, the seller is required to update the SPDS to disclose the prior termite treatment. If the seller does not, the buyer is entitled to deliver a three-day cure period notice to the seller demanding that the seller update the SPDS to disclose the prior termite treatment. If the seller does not update the SPDS within three days, the buyer can cancel the contract and get the return of the earnest money. If, however, the seller does update the SPDS and discloses the prior termite treatment, the buyer can cancel the contract within five days and get the return of the earnest money.
Quick Quiz

Fill in the Blank:
Under common law principles, a seller of real property must disclose to a buyer any material, adverse fact affecting the value of the real  .

Scenario #3

The seller accepts the buyer’s “all cash” offer on a home with a two-week closing. After closing, the buyer intends to “flip” the home and make a profit of $50,000. In the SPDS, lines 30-31, the seller denies any IRS tax liens. One week before close of escrow, the buyer receives a title commitment showing that the seller has a $100,000 IRS tax lien. The buyer still wants the home. What are the buyer’s rights under the contract?

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Answer: Under the contract, lines 98-99, the buyer has five days after receipt of the title commitment either to furnish notice of disapproval of the title and cancel the contract, or to give the seller five days notice to remove the $100,000 IRS tax lien. If the seller after five days cannot remove the $100,000 IRS tax lien, the buyer can cancel the contract. The buyer may have a claim, however, against the seller for the fraudulent non-disclosure of the $100,000 IRS tax lien, including a claim for damages for lost profit of $50,000.

Scenario #4

The purchase contract has just been signed, and the sale of the home is scheduled to close in thirty days. The listing agent has now learned that the seller has just recovered from swine flu. Does the listing agent have the obligation to disclose to the buyer that the seller had swine flu?

Answer:   Probably not. A.R.S. §32-2156(A)(2) protects a seller and the real estate licensees from failing to disclose HIV/AIDS or “any other disease that is not known to be transmitted through common occupancy of real estate.” This statute probably applies to the disclosure of swine flu because transmittal of the swine flu virus by the touching of an object, such as a table or door knob, can only last up to eight hours. After the closing of a sale transaction, very rarely is the buyer in the home within eight hours after the seller has vacated the home. Therefore, swine flu is a disease that probably cannot be “transmitted through common occupancy of real estate.”
Quick Quiz

Fill in the Blank:
This statute probably applies to the of swine flu because transmittal of the swine flu virus by the touching of an object, such as a table or door knob, can only last up to hours.  

Scenario #5

The out-of-state REO seller has an addendum to the purchase contract requiring the buyer to waive any disclosures, which would include the waiver of the Affidavit of Disclosure under A.R.S. §33-422. Can a buyer agree to waive the requirement of the Affidavit of Disclosure under A.R.S. §33-422?

Answer:  Probably not. Under A.R.S. §33-422 a seller shall provide to the buyer an Affidavit of Disclosure if the seller is selling five or fewer parcels of land in an unincorporated area of a county which is not subdivided land. This Affidavit of Disclosure applies to vacant, commercial, industrial and residential land.

In light of this mandatory language of A.R.S. §33-422, the buyer, for public policy reasons, probably cannot waive the right to receive from the seller an Affidavit of Disclosure. Otherwise, every seller subject to A.R.S. §33-422 would require a waiver of the Affidavit of Disclosure.

Scenario #6

The REO seller is selling the home “as is” and is refusing to make any disclosures. If the home is sold “as is” does the seller still have to make disclosures?

Answer:  Yes. The seller has a duty to disclose knowndownload (2) facts that materially affect the value of the home that are not readily observable and that are not known to the buyer. Hill v. Jones, 151 Ariz. 81, 725 P.2d 1115 (App. 1986). In addition, if a buyer asks a seller a specific question about the home, the seller has a duty to disclose all information, i.e. answer honestly, regardless of whether or not the seller considers the information material. Universal Inv. Co. v. Sahara Motor Inn, Inc., 127 Ariz. 213, 619 P.2d 485 (1980).

An “as is” clause in the sales contract does not shield a seller from liability for failure to disclose known material defects in the property. S Development Co. v. Pima Capital Management Co., 201 Ariz. 10, 31 P3d 123 (App. 2001). For example, if the seller knows that the roof leaks, an “as is” clause in the sales contract does not protect the seller from fraud for non-disclosure of the roof leaks.

Quick Quiz

Fill in the Blank:
If a buyer asks a seller a has a duty to disclose all information, i.e. answer honestly, regardless of whether or not the seller considers the information .

Scenario #7

Two months after close of escrow the seller calls the listing broker to tell the listing broker that the seller had ghosts in the home named “Angel” and “Charlie.” Does the listing broker now have to disclose the occupancy of these ghosts to the buyer of the home?

Answer:  Probably not. The general rule is that after the close of escrow the agent has no obligations of disclosure to a buyer or seller in the closed transaction, except to keep confidential any information learned during the agency relationship. Therefore, the agent probably has no obligation to disclose the presence of ghosts to the buyer two months after the close of escrow. Note: A.R.S. §32-2156 protects real estate licensees and the seller from failing to disclose during the transaction certain material facts relating to the home such as suicides, murders, or other felonies, and registered sex offenders in the vicinity of the home. The presence of ghosts in the home similar to the ghosts in the movie The Amityville Horror could be a material fact that a reasonable buyer would want to know. If a material fact, A.R.S. §32-2156 would not protect the seller and real estate licensees from failure to disclose these ghosts.

Scenario #8

The bank has acquired a home in an unincorporated area of the county after the foreclosure sale. The bank now wants to sell the home  with no disclosure requirements, and no certification of the septic tank. Is the bank exempt from the affidavit of disclosure requirement or the septic tank certification requirement?

Answer:  No. A.R.S. §33-422 (A) requires that any seller of a home in an unincorporated area of the county furnish the written affidavit of disclosure at least seven days before the transfer of the home. Although the trustee conveying the home to the bank by trustee’s deed at the foreclosure sale is exempt from this requirement, the bank after acquiring title to the home by trustee’s deed is not exempt when selling the home.
Similarly, the bank is not exempt from A.A.C. R18-9-A316 which requires certification of the septic tank within six months prior to transferring the home to a buyer.
Quick Quiz

Fill in the Blank:
A.R.S. §33-422 (A) requires that any  of a home in an unincorporated area of the county furnish the written affidavit of disclosure at least seven days before the transfer of the  .

Scenario #9

The bank has foreclosed on a home built prior to 1978. At the foreclosure sale the bank received a trustee’s deed. The bank has now entered into a contract to sell the home, but does not want to use the lead-based paint disclosure forms. Is the bank as the seller of an REO property required to make a lead-based paint disclosure?

Answer:   Yes. The transfer of title to the bank at the foreclosure sale by the use of a trustee’s deed is exempt from the lead-based paint requirements. See 24 CFR § 35.82 (a). There is no exemption, however, when the bank is acting like any other seller of real estate.
Quick Quiz

Fill in the Blank:
The transfer of  to the bank at the foreclosure sale by the use of a trustee’s deed is exempt from the lead-based  requirements.

Scenario #10

The seller lives in New York and is selling an investment home. During a visit to the home the listing broker finds drug paraphernalia and other evidence of drug use by the former tenant in the home. Does either the seller or the listing broker have to disclose to buyers the existence of drug usage in the home?

Answer:   Probably not. Under A.R.S. §32-2156(A)(1) neither a seller nor a broker in the transaction is required to disclose that the home was “[t]he site of a natural death, suicide or homicide or any other crime classified as a felony.” Therefore, the felony of prior drug usage in the home generally does not need to be disclosed. If the drug usage created a hazardous condition in the home, e.g., poisonous odors due to manufacturing of methamphetamine, disclosure would be required.

Scenario #11

The buyer is purchasing a parcel of vacant land. The buyer in the future intends to purchase an adjacent parcel of vacant land. Therefore, the buyer has asked the seller to agree to reduce the purchase price of the parcel of vacant land by the amount of the commissions, and pay the commissions outside of escrow. The purpose of reducing the purchase price is to enable buyer to negotiate a lower price on the adjacent parcel of vacant land. Can the seller and the buyer agree to pay commissions outside of escrow in order to attempt to reduce the purchase price of the parcel of vacant land?

Dollar house isolated over white.

Answer:   No. The buyer is fraudulently attempting to artificially deflate the purchase price in order to negotiate a better purchase price for the adjacent parcel of vacant land. In addition, at the time of closing an Affidavit of Value will be recorded showing the purchase price. The purpose of this Affidavit of Value is to enable the county assessor’s office to establish accurate values for property tax purposes. The seller and buyer are required to execute this Affidavit of Value under oath, and an artificially deflated purchase price would be perjury.
Quick Quiz

Fill in the Blank:
The buyer is fraudulently  to artificially deflate the purchase price in order to negotiate a better purchase price for the adjacent parcel of vacant   .

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