The Real Estate Process
Offer & Acceptance
A buyer makes an offer on a property complete with terms & conditions. A seller can accept the offer or counter-offer, set his own terms. Once the negotiation is complete, both buyer and seller fully execute the contract.
The period where the seller discloses property conditions in writing. The buyer will generally hire a home inspector to get an independent review on the property’s condition. A negative home inspection can lead to the renegotiation of terms or a complete cancellation of the contract.
The buyer (unless paying cash) will apply for a mortgage. The buyer will turn over all relevant income and asset documents that the lender requires. The lender will begin “Processing” the loan. This includes ordering an appraisal, title report, credit report and any other relevant documents pertaining to state or county requirements. The lender will also coordinate with the seller and closing agent. Once the loan has been thorough “Underwriting” a condition sheet will be generated. These are the conditions the lender needs to satisfy before a closing can take place.
Closing is the process where the transaction is settled “Closed”. Different states have different methods of closing. For example, New York is considered a wet funding state where all relevant parties convene in a room to settle the transaction. The usual parties involved are the buyer, buyer’s attorney, seller, seller’s attorney and the banks attorney. Closing documents are executed by the necessary party and when the meeting is over the transaction is complete. By contrast Southern California is considered a dry funding state. Instead of attorneys, escrow companies and agents are used for both parties. Each party arrives at separate times to sign their relevant closing docs. Afterwards the closing package is sent to the lender and the lender will schedule a funding date. This is the date the money will be sent to the escrow company and ultimately disbursed to the relevant parties. Funding is when this transaction is complete.
Different Types of Lenders
Direct Mortgage Lenders
A company, individual or institution that originates mortgages. Mortgage bankers use their own funds, or funds borrowed from a warehouse lender, to fund mortgages. After a mortgage is originated, a mortgage banker might retain the mortgage in portfolio, or they might sell the mortgage to an investor. Additionally, after a mortgage is originated, a mortgage banker might service the mortgage, or they might sell the servicing rights to another financial institution. A mortgage banker’s primary business is to earn the fees associated with loan origination. Most mortgage bankers do not retain the mortgage in portfolio.
Larger mortgage bankers service mortgages, while smaller mortgage bankers tend to sell the servicing rights.
The distinguishing feature between a mortgage banker and a mortgage broker is that mortgage bankers close mortgages in their own names, using their own funds, while mortgage brokers facilitate originations for other financial institutions. Mortgage brokers do not close mortgages in their own names.
A mortgage broker gathers paperwork from a borrower and passes that paperwork along to a mortgage lender for underwriting and approval. The mortgage funds are lent in the name of the mortgage lender, and the mortgage broker collects an origination fee from the lender as compensation for services. A mortgage broker is not to be confused with a mortgage banker, which closes and funds a mortgage with its own funds.
A mortgage broker is an intermediary working with a borrower and a lender while qualifying the borrower for a mortgage. The broker gathers income, asset and employment documentation, a credit report and other information for assessing the borrower’s ability to secure financing. The broker determines an appropriate loan amount, loan-to-value ratio and the borrower’s ideal loan type, and then submits the loan to a lender for approval. The broker communicates with the borrower and the lender during the entire transaction.
A mortgage broker gathers paperwork from a borrower and passes that paperwork along to a mortgage lender for underwriting and approval. The mortgage funds are lent in the name of the mortgage lender, and the mortgage broker collects an origination fee from the lender as compensation for services. A mortgage broker is not to be confused with a mortgage banker, which closes and funds a mortgage with its own funds.
A mortgage broker is an intermediary working with a borrower and a lender while qualifying the borrower for a mortgage. The broker gathers income, asset and employment documentation, a credit report and other information for assessing the borrower’s ability to secure financing. The broker determines an appropriate loan amount, loan-to-value ratio and the borrower’s ideal loan type, and then submits the loan to a lender for approval. The broker communicates with the borrower and the lender during the entire transaction.
Medsize Banks and Savings & Loans
Alt-A Mortgage Lenders
Subprime Mortgage Lenders
Contracts & Real Estate Listing Information
Real Estate Contracts
The Contracts on the site are legal and binding, many of them were produced by state agencies and are public record. Some contain state specific language. When you make an offer on a property you are entering into a contract with the seller, the terms of the contract can be enforced by either party so know your rights.
Our site walks you through the process of filling out the (Purchase Agreement) contract. Should you require additional service we do offer paid assistance in the process.
We are not attorneys and do not offer legal assistance. Should you require legal assistance or live in a state where attorneys conduct real estate transactions we strongly recommend you retain an attorney.
Real Property Listing Agreements
Exclusive Right To Sell listing
Exclusive Agency listing
One-time Show listing
Listing Agreement Details
After you’ve chosen the type of listing agreement, you’ll need to turn your attention to its contents. In addition to your name and the property address, the following items are usually found in listing agreements:
List price and basic terms of sale.
Type of listing. (See above.)
Length of listing time. (When the agreement expires.)
What personal property goes with the house.
What fixtures and appliances aren’t included
Amount of commission and when it will be paid (you should always make it payable when the transaction closes).
Specific responsibilities of the broker (conducting showings and open houses, advertising, other marketing).
Whether the agent will handle placing a lockbox on the house.
What hours and days the house will be available for showing.
Under what circumstances you can take the house off the market.
Under what circumstances you can terminate the listing agreement.
How you will resolve any disputes (for example, by arbitration, mediation, or small claims court).
Read every word of the listing agreement carefully, and make sure you understand everything before you sign it. Don’t be afraid to ask about anything you don’t understand. Make sure your entire agreement is in writing and includes everything the broker has represented to you.
What the seller needs to disclose to the buyer
When selling your home, you may be obligated to disclose problems that could affect the property’s value or desirability. In most states, it is illegal to fraudulently conceal major physical defects in your property such as a basement that floods in heavy rains. And many states now require sellers to take a proactive role by making written disclosures about the condition of the property.
What You Must Disclose:
Generally, you are responsible for disclosing only information within your personal knowledge. In other words, you don’t usually need to hire inspectors to turn up problems you never were aware existed.
Some states require more. However, some states’ laws identify certain problems that are your responsibility to search for, whether you see signs of the problem or not. In these cases, or where you could have seen a particular defect but turned a blind eye, you could ultimately end up in court, compensating the buyer for the costs of your failure to speak up sooner.
Disclosure Required Under Federal Law
If your house was built before 1978, you will need to comply with federal law about lead-based paint. The law is called the Residential Lead-Based Paint Hazard Reduction Act of 1992 (U.S. Code § 4852d), also known as Title X. It requires sellers to tell buyers about all known lead-based paint and hazards in the house. Sellers must also give buyers a pamphlet titled Protect Your Family from Lead in Your Home prepared by the U.S. Environmental Protection Agency (EPA). Sellers must also allow buyers ten days to test the house for lead.
Your contract will need to include warning language about the lead based paint. You will, as the seller, need to keep copies of the signed acknowledgement for three years after the sale is completed.
Failing to comply with the requirements has a stiff penalty for sellers. The buyer can sue for triple the amount of damages actually suffered. For more information on lead hazards, prevention, and disclosures, contact the National Lead Information Center by phone at 800-424-LEAD, or at Lead Paint.
State Disclosure Regulations
Alabama: The Yellowhammer State
Unlike in many other U.S. states, Alabama law employs a rule known as caveat emptor for the sale of used residential property. Caveat emptor is Latin for “let the buyer beware,” which means that the seller has no actual duty to advise the buyer of issues with the property’s physical condition during the sale. (Many states require sellers to formally disclose such issues, often by filling out a standard form.) Alabama’s rule usually places the responsibility of discovering defects upon the buyer.
As a home seller in Alabama, however, you’re not completely off the hook. This article will discuss situations in which you will need to alert prospective home buyers to issues concerning your property.
Exceptions to Alabama Caveat Emptor Rule
There are three exceptions to caveat emptor in Alabama, in which sellers become legally responsible for disclosing defects to the buyer:
1) if a fiduciary relationship exists between buyer and seller
2) if the seller knows the home may pose a health or safety risk to the buyer, and
3) if the buyer directly questions the seller on specific defects.
In the above instances, the seller must disclose those defects with which he or she is personally familiar.
What’s a fiduciary duty? It is a legal responsibility to act in another party’s best interest; such as if the seller was the buyer’s attorney or medical doctor. If the seller is the buyer’s medical doctor and knows the buyer is allergic to cedar, failing to disclose that the house has cedar closets may be a breach of fiduciary duty.
What does it mean that Alabama’s health and safety guidelines require home sellers to notify potential buyers of defects that may pose a direct threat to the buyers’ health or safety? One example of a health and safety defect would be if a seller knows the home has lead paint or contains asbestos. In that situation, the seller must notify any potential buyers of the lead paint and asbestos present in the home.
Lastly, if a buyer specifically inquiries about a defect, Alabama law requires the seller to answer honestly and to disclose known defects. So, for example, if the buyer asks about pest infestations and the seller fails to mention the termite remediation done last year that would be a violation of the law. The seller should not lie or try to hide the truth from the buyer, as that will only make the situation worse (and the buyer, angrier) later.
A seller who fails to disclose known material defects to a buyer may be liable for damages. A buyer who discovers a defect the seller failed to disclose can sue the seller for misrepresentation, negligence, suppression of material facts, or even fraud. But, under Alabama law, the failure to disclose a known defect alone may not be sufficient to hold a seller liable for damages. The buyer would have to show that the seller knew that that the defect posed a direct threat to his or her health or safety, which may be fairly difficult to prove, depending upon
Arizona: The Grand Canyon State
Before selling residential property in Arizona, a seller is required by law (a combination of statutes and court cases) to tell the prospective buyer certain things about the property’s physical condition. An Arizona seller has a duty to disclose important facts that might negatively affect the value of the property. The most typical method for disclosing this information is by completing a written disclosure statement and giving it to the buyer.
The information disclosed will help the buyer to make an informed decision as to whether to purchase the property and on what terms. If selling a home, it is important that you comply with these requirements, as failure to do so will allow the buyer to sue you if he or she discovers defects that you knew of but didn’t disclose.
What Information an Arizona Seller Needs to Disclose
A seller in Arizona is required by law to disclose, important (material) information about the property that the seller actually and personally knows of.
What is meant by “important” or “material?” You are not required to disclose every little detail about the property to the buyer, down to the last little scratch on the floor. Important or material issues are those that have an impact on the value of the property, the buyer’s decision to purchase, or use of the property.
There’s an exception to this rule, however: You must also disclose information to the buyer, if the buyer asks, about aspects of the property that you yourself do not think particularly important.
You are also not required to perform any investigation of the property, and you are not responsible for reporting issues that you “should have known,” but did not know. If you do not know the answer to questions raised by the buyer or listed on the standard disclosure form (which is provided by the Arizona Association of Realtors), you may satisfy the disclosure requirements by indicating that you do not know.
Never guess on an answer; you may be held responsible for misrepresentation if your guess is incorrect.
Your purchase agreement with the buyer will most likely require that you provide a disclosure statement. But even if it does not, you must disclose all legally required property information to the buyer. For example, you must let the buyer know about past termite damage even if the buyer does not ask about it. This is true even if the damage occurred several years ago and there is no visible sign of the damage.
Updating the Disclosure Statement
If information you provided to the buyer changes after you’ve given him or her the disclosure form, you have a duty to disclose the new information. For example, if the roof starts leaking after you provide your disclosure statement, but before you actually close on the property, you must give the buyer information about the roof leak. Remember that this disclosure does not require you to repair the leak, only to let the buyer know about it. (You may negotiate the repair issue as part of the contract negotiations).
Reasonable minds may differ as to what property information is important, and therefore required to be disclosed. When in doubt, it is best to disclose all property information to the buyer.
What Information an Arizona Seller Doesn’t Need to Disclose
As stated above, a good rule to follow is to disclose all material property issues to the buyer. There is some information, however, that a seller does not legally have to disclose, such as:
Whether the property is located in an area with a sex offender. (Buyers can look up this information online, using the Arizona Department of Safety sex offender database.)
Whether the property was previously owned by someone diagnosed with AIDS, exposed to HIV, or diagnosed with any other disease not known to be transmitted through occupancy.
Whether a suicide, natural death, murder, or any other felony was committed at the property.
Arkansas: The Natural State
Arkansas is a “Caveat emptor” state. Imagine that you are looking to sell your Arkansas home. Most states have clear legislation that would require a home seller like yourself to give a written disclosure report to potential buyers. This report typically identifies any physical defects in the property, from a defective garage door to a leak in the cellar. Arkansas has no such law, however.
Indeed, in Arkansas, there is no legislation that requires you to disclose these sorts of defects to a buyer (so long as you don’t make any direct misrepresentations). However, if you use a real estate agent, your agent may need to make certain disclosures to the buyer. And there may be some good reasons for you to give the buyer a full disclosure report anyway, notwithstanding the lack of legislation requiring you to do so.
Arkansas does not have a law that requires you to give a formal disclosure statement to a potential buyer of your house. Arkansas courts also enforce caveat emptor clauses in purchase contracts. Under the doctrine of caveat emptor (“let the buyer beware”), judges ordinarily refuse to compensate buyers for home defects found after the purchase unless the seller did something to actively prevent the buyer from inspecting the property to find all of the defects.
Despite the lack of legislation on disclosure and the caveat emptor doctrine, the Arkansas Real Estate Commission (AREC) does have some relevant regulations around disclosures of property defects.
AREC is a state agency charged with enforcing much of Arkansas’s real estate laws, as well as administering and issuing licenses to real estate agents. It also forces licensed agents to abide by a set of regulations.
AREC Regulation 10.6 states: “[A real estate agent] shall exert reasonable efforts to ascertain those facts which are material to the value or desirability of every property for which the [he or she] accepts the agency, so that in offering the property the [agent] will be informed about its condition and thus able to avoid intentional or negligent misrepresentation to the public concerning such property.”
In plain English, this means that any licensed Arkansas real estate agent has a professional obligation to “exert reasonable efforts” to investigate the condition of a property that the agent has been hired to sell. A reputable real estate agent cannot, for example, sell a house with a flooded basement and simply neglect to mention that ‘little fact’ when talking with potential buyers. The agent could thus lose his or her license. AREC suggests that, while the definition of “material to the value” of the property might be vague, agents must use their common sense and investigate the property that they intend to sell.
Most likely, you are using a licensed real estate agent to sell your property. (If not, the AREC regulations aren’t relevant to your direct sale). Fortunately, nothing in Rule 10.6 requires the agent to perform a complete floor-to-ceiling investigation of your home before approaching buyers, nor does it require them (or you) to hire a professional inspector to find potential physical defects. The buyer will likely want to hire an inspector for this purpose, but neither you nor your real estate agent need to bear that cost.
California: The Golden State
California, like many states, requires its residential property sellers to disclose, in writing, details about the property they have on the market. These disclosure obligations apply to nearly all California home sellers – whether selling a standalone home or a high-rise condo unit – and also apply to mobile homes. (See, California Civil Code Section 1102.)
The reason these disclosures are so important is that potential home buyers need to know as much as possible about a property in order to evaluate whether they really want to buy it and the resources they need in order to make the purchase. This includes offering an appropriate purchase price and knowing about any potential repairs or upgrades needed to areas of the home.
The disclosure obligations also remind California home sellers that they have a legal responsibility to be open about a property’s condition, and can be sued for hiding problems or defects.
Who Must Make These Seller Disclosures
As a general rule, all sellers of residential real estate property containing one to four units in California must complete and provide written disclosures to the buyer. There are a few exceptions, such as properties that are transferred by court order or from one co-owner to another. But if you are offering your home to the public for sale, you can pretty much count on this requirement applying to you. (See, California Civil Code Sects. 1102, 1102.2, 1102.3)
When Sellers Must Provide Disclosure Information
There is no specific deadline by which you need to provide these disclosures to a prospective buyer. The intent of the law, however, is to get them to the buyer in a timely fashion.
It’s best to give the disclosures to the buyer as soon as possible so the buyer can make an informed decision. Some sellers will line up all disclosures, inspections, and other paperwork prior to listing their property so that everything is ready for serious offers to be accepted. Other sellers will make a copy of the disclosures available within a day or two of an open house, or wait for buyers to put in an offer before providing the disclosures, with the option for the buyer to back out or renegotiate if the disclosures bring to light anything unexpected. If you do not give the required disclosures to the buyer by the time the two of you have signed the purchase agreement, then the buyer has the option to terminate the deal. (After you deliver the disclosure form, the buyer’s deadline for cancelling is three days after delivery in person or five days after delivery by mail.) Providing these disclosures to serious potential buyers as soon as possible decreases the likelihood of a buyer cancelling the offer later due to information found in the disclosures.
Filling Out the Standard Disclosure Forms
California’s seller disclosure requirements are very strict and thorough. California law provides a standard format, identified in Civil Code Section 1102, which must be used by sellers in making these disclosures. The resulting form, called the “Transfer Disclosure Statement” (TDS), can be obtained from your California real estate agent (there’s also a draft online from the California Association of Realtors).
As a seller in California, you must also complete an additional disclosure form, the Natural Hazard Disclosure Report/Statement, prior to any home sale. This can be obtained either from your real estate agent or online here.
The TDS form covers a broad range of topics, from structural information about your home such as a leaky roof to whether any deaths occurred on the property in the last three years. You will need to include information about all appliances in the home, including which are included in the sale as well as whether they are operational. You will also need to disclose any room additions, damage, or neighborhood noise problems.
The California Natural Hazard Disclosure Statement poses several “yes/no” questions regarding things like whether your property is located in a special flood hazard area, in an area with a substantial forest fire risk, or in an earthquake fault zone. The local government of your city or county can provide you with more information about these classifications, as can your real estate agent.
Additional disclosure statements, such as those pertaining to special study zones or purchase money liens might also be required, depending on the location and details of your real estate transaction. Your local real estate agent can help you determine whether any additional disclosures are required.
Finally, you must also let a buyer know that information regarding the location of registered sex offenders is available from local law enforcement agencies and can be found online at the state-operated website.
Colorado: The Centennial State
Before you finalize your house sale in Colorado, a prospective buyer will want to know as much as possible about the property’s physical condition and any problems that could affect the house’s value, use, or desirability. Unlike in the past, when sellers were allowed to stay silent until asked about problems under the doctrine of “caveat emptor” (buyer beware), Colorado now requires sellers to actually tell prospective buyers about certain conditions on the property being sold.
Failure to comply with seller disclosure laws may result in your being held liable for costs and fees associated with the nondisclosure.
Colorado’s Disclosure Laws
Colorado state statutes require that sellers of residential property disclose the following to the buyer:
That the property may be in a special taxing district, and where the buyer can go to find out whether the property is, in fact, within such a district (Colorado Revised Statutes Annotated “C.R.S.A.” § 38-35.7-101).
If true, that the property is part of a common interest community, which the buyer will be obligated to become a member of and pay assessments to (C.R.S.A § 38-35.7-102).
If true, that the property has been used as a methamphetamine laboratory, unless it has been fully remediated (C.R.S.A. § 38-35.7-103(3)).
The home’s source of potable (drinkable) water (C.R.S.A. § 38-35.7-104).
Any proposed transportation projects (such as a light rail project) that may affect the property (C.R.S.A. § 38-35.7-105), and
As of January 1, 2016, the surface and mineral estate rights, as well as any oil and gas activity (C.R.S.A. § 38-35.7-108).
Further, sellers’ brokers have certain obligations to buyers, which are not discussed in this article.
Connecticut: The Constitution State
If you’re selling your home in Connecticut, you’ll need to be mindful of Connecticut’s disclosure requirements. Sellers of residential property are required by state law to disclose certain defects with their home that could impair its value. These disclosures must be made before any purchase contract is signed.
Disclosure Law in Connecticut for Home Sales
Connecticut General Statutes § 20-327b requires that residential sellers make certain disclosures to a potential buyer. The statute applies regardless of whether a licensed salesperson or broker is involved in the transaction. Connecticut’s Department of Consumer Protection—the state agency charged with licensing businesses and regulating various commercial activities—promulgates a specific form that sellers must use to comply with the law.
As you will see, the form requires you to answer 36 questions. These range from basic informational inquiries—how long have you lived in the home, how old it is, and so forth—to questions about the condition of various specific aspects of the home. For example, you are required to state whether you have any knowledge of problems with the heating system, plumbing system, and electrical systems.
The form also gives you additional space to explain any of your responses to those 36 questions in greater detail, and encourages you to attach pages if necessary.
You will be required to sign the bottom of the form, which reminds you: “To the extent of the Seller(s) knowledge as a property owner, the Seller acknowledges that the information contained above is true and accurate for those areas of the property listed. In the event a real estate broker or salesperson is utilized, the Seller authorizes the broker or salesperson to provide the above information to prospective buyers, selling agents or buyer’s agents.” The buyer will also be required to sign to indicate that he or she received the form.
What Does “Knowledge” on the Part of a Connecticut Seller Mean?
You will notice the requirement built into that language for you to disclose issues with the property “[t]o the extent of the Seller(s)’ knowledge.” What, exactly, does this mean?
Beyond checking “Yes” or “No”, you may check “Unknown,” if you have no actual knowledge of problems affecting the area in question. This is an important distinction. As the form itself states, the statute requires only disclosure of defects about which you know. In other words, you are under no affirmative duty to hire a mechanical engineer to ensure that your sewage system is working correctly before submitting the form to a potential buyer. If you do not know about a problem, you do not need to investigate that area of the property prior to sale. That burden is on the buyer.
Indeed, the form goes through pains to remind the buyer of that obligation. Above the buyer’s signature line, the form emphasizes: “The buyer is urged to carefully inspect the property and, if desired, to have the property inspected by an expert. The buyer understands that there are areas of the property for which the seller has no knowledge and this disclosure statement does not encompass those areas. The buyer also acknowledges that the buyer has read and received a signed copy of this statement from the seller or seller’s agent.”
Needless to say, this language is very beneficial to you as a seller. It insulates you from liability for defects that may exist, but about which you have no actual knowledge.
Delaware: The First State
Delaware requires that sellers of residential property make certain disclosures to prospective purchasers about known physical defects. If you’re preparing to sell your Delaware home, what exactly must you disclose, and how? (The Buyer Property Protection Act)
Real Estate Disclosure Law in Delaware
The Buyer Property Protection Act, codified as Chapter 25, Title 6 of the Delaware Code, requires the seller of residential real estate to complete a form—known as the Seller’s Disclosure of Real Property Condition Report—disclosing conditions and defects with the property. Specifically, the statute provides that “a seller transferring residential real property shall disclose, in writing, to the buyer, agent and subagent, as applicable, all material defects of that property that are known at the time the property is offered for sale.” The law also requires that you “provide the buyer with any information on radon from tests or inspections in [your] possession, and notify the buyer of any known radon hazards.”
The purpose of the statute is to compel you to detail any facts of which you are aware that negatively affect the property. This could cover a wide variety of defects in your home, ranging from the condition of the roof to the condition of the gas tank. The legislature’s broader goal, of course, is to prevent the buyer from having any nasty surprises after moving into the home.
The Delaware Real Estate Commission provides a seven-page form that contains all of the necessary information. You are required to provide written copies of this form to potential buyers.
What Issues or Defects Does the Delaware Disclosure Cover?
Delaware’s disclosure form is somewhat unique in its breadth and depth. While some states merely ask sellers to disclose any defects with respect to a few major elements of the property (often with an “other” clause), Delaware’s form is divided into 15 broad categories with nearly 200 total questions.
These broad categories capture many of the details about which a buyer would be curious. The questions range from major aspects of the home, to purely informational queries, to minor issues. For example, in the first category (“Occupancy”), you’re asked whether you currently occupy the property or whether you lease it.
In the seventh category (“Structural Items”), you’re asked whether there are any known problems with the home’s foundation and whether there has been any construction on that foundation. In the twelfth category (“Heating and Air Conditioning”), you’re asked how old the furnace is. Some of these questions might seem more important than others, but you must still answer all of them to the best of your knowledge.
You are then asked whether some 40 different home appliances—from the refrigerator to the smoke detectors—are “in good working order.”
In addition, you may make comments on page 6. Both the comment and the answer is part of a Delaware’s formal disclosure. The comments are a good way to explain any issues, particularly if “yes” or “no” doesn’t tell the whole story. For example, Question 71 asks whether there have ever been any termites on the property. If you merely check “Yes,” this would obviously alarm the buyer. But if your comment clarifies that there was a small issue many years ago, which you remediated and which has not recurred, the buyer would likely be put at ease.
Florida: The Sunshine State
Florida, like many other states, now requires sellers of homes and other residential properties to make certain disclosures to buyers about the property’s condition and history.
This is a shift from the traditional legal principle of “let the buyer beware,” which basically made it the buyer’s responsibility to inspect the home and discover whether there are any unacceptable conditions or defects before closing the deal. However, in an ever-increasing number of states, courts and lawmakers have held that sellers are in the best position to know all material facts relating to their properties, especially those that are not visible to the naked eye, and should disclose these to the buyer or face legal liability.
How Florida Sellers Must Make Disclosures to Prospective Home Buyers
Florida law provides that, with some exceptions, you (as a home seller) must disclose any facts or conditions about your property that have a substantial impact on its value or desirability, and that others cannot easily see for themselves.
Georgia: The Peach state
So you are selling your Georgia home , maybe you just got a job across the country, or maybe you have a baby on the way and need more room, or maybe the home is poorly built, on shifting ground, and you just want to be rid of it! You have a few curious lookers peppering you with questions about the home, and now your listing agent is asking you to fill out something called a “Seller Property Disclosure Statement.” How much information must you disclose about the property to potential buyers?
Sellers’ Required Disclosures in Georgia
Although Georgia law does not require a seller to fill out a specific disclosure form, the law does require a seller to inform a buyer about any known material (important) defects in the condition of the home. There’s an exception if the defect would be discovered by the buyer upon a reasonable inspection, but that’s meant to cover fairly obvious things – for example, you don’t need to point out, “the porch roof has collapsed,” if anyone looking at the property can see that the porch roof has collapsed.
The Georgia seller must also honestly answer a buyer’s questions about the home. Buyers might ask about anything from what repairs you’ve done in the past to how your dealings with the neighbors have been. Attempting to obfuscate can lead to lawsuits later, so it’s best to be honest and open.
Again, however, you are not supposed to wait for questions if a defect is “material” and not readily visible. Georgia courts have generally held that a defect is “material” if the buyer would consider it material; that is, if known to a prospective buyer, it would cause that person to not buy the property, or to pay less for it -– such as, for instance, the fact that it was built on unstable ground.
As a general rule, in order to prevent later accusations of misrepresentation or fraud from a buyer, as a seller in Georgia you should be upfront, answer the buyer’s questions, and tell the buyer about any problems you are aware of regarding the condition of the home (most likely by filling out the optional standard form described below).
What a Georgia Seller Does Not Need to Disclose
Even though, as a Georgia seller, you generally must disclose known problems with the condition of your home, there are certain specific exceptions under the Georgia statutes. These relate to things that occurred in the home, not the home’s physical condition.
A Georgia seller does not need to inform a buyer if any diseased person ever lived in the home, or if a homicide, felony, suicide, or any other death occurred there (Georgia Official Code Annotated §44-1-16(a)(1)). Additionally, it is up to the buyer to investigate certain information about the neighborhood where the home is located. Georgia statutes specifically state that a seller is not required to inform the buyer if a registered sex offender lives in the area (Georgia Official Code Annotated §44-1-16 (b)). (However, to help the buyer, most form real estate contracts used in Georgia direct a buyer where to look online for information about the location of registered sex offenders.)
Even if the seller is not required to disclose an event on the property such as a murder, a seller still must answer any direct question from a buyer honestly (Georgia Official Code Annotated §44-1-16(a)(1)). So, if the buyer (who may very well do a Google search on your home’s address) asks you whether your home was where the gang member was murdered last summer, you do need to answer honestly.
The only time you do not need to answer a buyer’s question completely and honestly is if it is a question relating to information protected under the Federal Fair Housing Act or Georgia’s fair housing laws (Georgia Official Code Annotated §44-1-16 (a)(2)).
The Federal Fair Housing Act (found at 42 United States Code, Sections 3601-3619 and 363), and the Georgia’s fair housing laws (found in the Georgia Official Code Annotated, Sections 8-3-200 through 8-3-223), protect people from housing discrimination based on race, color, religion, sex, national origin, familial status, and handicap. If, for example, a buyer asks about the previous occupant’s religion, or whether a person with AIDS (considered a handicap under the Fair Housing Act) ever lived in the home, this is protected information you should not give out. You should instead reply that you are not legally allowed to answer.
Idaho: The Gem State
If you’re selling your home in Idaho, you’ll need to be mindful of Idaho’s disclosure requirements. Sellers of residential property are required by state law to disclose to prospective buyer’s certain defects with their home that could impair its value. These disclosures must be made before any purchase contract is signed.
Disclosure Law in Idaho for Home Sales
Idaho Statute 55-2501, et seq. mandates that you must make certain disclosures to potential buyers within ten days of the date of their offer to purchase your property. As the legislation itself states, the intent of the statute is “to promote the public health, safety and welfare and to protect consumers [by requiring] sellers of residential real property… to disclose certain defects in the residential real property to a prospective buyer.”
Idaho is somewhat unusual in that it codifies the entire disclosure form, which is relatively short compared to other states, within the legislation. Idaho Statute 55-2508 contains the entire text of the disclosure form that you must provide to the buyer, including all of the questions you must answer.
Making disclosures beyond the requirements can sometimes be helpful to put buyers at ease, particularly if you do not have anything to hide. After all, many sellers are legitimately not aware of material defects in their home, which may be hidden in the roof or foundation—at least not defects so severe that they could jeopardize a sale.
Idaho’s codified form—which is only about two pages—asks a series of questions about the conditions of various aspects of the property. For example, it asks you to state whether you are aware of any problems with respect to the foundation, electrical system, heating, plumbing, or septic system. You can simply say “No,” if that’s the case, or you can explain in greater detail.
You are also asked to state whether there are defects with respect to any of the major appliances (such as the stove, water heater, garage door, and so on). Obviously, such appliances are expensive, and their condition would be important to the buyer. You must also state whether you are aware of any hazardous materials or pest infestations in the home.
Importantly, the codified form includes a question as to whether there are, “Any other problems, including legal, physical or other not listed above that you know concerning the property.” This is a catchall; a clear indication that you should now view the form as limiting what you should disclose to the buyer. If there’s an aspect of the property that you find irritating or worse, it’s probably worth disclosing.
Finally, both you and the buyer sign the form at the bottom to acknowledge that it was given and received. Needless to say, you should keep a copy for your records.
What Does the Idaho Requirement of Seller “Knowledge” Mean?
The Idaho disclosure form is very clear that you are under no obligation to verify any of your disclosures with a formal inspection or engineering report. You need disclose only defects or conditions about which you actually know.
Idaho’s disclosure form specifically states that “the Seller does not possess any expertise in construction, architectural, engineering or any other specific areas related to the construction or condition of the improvements on the property. [Moreover] the Seller has not conducted any inspection of generally inaccessible areas such as the foundation or roof. It is not a warranty of any kind by the Seller or by any agent representing any Seller in this transaction. It is not a substitute for any inspections. Purchaser is encouraged to obtain his/her own professional inspections.”
Idaho Statute 55-2507 notes that “other than having lived at or owning the property [the seller] possesses no greater knowledge than that which could be obtained by a careful inspection of the property….”
All of this language is essentially means that you are under no affirmative duty to, for example, hire a mechanical engineer to ensure that your sewage system is working correctly before submitting the form to a potential buyer. If you do not know about a problem, you do not need to investigate that area of the property prior to sale. That burden is on the buyer.
Illinois: The Prairie State
Illinois law requires you, as a seller, to tell a prospective buyer, in writing, what you know about the quality, healthfulness, and safety of your property. This includes things like past flooding and flood risk, unsafe conditions, municipal code violations, environmental issues, boundary line disputes, and material defects in specified structures, components, and systems.
You must make these disclosures prior to signing the sales contract, on a standard form that’s discussed below. The disclosure is not meant to serve as a warranty or substitute for inspections, but to put the buyer on an equal footing with the seller during contract negotiations.
Who the Disclosure Law Applies To
The Illinois Residential Real Property Disclosure Act applies to “sellers” of “residential real property.” Both terms are defined in the law: “Residential real property” is property improved with one to four residential dwelling units, or an individual condominium or cooperative unit. A “seller” is any owner or any beneficiary of a trust that owns the property.
You are not required to complete a disclosure form if you never occupied the property and never had management responsibility for the property, nor hired someone else to manage it. (See 765 Ill. Comp. Stat. § 77/5.) The law applies to conventional sales, installment sales, and sales of property owned by an Illinois Land Trust. (See 765 Ill. Comp. Stat. § 77/10.)
The buyer and seller cannot agree to ignore the disclosure requirement, not even if the buyer signs a contract agreeing to purchase the property “as is” (in its current condition), nor if the buyer already knows about the defects. You, the seller, must make disclosures regardless, and even if the property is a tear-down — unless it is uninhabitable as a residence at the time of the sale. (See the case of Grady v. Sikorski, 349 Ill. App. 3d 774 (Ill. App., 2004).)
Could Your Transfer Be Exempt From the Disclosure Law?
Certain types of transfers of real property are exempt from disclosure, mainly where the buyer would not expect the seller to be liable for the property’s condition. Generally, a seller does not have to make disclosures if transferring the property as part of a lawsuit such as a divorce, bankruptcy, or mortgage foreclosure, if distributing property from an estate, or if transferring the property to a close family member.
Completing and Delivering the Disclosure Form
The law does not require you to disclose absolutely everything you know about the property. You are required to answer the questions on the standard “Residential Real Property Disclosure Report” form, the language of which comes directly from the law. (See 765 Ill. Comp. Stat. § 77/35.) Your real estate broker or attorney will be able to provide you with a printed version of the form and help you complete it.
All of the required disclosures are listed on the form as “Yes,” “No,” or “Not Applicable” questions. Extra space is provided for you to give more information regarding matters for which you check “Yes” or “Not Applicable.” You should attach a copy of the law itself to the form before delivering it to the buyer.
Many of the questions ask about “material defects” in the various named structures, components, and systems. As the statute explains, material defects are conditions that substantially impair the property’s value or the health or safety of occupants. Defects that are not material need not be disclosed in those questions. Exactly where the line should be drawn on what requires disclosure can be difficult, however, to determine. When in doubt, it’s often better to disclose an issue than not. You’ll increase buyer confidence and avert anger and possibly lawsuits later on.
Your real estate broker may ask you to complete the form when you sign the listing agreement. However, Illinois attorneys recommend you get a legal consultation before delivering the form to a buyer. This could be to your benefit, because the lawyer might discover that the law does not apply to you, or to the particular type of property or transfer, or can help you decide whether a defect is material.
You must sign and date the form. When you sign the form, you are certifying that your disclosures are complete and accurate. If you co-own the property with others, all owners should sign the form.
Your signature on the form also authorizes your listing broker or attorney to deliver the form to the buyer. If you deliver the form yourself, you should send it to an address or fax number provided by the buyer or indicated on the contract, by messenger, fax, first class U.S. mail, or an alternative delivery service such as FedEx, with postage or delivery charges prepaid. (See 765 Ill. Comp. Stat. § 77/50.)
Sellers Need Not Have the Property Inspected Before Completing the Disclosure Form
You have no duty to obtain an inspection to help you complete the disclosure form. That’s because you need disclose only those defects within your actual knowledge. If a defect is listed on an existing inspection report, you should disclose it if it has not been fixed.
Many sellers do, however, choose to conduct an inspection before putting their property on the market. That allows them to price the property accurately, fix some defects rather than having to disclose them, and know what they’re in for when the buyers do their inspections. Again, you’ll need to disclose any material defects discovered in the course of such inspections that you do not fix before offering the property for sale.
If You Discover a Property Defect After Delivering the Disclosure Form
If you become aware of a defect in the property after delivery of the disclosure, you must send a supplemental disclosure to the buyer. (765 Ill. Comp. Stat. § 77/30.)
If You Discover an Error After Delivering the Disclosure Form
If you complete a disclosure form, and later find out that the disclosure law did not apply to you or to your transaction, or that a defect you disclosed in the form was not required to be disclosed, either you or your attorney can write to the buyer or the buyer’s attorney, and tell them that the form was incorrect. You should also state in the letter that the form is void.
This helps guard against the possibility of later lawsuits — providing a reminder to the buyer that you didn’t really need to make any disclosures at all, so suing you over incomplete or erroneous disclosures is likely to go nowhere.
Radon Disclosure Requirement
The Illinois Radon Awareness Act, 420 ILCS 46/1 et seq., requires you to give two pamphlets about radon hazards to the buyer before the contract is signed. The first pamphlet is from the Illinois Emergency Management Agency and is entitled Radon Testing Guidelines for Real Estate Transactions.
The second pamphlet is the Illinois Disclosure of Information on Radon Hazards and is copied exactly from the law at 420 ILCS 46/10, stating that the property may present the potential for exposure to radon. The disclosure law does not require the seller to conduct any radon testing or mitigation; however, many Illinois form real estate contracts include these requirements.
Indiana: The Hoosier State
What Must Home Sellers Disclose?
Indiana’s Residential Real Estate Disclosure Law, Ind. Code §32-21-5-2 requires sellers of residential property to complete a standard form. The Residential Real Estate Sales Disclosure form is available online at the State Forms Center (enter form number 46234 in the search box or search for the form by name). You should also be able to request a copy from your county recorder. Real estate agents and real estate attorneys also have the form easily available.
Using this form, sellers need to tell potential buyers about material defects in the house structure and major systems, as well as any defects in the included appliances, that the seller knows about. Notice what this leaves out, namely any defects that the seller does not know about — an important distinction, because it means sellers don’t have to actually test or investigate for problems.
For example, the condition of any appliances that are included in the sale, such as the garbage disposal and the oven, are something the seller needs to tell the buyer about. The seller also needs to tell the buyer about the age and condition of the furnace and/or the heat pump. The condition of the water heater is also included.
Sellers should tell potential buyers about the building itself: Does the foundation have any significant cracks? Does the roof or the siding leak? Are the support beams sound? The systems used in daily living are also in question. Does the seller have any problems with leaky pipes or sewer pipes backing up and discharging into the house? If there is a septic system, what is its condition?
There are a number of other questions on the form. Some ask about whether the house is zoned for residential use. Others ask whether the seller knows if the house, garage, fence or other structure encroach, or sit on a part of, someone else’s property. Other questions ask about moisture and water problems, as well as termite or rodent problems. The law also requires the seller to let the potential buyer know if the property is within one mile of an airport.
Indiana also requires the seller to tell the buyer if the house was once used as a methamphetamine lab. What is unclear, though, is whether or not this requirement applies if the house was transferred to the seller under one of the conditions that are exempt from the disclosure law. In any case, homes that have been used to produce methamphetamine should be decontaminated through a special process before anyone lives in the home.
Iowa: The Hawkeye State
Disclosure Law in Iowa for Home Sales
The legal basis for this disclosure requirement is Iowa Code § 558A, which broadly covers disclosure statements. The law states that you, as the seller, “shall deliver a written disclosure statement to a person interested in being transferred the real property… prior to… a written offer for the transfer of the real property….”
The law further requires that the disclosure be sent to the potential buyer either by personal delivery or by certified or registered mail. If you fail to give the potential buyer the disclosure before a formal offer is made, the buyer “may withdraw the offer or revoke the acceptance without liability” within three days following personal delivery of the statement or five days following delivery by mail. As the seller, you also have the obligation to file the disclosure with the county recorder or clerk–a requirement fairly unique to Iowa.
Note that the disclosures, obviously, cannot be oral. You are required under this statute to deliver a written disclosure form and file it.
Iowa’s law also requires that all information in your disclosure be made in good faith: “All information required by this section… shall be disclosed in good faith… [and the] disclosure statement shall be amended, if information disclosed in the statement is or becomes inaccurate or misleading….” This requirement signifies the legislature’s intent to prevent sellers from engaging in unscrupulous conduct or misstatements. This means that you should not, for example, use sneaky wording to cover up the existence of a defect. These sorts of tactics could expose you to liability if and when the buyer later discovers them.
What Issues or Defects Does the Iowa Disclosure Form Cover?
The Iowa Department of Licensing and Regulation has created a standard disclosure form—six pages long—that you, as a home seller, must fill out. You’ll see that you must certify that the information presented is accurate as of the date of the form, and that the buyer must also sign the form (as proof that he or she actually received it).
In 19 questions, the disclosure form asks you to state “all known conditions materially affecting the property.” The form takes you through different areas of the home, such as the roof, basement, sewer system, and so on, and asks you to state “Yes” or “No” whether you are aware of any problems. You are also asked about the presence of certain environmental hazards, like radon and asbestos.
The form also encourages you to attach additional information or pages, should you need to explain any responses in more detail. This can be useful if you want to alert potential buyers to a known defect (and thus comply with the statute), but then note that the defect is relatively minor (and thus reassure the buyer).
Kansas: The Sunflower State
Disclosure Laws in Kansas for Home Sales
Kansas has a number of separate pieces of legislation that require you, as a home seller, to make certain disclosures to potential buyers. Most broadly, Kansas Stat. Ann. 58-30.106 states that you or your real estate agent must disclose to the buyer: (i) Any environmental hazards affecting the property; (ii) the physical condition of the property; (iii) any material defects in the property; (iv) any material defects in the title to the property; and (v) any material limitation on your ability to perform under the terms of the purchase contract.
Unlike in some states, the legislation in Kansas does not specifically state what areas or aspects of the property require some sort of disclosure. While there is no one required disclosure form, the Kansas Association of Realtors has created a sample form that generally covers the information that you should consider disclosing to the buyer. Your own real estate agent or attorney may have his or her own form or preferences for making these disclosures.
As you can see, the three-page form assists you in disclosing a range of potential defects with various aspects of your home and property. These include the appliances, electrical system, heating and cooling system, water systems, and various structural conditions. The form also contains a number of other disclosure questions, for example about whether there are any encumbrances on your legal title to the property (such as easements or boundary disputes), or any hazardous conditions (such as flood zones or asbestos).
Importantly, however, each section of the form contains space for “Other” defects or issues. In other words, while the form will help remind you about the various issues that may have cropped up in your home, it’s up to you to make sure you are thorough and complete in making the legally required disclosures to the buyer.
Both you and the buyer will sign this form, acknowledging that it has been given and received. From your perspective, an important purpose of this exercise is to prevent the buyer from coming back to you after the closing and complaining that you never told them that there was a huge hole in the roof. Assuming you are honest on the form, you would have mentioned this sort of defect.
Separately, Kansas Stat. Ann. 58-3078a requires that the seller provide a disclosure about the presence of radon gas– which can be cancerous–to buyers. This disclosure can be made within the purchase contract itself.
Also included in the purchase contract must be statutory language about the buyer’s ability to find information about registered persons convicted of certain sexual crimes in the area. Kansas Stat. Ann. 58-3078 provides the paragraph that must be included, which directs the buyer to the Kansas Bureau of Investigation.
Finally, Kansas Stat. Ann. 12-6a20 requires that you disclose whether the property is the subject of any “special assessments.” This essentially means whether or not the property is subject to any particular municipal, county, or state taxes. If such assessments exist, you are required to provide the buyer with an approximation of their value (so that there are no nasty surprises after closing).
Kentucky: The Bluegrass State
Disclosure Law in Kentucky for Home Sales
Kentucky Revised Statutes § 324.360 requires that sellers of single-family residential properties make certain disclosures to a potential buyer. This law applies regardless of whether a licensed salesperson or broker is involved in the transaction. The statute specifically refers you to a form promulgated by the Kentucky Real Estate Commission (available here).
The four-page form breaks down its questions into ten categories covering various elements of your home. They are: (1) House Systems (such as plumbing, electric, heating, and so on); (2) Foundation/Structure/Basement (whether, for example, there are any known leaks); (3) Roof (whether there have been any recent repairs or problem spots); (4) Land/Drainage (in particular, whether there are any flood zones on the property); (5) Boundaries (whether, for instance, there are any known easements on the property); (6) Water (whether the drinking water has ever been tested, for example); (7) Sewer System (whether there is a septic tank system on site and so on); (8) Construction/Remodeling (such as whether there have been any structural additions or changes to the home); (9) Homeowners’ Association (whether the owner will be subject to any rules by a local homeowners’ association); and (10) Miscellaneous (such as whether there are any known environmental hazards like radon gas or asbestos).
Importantly, the “Miscellaneous” section includes a catchall question: “Are you aware of any other conditions that are defective with regard to this property?” That’s your cue to come up with any concerns that the form neglected to ask about, based on the unique features of or issues with your property.
These four pages should allow you to give potential buyers a fairly comprehensive snapshot of any known defects with your property. The form also gives you additional space to explain any of your responses to those questions in greater detail, and encourages you to attach pages if necessary.
You will be required to sign the bottom of the form, which reminds you: “Seller states that the information contained in this Disclosure of Property Condition Form is complete and accurate to the best of his/her/their knowledge and belief. Seller agrees to immediately notify Buyer of any changes that may become known to Seller prior to closing by providing a written addendum hereto.” The buyer will also be required to sign the form to acknowledge receipt.
What Does “Knowledge” on the Part of a Kentucky Seller Mean?
The disclosure form is very clear that you are under no obligation to verify any of your disclosures with a formal inspection or engineering report. You need only disclose defects or conditions about which you actually know.
As the Kentucky Real Estate Commission states: “This disclosure is based solely on the seller’s observation and knowledge of the property’s condition and the improvements thereon. This disclosure form shall not be a warranty by the seller or seller’s real estate agent and shall not be used as a substitute for an inspection or warranty that the purchaser may wish to obtain. This form is a statement of the conditions and other information about the property known by the seller. Unless otherwise advised, the seller does not possess any expertise in construction, architectural, engineering, or any other specific areas related to the construction or condition of the improvements on the property. Other than having lived at or owned the property, the seller possesses no greater knowledge than that which could be obtained upon a careful inspection of the property by the potential buyer.”
To emphasize this point, the statute requires only disclosure of defects about which you know. In other words, you are under no affirmative duty to hire a mechanical engineer to ensure that your sewage system is working correctly before submitting the form to a potential buyer. If you do not know about a problem, you do not need to investigate that area of the property prior to sale. That burden is on the buyer. Needless to say, this language is beneficial to you as a seller. It insulates you from liability for defects that may exist, but about which you have no actual knowledge.
Louisiana: The Pelican State
Real Estate Disclosure Law in Louisiana
Louisiana Revised Statutes § 9:3198 is the state statute that governs disclosures by sellers like yourself. The statute states that you “shall complete a property disclosure document in a form prescribed by the Louisiana Real Estate Commission or a form that contains at least the minimum language prescribed by the commission.”
The overall purpose of the statute is to compel a home seller such as yourself to detail any material facts of which you are aware that negatively affect the property. This could cover a wide variety of defects in your home, ranging from the condition of the roof to the condition of the gas tank.
Many of the categories of disclosure included on the form are what you might expect that a buyer would be interested in knowing before purchasing a home. You must answer “Yes,” “No,” or “No Knowledge.”
For example, Section 3 asks about the property’s “Structure,” including roof, pool, windows, ceilings and “Other.” (Take careful note of the “Other” section; it’s an indication to you that you shouldn’t leave material defects off the form merely because it didn’t specify a particular feature of your property.) Section 4 asks about the condition of the plumbing system. Section 5 asks about the condition of the electrical system, including the type of air conditioning and heating units installed.
Beyond these expected categories of disclosure, note that Louisiana Revised Statutes § 9:3198 further requires disclosure of some very specific information. (The standard form from the Louisiana Real Estate Commission covers these categories, too). You must state or disclose:
Whether or not the buyer is obligated to be a member of a homeowners’ association as a homeowner in the community in which the buyer is purchasing property.
Whether or not an illegal laboratory for the production or manufacturing of methamphetamine was in operation on the purchasing property.
Whether or not a cavity created within a salt stock by dissolution with water lies underneath the property and whether or not the purchasing property is within two thousand 640 feet of a solution mining injection well.
Whether the property has been zoned commercial or industrial.
In addition, you may make comments to supplement your answers. The comments are a good way to explain any issues, particularly if “yes” or “no” doesn’t tell the whole story. For example, one question asks whether the air conditioning is supplied to all rooms. If you say “no,” this could alarm a buyer. But if you add a comment indicating that all rooms except the basement are air conditioned, this minimizes the impact.
Study each of these disclosures carefully before answering, and check with your real estate agent or attorney if you are uncertain how to answer.
Timing of the Disclosure Statement
According to the statute, you must deliver the completed and signed property disclosure document to the purchaser “no later than the time the purchaser makes an offer to purchase, exchange, or option the property or exercises the option to purchase the property pursuant to a lease with an option to purchase.” Practically speaking, this means that you must give your disclosure statement to the buyer before the purchase contract is signed.
If you do not, then the buyer may terminate your contract or withdraw the offer within the 72 hours (excluding federal and state holidays and weekends) after you finally give him or her the disclosure form. Clearly, the Louisiana legislature wants to force you to give the disclosure statement early and ensure that the buyer has a few days in which to study it before making the final decision to purchase.
Maine: The Pine Tree State
Disclosure Law in Maine for Home Sales
Maine Rev. Stat. Title 33, § 173 states that “the seller of residential real property shall provide to the purchaser a property disclosure statement.” Maine’s legislation specifically enumerates the issues with the home that the seller must disclose. These include: (i) the water supply system; (ii) the insulation; (iii) the heating system; (iv) the waste disposal system; whether any hazardous materials (like asbestos, radon, or lead-based paint) is present in the property; and (v) any other known defects with the home (a catchall category).
While there is no one required form, the Maine Association of Realtors has created a sample form that contains all of the required information that you must disclose to the buyer. Note that your own real estate agent or attorney may have his or her own form or preferences for making these disclosures.
Note that you cannot simply add an “as is” clause to the purchase contract in order to escape your disclosure responsibilities under this statute.
When Must the Seller Disclosure Be Made?
According to Maine Rev. Stat. Title 33, § 174, you must “deliver or cause to be delivered the property disclosure statement to the purchaser no later than the time the purchaser makes an offer to purchase.” If the property disclosure statement is delivered to the purchaser after the purchaser makes an offer, the purchaser may terminate any resulting real estate contract up to 72 hours after receipt of the property disclosure statement.
In other words, as the seller, it is in your best interests to make sure the statement is in the buyer’s hands before any purchase contract is signed. Otherwise, you risk the buyer getting last-minute cold feet after seeing your disclosure form.
What Issues Are Left Off the Maine Disclosure Form?
You are not required to disclose everything that could possibly be at issue with your home. Importantly, Maine doesn’t require you to hire an inspector or verify the information disclosed in your form. Rather, you are required to disclose only defects that you knew about when making the disclosure. (But remember that the catchall clause sweeps in even types of defects that aren’t specifically listed on the form.)
You will also notice that the Maine Realtors’ sample form asks many more questions than the statute specifically requires. Indeed, the disclosure form includes further information about which a buyer would be curious.
For example, you are asked to state whether the property is subject to any easements, encroachments, leases, or homeowner association restrictions. While these sorts of details are not enumerated in the statute, it is generally considered best practice to inform the buyer about them up front. This way, you won’t risk an angry buyer attempting to unwind the sale or sue for damages after the closing. More on this risk in a moment.
Maryland: The Old Line State
If you’re preparing to sell your Maryland home, you know that the process is not easy. In addition to cleaning your house and making it presentable for showing, you have to interview agents, settle on a price, open your house to visitors (or move first), and perhaps play a long waiting game. Naturally, you try to make your home look as perfect as possible for prospective purchasers.
Unfortunately, Maryland law forces you to reckon with the unappealing aspects of your home too, through various mandatory disclosures of defects to buyers. Marylanders, like sellers in many states, are required to reveal various problems that could affect the property’s value or desirability. For example, a seller cannot fraudulently conceal major physical defects, such as a broken water pipe or a defective HVAC system. If you’re selling your Maryland home, what must you disclose, and when?
Real Estate Disclosure Law in Maryland
Before you begin the process of selling your home, you should read Md. Code Ann., Real Prop. § 10-702, which requires the seller of residential real estate to complete a form—known as the Residential Property Disclosure and Disclaimer Statement—disclosing conditions and defects with the property. Maryland is someone unique in that sellers can choose between either giving the buyer a disclosure of known defects, or a disclaimer as to the condition of the house. One of these must be given (but not both).
The purpose of the statute is to compel a seller such as yourself to detail any material facts of which you are aware that negatively affect the property. This could cover a wide variety of defects in your home, ranging from the condition of the roof to the condition of the gas tank.
Naturally, this means that you must decide whether to give compromising information about your home in the disclosure form, or provide no information through the disclaimer, leaving the problems up to the buyer’s imagination and investigation. This decision may be partly dictated by the market in your neighborhood; if other local houses are available with full disclosures, buyers looking in your area may hesitate to purchase a home where the seller has not provided any information.
You are required to provide written copies of this form to potential buyers. Its precise format can vary, but you can view samples online. Your real estate agent or attorney will provide you a copy as part of the standard materials.
What Issues or Defects Does the Maryland Disclaimer Cover?
Upon examining the four-page form, you’ll notice that it’s actually two forms: You have the option of filling out either a “Disclaimer” or a “Disclosure.”
If you fill out the “Disclaimer,” then you “make no representations or warranties about the condition of the property.”This is simply saying that you’re selling the home “as is.” The buyer will assume liability for any defects that may or may not exist in the home. If, for instance, a water main bursts a week after the closing, the buyer cannot look to you for payment or reimbursement. But that doesn’t let you off the hook for disclosing latent defects in the home about which you have actual knowledge (under Md. Code Ann., Real Prop. § 10-702(d).) The law states that the disclaimer must “Disclose any latent defects of which the vendor has actual knowledge that a purchaser would not reasonably be expected to ascertain by a careful visual inspection and that would pose a direct threat to the health or safety of the purchaser or an occupant.”
The disclaimer must also state that, except for the disclosed latent defects, you make “no representations or warranties as to the condition of the real property or any improvements on the real property” and the buyer “will be receiving the real property “as is”, with all defects, including latent defects, that may exist, except as otherwise provided in the contract of sale of the real property.”
You may be wondering: What does it mean to have “actual knowledge” of a latent defect? You probably do not have actual knowledge of every defect in your home. Actual knowledge means that you know that your water pipe is defective, and you sell the house anyway. This is different from merely not hiring an inspector to tell you that your pipes are broken. On a disclaimer, Maryland requires only that you disclose what you know.
At first, choosing the disclaimer option might sound like an attractive option for limiting your liability. But be careful. Giving a potential buyer a disclaimer might actually raise some red flags. The buyer may wonder why you’re so quick to wash your hands of the home. The buyer might hire one or more inspectors to examine the property particularly closely. You may spook your buyer into looking for some other way out of the deal.
What Issues or Defects Does the Maryland Disclosure Cover?
Your other option is to submit a disclosure. The disclosure asks you to fill out a whole variety of questions and answers. You will need to state “yes” or “no” to whether there are any material defects in specific areas—the floors, the walls, the fire sprinkler system, and so on (including an “Other” clause).
The statute lists the types of latent conditions that must be disclosed if you choose the disclosure option. For example, Md. Code Ann., Real Prop. § 10-702(e)(1) states that you must disclose the condition of the water and sewer systems, the structural systems, the plumbing, electrical, heating and air conditioning systems, the existence of wood-destroying insects, the presence of hazardous materials, and any other material defects known to the seller.
In addition, you may make comments. Both the comment and the answer is part of a Maryland seller’s formal disclosure. The comments are a good way to explain any issues, particularly if “yes” or “no” doesn’t tell the whole story. For example, one question asks whether the air conditioning is supplied to all rooms. If you say “no,” this could alarm a buyer. But if you add a comment indicating that all rooms except the basement are air conditioned, this minimizes the impact.
Note that the form also asks you to identify non-defect issues, for example whether the home is under any restrictions from a homeowners’ association, or whether the home is located in a flood zone or in a historic district (which would limit potential renovations).
Study each of these disclosures carefully before answering, and check with your real estate agent or attorney if you are uncertain how to answer.
What Issues Are Left Off the Maryland Disclosure Form?
You won’t be asked about everything. For example, the Maryland disclosure form doesn’t ask you to disclose anything about past occupants of the property–whether someone living there had HIV or AIDS, or whether the property was the scene of a crime, death, or suicide. (These come from explicit exclusions in Maryland law, at § 2-120 of the Real Property Code.) If buyers ask about such issues, you cannot lie; but you can say that you are not able to answer. (Just be aware that buyers have Google at their disposal.)
The disclosure form also doesn’t ask about every aspect of the home. For example, while it asks about the condition of the dishwasher, it doesn’t ask about other major appliances that may come with the house, such as the oven or refrigerator. It asks about the condition of the fire sprinkler system, but not about any fire alarms or carbon monoxide detectors. Thus, there are certain smaller issues on which you can perhaps remain silent; though if any are defective, you might be safer disclosing them in the “Other” clause than waiting for the buyer to find out and wonder whether you lied.
As to larger issues, though, the disclosure asks you to disclose any material latent defects that are not specifically enumerated. Therefore, if you choose to submit a disclosure rather than a disclaimer, you’ll need to affirmatively make those admissions.
Massachusetts: The Bay State
Massachusetts is a caveat emptor, or “buyer beware,” state, meaning there is not a whole lot you are legally required to disclose to the buyer when selling your property. The burden is on the buyer to ask the right questions and perform a home inspection in order to determine the property’s physical condition, features, and so forth.
Massachusetts law requires only that home sellers disclose the existence of lead paint (see the Massachusetts Lead Paint Statute) and the presence of a septic system (see Title 5 of the Massachusetts Environmental Code).
While these are the only two legally required disclosures, you can expect prospective home buyers to ask you questions about the property, particularly after they’ve conducted a home inspection. A buyer might also request that you make additional disclosures in the purchase and sale agreement, including disclosures related to underground storage tanks, asbestos, and other hazardous materials.
Massachusetts Home Sellers Must Disclose the Presence of a Septic System
According to Title 5 of the Massachusetts State Environmental Code, sellers of homes that have a septic system must disclose this to buyers. The code additionally requires that the system have been inspected within the two years leading up to the sale (or six months after the sale if circumstances such as frozen ground prevent an earlier inspection). The law does not, however, specify who is responsible for the inspection — though by custom, the seller usually takes care of it, prior to putting the property on the market.
The septic system inspection must be performed by a “currently approved System inspector.” The results of the inspection must be shared with the buyer and the local board of health. So, while the law technically requires only that you disclose the presence of a septic system, these additional inspection requirements have the practical effect of requiring you to disclose the system’s condition, as well.
Because most sellers are advised by their real estate agents to have a Title 5 inspection prior to placing their home on the market, and because the vast majority of purchase and sale agreements contain a contingency for the septic system to pass a Title 5 inspection, septic systems rarely become a major issue during negotiations.
However, the condition and cost of repairs to bring failed systems up to code can become a major negotiation issue for sales of homes that fail Title 5, in situations where sellers are not willing to make the necessary repairs and buyers insist on having these repairs done. Not all home buyers will insist on this, however, and Massachusetts law doesn’t require home sellers to bring their septic systems into compliance with Title 5 before selling the property.
Additional Disclosures Massachusetts Sellers Are Often Asked to Make
If the prospective buyer (or buyer’s agent) asks you (or your agent) specific questions about the condition of the property, or if you volunteer certain information about the property, you are required to disclose the truth — or at least any facts that that a reasonable person would rely on in making a decision to purchase a home. (This standard comes from various Massachusetts court decisions in individual cases.) In other words, you can’t lie, obfuscate, or conceal important truths once a buyer takes an interest in a certain aspect of your property.
Unfortunately, exactly how much you need to disclose is a highly subjective determination and depends on the facts of each situation. For example, in a court case where a buyer purchased a home infested with termites and tried to sue, the court found that because the seller had not misrepresented or led the buyer on, and the buyer passed up the opportunity to fully inspect the home, the seller was not liable. (See Swinton v. Whitinsville Savings Bank, 311 Mass. 677.) In another case, a judge ruled that a seller could be held liable to a buyer having answered an inquiry from the buyer about the septic system by stating that it had been inspected yearly, yet failing to share the actual inspection results showing that a hydrogen peroxide treatment had been performed (an indicator of possible further problems). (See Ajalat v. Cohan, 1998 Mass. App. Div. 266.)
Realistically, the manner in which you are most likely to be asked to make additional disclosures is through language inserted into the purchase and sale agreement, or as an addendum. Home buyers in Massachusetts often ask sellers to warrant, or state to the best of their knowledge, that the property contains no underground storage tanks, nor any hazardous materials such as radon, chlordane, or formaldehyde insulation.
Including such additional disclosures is a matter for negotiation between you and the buyer. A qualified real estate attorney can assist with the negotiations.
Most Massachusetts buyers who have entered into serious negotiations to buy the home will reserve the right to have the property inspected by a licensed home inspector. After this inspection, buyers will often come up with additional questions about the property’s condition. These questions might range from whether or not the basement has ever flooded to the condition of the electrical system. If you fail to do answer truthfully or you mislead the buyer, you could later be sued and held liable for misrepresentation.
Michigan: The Great Lakes State
Property Covered by Michigan Disclosure Regulations
The average home seller will need to fill out the disclosure form if selling residential property consisting of between one and four units. This would include, for example, a single family home or a larger building that contains up to four apartments. You must also comply with these requirements whether you are selling by a typical sale (through deed), property exchange, land contract, option to purchase agreement (including lease with option to purchase), ground lease, or a transfer stock or interest in a residential cooperative. (Mich. Comp. Laws Ann. § 565.952).
Exceptions to the Michigan Disclosure Requirements
In some limited circumstances, sellers are not required to comply with the disclosure law. The exceptions include:
transfers pursuant to court order, including by probate, a writ of execution, foreclosure sale, those made by a trustee in bankruptcy, transfers by eminent domain, and transfers resulting from a decree for specific performance
transfers to a mortgagee or beneficiary of a deed of trust by a mortgagor or trustor in interest who is in default
certain transfers by a sale under a power of sale or a decree of foreclosure
certain transfers in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust
transfers between co-tenants
transfers made to a spouse, parent, grandparent, child, or grandchild
transfers between spouses resulting from a judgment of divorce or separation
transfers to or from any governmental entity, and
certain transfers of newly constructed residential property that has not been inhabited.
(Mich. Comp. Laws Ann. § 565.953 (a) – (i).)
Filling Out the Michigan Disclosure Statement
Michigan requires sellers to use a particular standardized form for property disclosures, called the “Seller Disclosure Statement.” (Mich. Comp. Laws Ann. § 565.957). The form is essentially a checklist asking you to indicate the condition of various features of the property (such as appliances, roof, basement, and HVAC systems) and known problems affecting the property (such as encroachment issues, environmental issues, and pending legal issues).
While some states have specifically addressed whether sellers must disclose whether a property is “stigmatized” (by death, murder, infectious disease, and so forth), Michigan has not yet specifically addressed this issue. The disclosure statement does not include this information, and instead generally limits disclosures to the physical condition of the property.
If you have a question as to whether you should disclose a particular issue, however, it is generally best to disclose than not. Otherwise, the buyer may be permitted to cancel the agreement, or perhaps worse, may one day pursue a claim against you for fraud.
You are required to present the disclosure statement to the prospective buyer or the buyer’s agent prior to signing a purchase agreement (or sales contract). (Mich. Comp. Laws Ann. § 565.954 (1)). Complying with this timing requirement is crucial, because the buyer may terminate the purchase agreement if you deliver the statement late, after signing the purchase agreement. (Mich. Comp. Laws Ann. § 565.954 (3)). In that case, your property sale will not occur.
It is customary, and general good practice to provide the disclosure statement early, for example, at open houses or when showing the property to prospective buyers. That way, you will avoid the possibility of buyer termination under this provision.
Minnesota: The North Star State
Disclosure Law in Minnesota for Home Sales
Before you begin the process of selling your home, you should read Minnesota Statutes § 513.55, which broadly covers disclosure statements. The law is fairly short, stating: “Before signing an agreement to sell or transfer residential real property, the seller shall make a written disclosure to the prospective buyer. The disclosure must include all material facts of which the seller is aware that could adversely and significantly affect: (1) an ordinary buyer’s use and enjoyment of the property; or (2) any intended use of the property of which the seller is aware.” Further, the law states that the disclosure “must be made in good faith and based upon the best of the seller’s knowledge at the time of the disclosure.”
Essentially, this requires that the seller of a home must give a written disclosure—i.e., not oral—detailing any material facts of which the seller is aware that negatively affect the property. As we will see, this could cover a wide variety of defects in your home, ranging from the condition of the HVAC to the structural integrity of the foundation.
The additional requirement of “good faith” written into the legislation signifies the legislatures intent to prevent sellers from engaging in unscrupulous conduct or misstatements. This means that you should not, for example, use sneaky wording to cover up the existence of a defect. These sorts of tactics could expose you to liability if and when they are later discovered by the buyer.
What Issues or Defects Does the Minnesota Disclosure Form Cover?
The Minnesota Bar Association has created a standard Disclosure Form—nine pages long—that you, as a home seller, must fill out. You’ll see that you must certify that the information presented is accurate as of the date of the form. Moreover, you must disclose whether you possess any contradictory inspection or engineering reports that show defects with the home.
The Disclosure Form gives you an open-ended prompt to disclose: “All material facts of which the seller is aware that could adversely and significantly affect: (1) an ordinary buyer’s use and enjoyment of the property; or, (2) any intended use of the property of which the seller is aware.”
The Disclosure Form then asks you a couple dozen specific questions. For example, you must state the year you purchased the house; whether pets have lived there; and whether there have been any structural replacements. You must further answer specific questions about nearly every specific aspect of the home, from the tiling to the air conditioning to the roofing.
Indeed, Minnesota’s Disclosure Form is unique in its level of specificity; some states do not require so many specific questions, but rather give more open-ended opportunities for disclosure.
Finally, the Disclosure Form asks for various environmental disclosures. For example, the home seller must state whether there is known asbestos in the home, as well as any water or air contamination.
Mississippi: The Magnolia State
Real Estate Disclosure Law in Mississippi
In Mississippi, disclosures are governed by M.S. Code § 89-1-501 et seq. That statute provides that the seller of any residential property “shall deliver to the prospective [buyer] a written statement required [herein]… as soon as practicable before transfer of title.”
The purpose of the statute is to compel you, as the home seller, to provide relevant information about the property and articulate any facts of which you are aware that negatively affect its value. This could cover a wide variety of defects in your home, ranging from the condition of the roof to the condition of the fuel tank. The legislature’s broader goal, of course, is to prevent the buyer from encountering any nasty surprises after moving into the home.
The timing of the disclosure is important. M.S. Code § 89-1-503 says that if the seller makes any disclosure after the buyer makes a formal offer of purchase, the buyer shall have three days after receiving the disclosure in person or five days after it’s delivered by mail to terminate the offer. So, for instance, if a buyer makes you a written offer for your house, and then you, for example, take your time delivering a formal disclosure statement, or happen to disclose at some point that the electrical systems don’t work, that buyer automatically has a chance to reevaluate the offer at that time. To avoid such uncertainty, you are better off making full, written disclosures sooner rather than later.
The Mississippi Real Estate Commission (MREC)–a state agency charged with oversight of the real estate industry–provides a disclosure form that contains all of the necessary information. You are required to provide written copies of this form to potential buyers.
What Issues or Defects Does the Mississippi Disclosure Cover?
MREC’s disclosure form is short, but covers the areas of your property that a buyer will be most interested in. It is divided into 13 sections, which ask specific questions about different areas of the home. The questions cover everything from legal issues (are there any easements on the property?) to structural issues (has there been any remodeling since you moved into the home?).
Within each section, you are asked to respond by checking “Yes,” “No,” or “Unknown.” You always have the option to explain one of your answers in the space provided, or can attach an additional page. Sometimes, an explanation can help to reassure sellers that a particular issue is not an enormous problem. At the very least, the explanatory page can give the buyer some history (for example, that you had a particular plumber come to your home three years ago to fix a water pump, and it is now working).
Do not be afraid to check “Unknown.” Mississippi does not expect that you know every detail about every inch of your home. M.S. Code § 89-1-507 provides that, if some information that is “required to be disclosed is unknown or not available” to you, and you have made some “reasonable effort to ascertain it,” you can simply include a reasonable approximation in your statement. This is another way of saying that you should, for instance, make an effort to see whether your lights turn on, but need not hire an electrical engineer to perform an elaborate inspection on your entire electrical system.
There are a number of facts that you are not required to disclose. According to M.S. Code § 89-1-527, the fact or suspicion that the party was the site of a death, homicide, or suicide does not count as a “material fact” requiring disclosure. The same is true if the property was occupied by someone with a disease, such as HIV or AIDS. As the statute says, “failure to disclose such nonmaterial facts or suspicions shall not give rise to a criminal, civil or administrative action against the owner of such real property, a licensed real estate broker or any affiliated licensee of the broker.” Because these facts do not actually have any real affect on the property, you are not forced to disclose them to buyers and stoke unnecessary fears. You cannot, however, lie if a buyer asks about them directly, but should instead decline to answer.
Missouri: The Show Me State
Real Estate Regulations in Missouri
Missouri has only a few statutes that specifically require a home seller to make disclosures to potential buyers. The most explicit is Missouri Rev. Stat. § 442.606. This statute requires that if the property is or was used as a site for methamphetamine production, the seller must disclose that in writing to the buyer.
Methamphetamine—also known as meth, crystal or ice—is a dangerous and illegal stimulant drug sometimes manufactured in homes. You need to disclose this criminal history only if you “had knowledge of such prior methamphetamine production.” In other words, you need not examine old police records to see whether your house was ever the site of drug production “related to methamphetamine, its salts, optical isomers and salts.”
In a similar vein, the Missouri statute requires you to disclose in writing whether the property was the site “endangering the welfare of a child” through “physical injury.” This requirement is unique to Missouri. Again, you must only disclose incidents about which you are aware. For example, if you knew that the prior owner of the home was convicted of abusing a minor child there, this would qualify for disclosure under Missouri Rev. Stat. § 442.606.
Missouri specifically allows you to remain silent on certain matters related to “psychological impacts” on the property, including whether prior occupants of the home had HIV/AIDS or whether the home was the site of a murder, felony, or suicide. (See Missouri Rev. Stat. § 442.600.)
Beyond these specific requirements, Missouri courts will typically enforce caveat emptor clauses in purchase contracts. Under the doctrine of caveat emptor (“let the buyer beware”), judges ordinarily refuse to compensate buyers for home defects found after the purchase unless the seller did something to actively prevent the buyer from inspecting the property to find all of the defects or lied to the buyer directly about the condition of the property.
This equation changes if you use a licensed real estate agent to help sell your home, however. Agents are held to certain standards for honesty under Missouri Rev. Stat. § 339.730.1, which requires that your agent “disclose to any [potential buyer] all adverse material facts actually known or that should have been known by the [agent].”
In other words, licensed real estate agents cannot lie for you without risking their license. For example, if you tell your agent that you want to sell your home quickly because termites are about to eat the last structural beam, this would be the sort of “adverse material fact” about which the agent would be legally obligated to inform the buyer.
Still, an agent “owes no duty to conduct an independent inspection or discover any adverse material facts for the benefit of the [buyer] and owes no duty to independently verify the accuracy or completeness of any statement made by the [seller] or any independent inspector.” Thus, your agent does not need to verify his or her knowledge of your property, or perform any sort of inspection. The agent simply cannot lie for you.
Value of Disclosing More Than the Law Requires to Home Buyers in Missouri
Initially, you may feel fortunate to live in a state that doesn’t force you to reveal damaging defects about your property beyond particular criminal histories. However, you may be surprised to learn that there are short- and long-term benefits and protections associated with making disclosures—and that, as a result, many Missouri sellers choose to affirmatively make such disclosures.
The Missouri Association of Realtors promulgates a six-page disclosure form that you can use. (Also check with your own real estate attorney or agent to see whether he or she has a preferred form for you to use).
The form asks you to check “Yes” or “No” in response to a few dozen questions—divided into 19 categories—about your property. For example, you are asked how old the home is, whether it is the subject of any liens or lawsuits, and whether you are aware of any major problems with various aspects of the house (heating, cooling, electrical, plumbing, and so forth).
Although the form is fairly short, the answers should give potential buyers a fairly comprehensive snapshot of any known defects with your property—at least enough information to know what they should pay particular attention to when commissioning inspections of their own. The form also gives you additional space to explain any of your responses to those questions in greater detail, and encourages you to attach pages if necessary.
So, you might wonder, what is the purpose of filling out this disclosure form if Missouri doesn’t require it?
First, it sets clear expectations regarding the quality and condition of the home, and may smooth negotiations while you’re in escrow. The buyer will see from the start that you are being open and honest about the condition of the house, and will have less reason to react with shock and dismay if and when the inspection report turns up defects. (Imagine, by contrast, if you were to disclose nothing, after which the buyer hires a home inspector who finds unmitigated outbreaks of mold throughout the home. The buyer would be horrified, and would likely try to renegotiate the sale price or demand repairs.)
Second, the disclosure prevents the buyer from later claiming that he or she did not know about a particular defect. Imagine that there is a busted HVAC system, and you do not say anything to the potential buyer. Even if the sale does close successfully, the buyer will quickly discover the problem upon trying to turn on the heat. Any claim that you “didn’t know” about it would be, at best, difficult to believe. The buyer will be angry; not just because you were dishonest by omission, but also because the buyer will now have to face significant repair costs. This creates a risk that the buyer may sue you for breach of contract or fraud.
Of course, you may have strong arguments to beat such a buyer’s lawsuits, especially if your purchase contract included a caveat emptor clause. Still, nothing prevents the buyer from suing you. The buyer may lose the legal arguments, but you will be forced to hire an attorney and engage in the stress of litigation. Making a full and forthright disclosure would ensure that the buyer’s expectations match reality. All of this will help to make sure that your home sale in Missouri goes smoothly.
Montana: The Treasure State
Real Estate Regulations in Montana
Not only does Montana lack any law that requires home sellers to give a formal disclosure statement to a potential home buyer, but Montana courts enforce caveat emptor clauses in purchase contracts. Under the doctrine of caveat emptor (“let the buyer beware”), judges ordinarily refuse to compensate buyers for home defects found after the purchase unless the seller did something to actively prevent the buyer from inspecting the property to find all of the defects.
Despite the lack of legislation on disclosure and the caveat emptor doctrine, Montana does have some relevant regulations around disclosures of property defects. M.C.A. § 37-51-313 requires that, “A seller agent is obligated to the buyer to… disclose to a buyer or the buyer agent any adverse material facts that concern the property and that are known to the seller agent….”
Montana defines an “adverse material fact” as “a fact that should be recognized by a broker or salesperson as being of enough significance as to affect a person’s decision to enter into a contract to buy or sell real property and may be a fact that… materially affects the value, affects structural integrity, or presents a documented health risk to occupants of the property.” What does this mean in practical terms?
Imagine that you tell your real estate agent that you’re really hoping to sell the property quickly, because you’re not sure how much longer the foundation of the house will hold out. Or, the agent, in walking around the property getting it ready for sale, may simply notice this and other problems without your input (being an expert on real estate matters). An unsteady foundation is surely among the “adverse material facts” that would affect someone’s willingness to buy the property.
The agent would have a legal obligation, under M.C.A. § 37-51-313, to report this fact to the buyer. An agent who fails to disclose such a fact to the buyer could lose his or her license. Thus, a real estate agent faces a great deal of risk if he or she knows about a defect, but fails to disclose it in order to expedite the sale.
Still, there are important carve outs in Montana’s requirements. The real estate agent is “not required to inspect the property or verify any statements made by the seller.” Moreover, the agent should “disclose to a buyer or the buyer agent when the seller agent has no personal knowledge of the veracity of information regarding adverse material facts that concern the property.” If you were the buyer, this language would not be particularly comforting. Essentially, the real estate agent is merely required to disclose to the buyer what was manifestly obvious or what you, as the seller, actually mentioned about the property. But the agent is not required to perform any independent inspections, and must even emphasize to the buyer that he or she has no real knowledge of the property.
In addition, the agent need not (under M.C.A. § 37-51-102) disclose that someone who lived in the property has or has had a communicable disease or that the property was the site of a suicide or felony.
The Value of Making Disclosures to Home Buyers in Montana
Initially, you may feel fortunate to live in a state that doesn’t force you to reveal damaging defects about your property. However, you may be surprised to learn that there are some long-term benefits and protections associated with making disclosures—and that, as a result, many Montana sellers choose to affirmatively make such disclosures.
Many Montana real estate agents use a simple, three-page Seller Disclosure Form. This form asks you to check “Yes,” “No,” or “Don’t Know” in response to a few dozen questions about your property. For example, you are asked how old the home is, whether it is the subject of any liens or lawsuits, and whether you are aware of any major problems with various aspects of the house (heating, cooling, electrical, plumbing, and so forth).
Although the form is short, the answers should give potential buyers a fairly comprehensive snapshot of any known defects with your property—at least enough information to know what they should pay particular attention to when commissioning inspections of their own. The form also gives you additional space to explain any of your responses to those questions in greater detail, and encourages you to attach pages if necessary.
What is the point of this disclosure form, if Montana doesn’t require it? First, it sets clear expectations regarding the quality and condition of the home, and may smooth negotiations while you’re in escrow. The buyer will see from the start that you are being open and honest about the condition of the house, and will have less reason to react with shock and dismay if and when the inspection report turns up defects. (Imagine, by contrast, if you were to disclose nothing, after which the buyer hires a home inspector who finds unmitigated outbreaks of mold throughout the home. The buyer would not be particularly pleased, and would likely try to renegotiate the sale price or demand repairs).
Second, the disclosure prevents the buyer from later claiming that he or she did not know about a particularly defect. Imagine that there is a busted HVAC system, and you do not say anything to the potential buyer. Even if the sale does close successfully, the buyer will quickly discover the problem upon trying to turn on the heat. Any claim that you “didn’t know” about it would be, at best, difficult to believe. The buyer will be angry; not just because you were dishonest by omission, but also because the buyer will now have to face the (probably significant) cost of remediating the basement and fixing the leak. This creates a risk that the buyer may sue you for breach of contract or fraud.
Of course, you may have strong arguments to beat such a buyer’s lawsuits, especially if your purchase contract included a caveat emptor clause. Still, nothing prevents the buyer from suing you. The buyer may lose the legal arguments, but you will be forced to hire an attorney and engage in the stress of litigation. Making a full and forthright disclosure would ensure that the buyer’s expectations match reality. All of this will help to make sure that your home sale in the Big Sky State goes as smoothly as possible.
Nebraska: The Cornhusker State
Disclosure Laws in Nebraska for Home Sales
Seller disclosures in Nebraska are governed by Neb. Rev. Stat. § 76-2,120. That statute provides: “Each seller of residential real property located in Nebraska shall provide the purchaser with a written disclosure statement of the real property’s condition.” The law applies both to outright sales and to leases with an option to purchase. You must give the disclosure to the buyer on or before the effective date of the purchase contract (most likely the date upon which you both signed it).
Both you and the buyer will sign the disclosure form, as proof that it has been given and received. (Obviously, you should retain a copy for your records.)
What Defects Does the Nebraska Disclosure Statement Cover?
The Nebraska statute is very specific about the information that you must disclose to the prospective home buyer. Neb. Rev. Stat. § 76-2,120-4 says that the disclosure must include: (a) the condition of all appliances that are included in the sale and whether they are in working condition; (b) the condition of the electrical system; (c) the condition of the heating and cooling systems; (d) the condition of the water system; (e) the condition of the sewer system; (f) the condition of all improvements on the property (such as renovations or expansions); (g) any hazardous conditions, including substances, materials, and products that may be an environmental hazard; (h) any title conditions affecting the property, including easements and zoning restrictions; and (i) the utility connections and whether they are public, private, or community.
The statute put the Nebraska Real Estate Commission in charge of creating the official disclosure form, and the four-page resulting form is available for free online. Remember, per Neb. Rev. Stat. § 76-2,120-5, you must complete the form “to the best of [your] belief and knowledge as of the date the disclosure statement.” If any information required by the disclosure statement is unknown to you, you may indicate that fact on the disclosure statement and still be in full compliance with the statute.
Nevada: The Silver State
Disclosure Laws in Nevada for Home Sales
N.R.S. 113.130 broadly covers disclosure requirements for home sellers in Nevada. The statute provides that, at least ten days before residential property is conveyed to the buyer, the seller “shall complete a disclosure form regarding the residential property.” The disclosure statement covers all known material defects.
Moreover, if you discover any new defects after giving the disclosure form to the buyer but before the actual closing, you must tell the purchaser or his or her agent about it, in writing, as soon as practicable after discovering the problem and before closing the sale to the buyer.
After getting the disclosure statement, the buyer can rescind the purchase. Imagine, for example, that you give the buyer a disclosure statement stating that the heating system doesn’t work. The buyer can back out of the transaction, perhaps finding another seller in Nevada whose heating system works, or alternatively negotiate for a change in terms; perhaps a lowering of your purchase price in order to recover the cost of the broken heating system, or that you make repairs before the closing. Or, the buyer can simply stick your disclosure statement in a drawer and move ahead with the sale.
Importantly, the law specifically states that it “does not require a seller to disclose a defect in residential property of which the seller is not aware.” In other words, you have no obligation to hire an inspector to tell you whether your plumbing works or not. If you do not know about a particular problem, you have nothing that needs to be disclosed.
What Is Covered By Nevada’s Disclosure Statement?
Unlike in some states, Nevada’s legislation does not specifically state what areas or aspects of the property require some sort of disclosure. The Nevada Real Estate Division (a state agency that monitors the real estate industry) offers a widely used four-page disclosure form containing all of the necessary information that you should disclose to a potential buyer.
The form asks you to answer a series of questions about various elements of your home by checking a box for “Yes,” “No,” or “N/A” (not applicable). The disclosure asks about the condition of various categories of aspects of your property, including: Systems/Appliances (such as plumbing, garbage disposal), Property Conditions (roof, renovations, flooding, and so on), and Environmental Conditions (such as radon, asbestos, and fungi).
Remember, the form is asking you whether you are “aware” of any conditions affecting the specified area. If you are not aware, simply check “No.” If you are aware, you can check “Yes” and offer an explanation on the final page (or attach additional pages of explanation).
You’ll notice that the form asks additional miscellaneous questions, particularly about legal aspects of the home. Is the property the subject of any lawsuits? Are there any unpaid contractors who have done work on the property? Are there any homeowners’ associations or Nevada common interest communities with governing authority over the area? These are questions that a buyer would like to have answers to.
And lest you think that an unasked question on the form allows you to remain silent about a defect, there’s a catchall question regarding “Any other conditions or aspects of the property which materially affect its value or use in an adverse manner.”
Both you and the buyer will sign this form, acknowledging that it has been given and received. You must give this form before the buyer makes a formal written offer for purchase. From your perspective, an important purpose of this exercise is to prevent the buyers from coming back to you after the closing and complaining that you never told them that there was a huge hole in the roof. Assuming you are honest on the form, you would have mentioned this sort of defect.
New Hampshire: The Granite State
Real Estate Regulations in New Hampshire
The disclosures required by New Hampshire law by sellers are very limited. N.H. Rev. Stat. Ann. § 477:4-d requires that prior to any offer of sale by the buyer, you must disclose, in writing, the following:
Information about the type of private water supply system, including its location, malfunctions, date of installation, date of most recent water test, and whether or not you have experienced a problem, such as an unsatisfactory water test or a water test with notations.
Information about the private sewage disposal system, including its location, malfunctions, the date it was most recently serviced, and the name of the contractor who services the system.
Information about your home’s insulation, including its type and location.
If no information about the private water system, sewage system, or insulation is available, these facts must be disclosed in writing. Remember, most homes will not have “private” water or sewer systems; they’ll use the public ones. Thus, this disclosure requirement may not apply to your home sale at all.
N.H. Rev. Stat. Ann. § 477:4-a further requires that you give the buyer certain notices about radon gas, lead paint, and arsenic. These notices are essentially just form language that you must give to the buyer. They are available online, and your real estate agent or attorney likely has a sample form to use, which the buyer will need to sign.
Not only does New Hampshire lack any broader laws that requires home sellers to give a formal disclosure statement about physical defects to a potential home buyer, but New Hampshire courts enforce caveat emptorclauses in purchase contracts. Under the doctrine of caveat emptor (“let the buyer beware”), judges ordinarily refuse to compensate buyers for home defects found after the purchase. There is a reason that New Hampshire’s motto is “Live Free or Die”; its legislators are not keen on excessive regulation!
Despite the lack of broader legislation on disclosure and the caveat emptor doctrine, New Hampshire does have some relevant regulations around disclosures of property defects. N.H. Rev. Stat. Ann. § 331-A:25-b provides: “The duties of [an agent] acting on behalf of a seller… include… Treating all prospective buyers… honestly [and]…. Disclosing to a prospective buyer or tenant any material physical, regulatory, mechanical, or on-site environmental condition affecting the subject property of which the licensee has actual knowledge.” Moreover, the statute mandates that this disclosure “shall occur at any time prior to the time the buyer… makes a written offer to purchase or lease the subject property.”
What does this mean in practical terms? Imagine that you are trying to sell your townhouse in Concord, and you tell your real estate agent that the foundation is caving in, and that you’d like to sell the house quickly before you need to bear the costs of remediation. Or similarly, imagine that the agent was walking around your home in preparation to sell it, when she notices that one of the bathrooms appears to have sagging floors.
Surely, unsteady foundations or possible bathroom leaks qualify as “material” defects within the meaning of the statute. The agent would have a legal obligation to report such facts to the buyer. An agent who fails to disclose such a fact to the buyer could lose his or her license. Thus, a real estate agent faces a great deal of risk if he or she knows about a defect, but fails to disclose it in order to expedite the sale.
Importantly, though, the statute also says that nothing in the law creates an “affirmative obligation on the part of the [agent] to investigate material defects.” This means that the real estate agent does not need to perform any sort of inspection or receive any formal reports before attempting to sell your home. Essentially, the agent is required to disclose to the buyer only what was manifestly obvious or what you, as the seller, actually mentioned about the property.
Purpose of Making Disclosures to Home Buyers in New Hampshire
Clearly, New Hampshire’s requirements for disclosure are fairly minimal. However, you may be surprised to learn that there are some long-term benefits and protections associated with making disclosures—and that many New Hampshire sellers choose to affirmatively make such disclosures as a result.
What would further disclosure look like? The New Hampshire Association of Realtors provides a commonly used disclosure form, which covers many of the critical elements of the home. This form asks you to check “Yes,” “No,” or “Unknown” in response to a few dozen questions about your property. For example, you are asked how old the home is, whether it is the subject of any liens or lawsuits, and whether you are aware of any major problems with various aspects of the house (heating, cooling, electrical, plumbing, and so forth). It also asks for some basic information about the house, for example whether the property is subject to any special taxes or assessments.
Although the form is short, the answers should give potential buyers a fairly comprehensive snapshot of any known defects with your property—at least enough information to know what they should pay particular attention to when commissioning inspections of their own. The form also gives you additional space to explain any of your responses to those questions in greater detail, and encourages you to attach pages if necessary.
While this form is not required, you should consider filling it out anyway. Making disclosures will set clear expectations for the buyer, who will not be surprised by any defects that his or her own home inspector finds. Your willingness to disclose problems with the home up-front will engender trust.
Also, your disclosures will prevent the buyer from suing you after closing, when he or she (inevitably) discovers hidden defects. Imagine that the buyer moves into the home and suddenly realizes that the HVAC system won’t even turn on. The significant costs of repair might prompt the buyer to retain an attorney to sue you for fraud or breach of contract.
Of course, you may have strong arguments to beat such a buyer’s lawsuits, especially if your purchase contract included a caveat emptor clause. Still, nothing prevents the buyer from suing you. The buyer may lose the legal arguments, but you will be forced to hire an attorney and engage in the stress of litigation. Making a full and forthright disclosure of defects—beyond the short ones that New Hampshire already requires—would ensure that the buyer’s expectations match reality. All of this will help to make sure that your home sale in the Granite State goes as smoothly as possible.
New Jersey: The Garden State
New Jersey Sellers Must Promise That the House Is Fit to Live In
When selling a house, New Jersey law inserts a rule that you are implying that it is fit to live in or habitable under the “implied warranty of habitability.” This is the case whether you say your house is habitable or not – in other words, you can’t sell it “as is” and thus escape this requirement.
New Jersey Sellers Must Disclose Known, Latent, Material Defects
In order to protect buyers from unwittingly purchasing real estate with hidden defects, a New Jersey home seller also has a duty under the common law to tell prospective buyers about known, latent (concealed) material defects in the property. For example, if you know that when it rains heavily your roof leaks into your attic, but there is no obvious evidence of that, you may wish to disclose this fact.
Hidden issues with the property that may affect the health or safety of inhabitants are particularly important to disclose. For example, if you have had your property tested for radon and the results show that the radon level is above what is considered safe, failure to disclose this may result in future legal action against you by the buyer.
As a seller, any materially false statements you say or write, or any material omissions you make that are relied upon by a buyer may, if they cause a loss to that buyer or make the property uninhabitable, set you up for a possible lawsuit. The likely legal bases include fraud or misrepresentation.
Such a lawsuit can be brought before or after the closing — perhaps many years after, depending on New Jersey’s “statute of limitations” laws, which limit the number of years within which a suit can be brought.
Representations and Disclosures Contained in the Sale Contract
The key to determining what other disclosures you must make to prospective home buyers is often found in the sale contract itself. Your Contract of Sale, if it is the standard form prepared by a licensed selling or listing Realtor in New Jersey, will include representations or promises you are making about the property.
One of these “promises” is that the property and all systems and equipment servicing the property are in good working order. This doesn’t mean that each system is brand new or in perfect working order — just that for the age and type of the particular system, it works.
The contract may also have you identify how you have used the property and state that this use does not violate any current zoning ordinances. So, if you are using it as a single family home, your contract will state that this is a proper use of the home under the current local zoning laws.
The standard contract will typically state that you have not made any improvements to the property that require permits from your municipality; and, if you have made any such improvements, that you have obtained final approvals for the completed work. The reason you need to disclose this information is twofold. First, the buyer will want to know that the work was done properly and according to code and that it passed formal inspection by the municipality. Second, the buyer will want to know that the property tax already includes an added assessment based upon the property as improved.
In many cases, a seller will have made additions to the property — say, an extra bathroom — but never notified the municipality about the work. If this information is revealed during the sale process (perhaps because the township does a certificate of occupancy inspection and discovers the new bathroom), the seller will have to pay taxes in the form of an “omitted assessment” at settlement. However, if the municipality does not find out until some later date, the buyer may end up having to foot the bill for up to two years’ worth of omitted tax assessments, and might possibly come after the seller for misrepresentation.
A standard contract includes many representations. Contracts of Sale are long, complex documents that include legal terms. So, it is best to retain an experienced, local real estate attorney to review the contract with you. The attorney will explain the contract and point out what each provision means and its importance.
Selling a New Jersey Property “As Is”
You may want to sell your house “as is.” Essentially, this means that you, as seller, do not intend on making any repairs to the property as part of the sale process. You may have set the sale price taking into account the condition of the property and reduced the price accordingly. You may not have the ability or the funds to make needed repairs to the property, even if you pay for them out of the sale proceeds.
Many Realtor-prepared contracts will include an “as is” clause. However, because the buyer is entitled to inspect and cancel, if warranted, this “as is” clause is often misunderstood by sellers to mean that if the buyer wants the property he has to take it “as is,” without any chance to cancel the contract or request repairs from the seller.
The “as is” clause more accurately points out to the buyer that the seller most likely has no intention of making any repairs to the property or even entering negotiations about repairs. The “as is” clause is accompanied by an inspection clause that permits the buyer to cancel the contract should the buyer’s inspection(s) reveal major defects that the buyer is not willing accept the property with. See “How Buyer Inspections Affect Your Disclosure Obligations,” below.
If you intentionally misrepresent, fraudulently conceal, or even negligently conceal something unrelated to the failure of inspection, even the “as is” clause may not protect you in a common law fraud or misrepresentation case. For example, hiding the fact that there is an old underground oil tank on the property may be unwise.
Buyers in the business of investing in, rehabilitating, and reselling (flipping) properties often buy a property “as is” and in some cases, without completing a formal inspection. These folks know what they are getting into. They know they are paying a lesser price because of its condition and do not expect the seller to make any repairs. Even in this scenario, you should carefully consider what to disclose to the buyer.
How Buyer Inspections Affect Your Disclosure Obligations
For most buyers, inspections are a must. Standard New Jersey home sale contracts normally give the buyer the right to have certified inspectors inspect the property to determine whether it has any defects. If the inspection(s) reveal major defects, the buyer may be permitted to cancel the contract. The types of defects that will permit the buyer to cancel are generally outlined in the contract: roof leaks, problems with the foundation or structure, plumbing, or heating and electrical systems that are not working properly, and so on.
Don’t worry that the discovery of home defects will inevitably lead to the deal falling through. Even if inspections reveal problems — as is likely — most contracts include provisions that permit the transaction to survive. For example, the seller can agree to repair or replace the defective items, give the buyer a credit with which to make the repairs later on, or the buyer can accept the property with a reduction in the purchase price. These details are usually negotiated between the parties or, preferably, between the parties’ attorneys. The result of the negotiations should be put into writing and form an additional part of the contract.
There are time-sensitive requirements outlined in the contract in order for the buyer to take advantage of these provisions. This means that if the contract gives the buyer the opportunity to inspect the property and he or she does not, the buyer is still obliged to go through with the purchase.
What to Disclose If the House Is Haunted or Otherwise Stigmatized
There are some “intangible” problems with a property that buyers cannot discover through an inspection. A property may, for example, be “stigmatized” if it is affected by psychological or other factors that have nothing to do with its physical condition but affect whether it would be desirable to live in.
Examples of such stigma include a house that is allegedly haunted or where a violent death took place. In New Jersey, you do not have to disclose these things BUT, if the buyer asks you about them, you must answer honestly.
Filling Out a Disclosure Form
In light of the various disclosure obligations described above, most Realtors in New Jersey will require that the seller fill out a SELLER’S PROPERTY CONDITION DISCLOSURE STATEMENT to share with prospective buyers. You may attract more buyers if you are willing to let them know straight up what condition the property is in before they make an offer. If you do not provide a disclosure form, you may well scare off a buyer who thinks there must be issues with the property that you’d rather not disclose.
This form provides facts about the history of repairs to the property and almost every physical aspect of the property, from the basement sump pump to the rooftop. Sellers usually deliver it to prospective buyers when they express an interest in making an offer on the property.
The form is not required of a New Jersey seller. In fact, some sellers refuse to fill it out, for fear that they may make an innocent omission or representation. If you do fill it out, make sure you answer it completely and honestly. Failure to do so could set you up for a potential suit for misrepresentation or failure to disclose.
Do the Seller’s Disclosure Obligations Ever End?
There is a point at which any and all representations you make about the property literally die. When you have your money, and the buyer has the Deed and the keys to the property, the contract is no longer operative. However, this fact does not necessarily take you off the hook for any omissions or fraudulent misrepresentations you have made during the sale process, which may come back to haunt you.
New Mexico: Land of Enchantment
Disclosure Laws in New Mexico for Home Sales
The general requirements of home sellers’ disclosures are laid out in New Mexico Statutes § 47-13 et seq., also known as the Real Estate Disclosure Act.
Sellers should provide buyers with a written disclosure of all material defects in their property about which they have actual knowledge. In plain English, this means that you should tell the buyer, in writing, about any serious problems with the property, such as a busted heating pump, a missing window, or a broken pipe.
These disclosures should be given to the buyer before the two of you sign a purchase contract. Intuitively, this makes sense. A buyer who learns of severe defects with the property after signing might quickly renegotiate the price, or back out of the sale entirely.
New Mexico is unique in that its statutory disclosure requirements focus heavily on tax issues. According to New Mexico Statutes § 47-13-4, before you can accept a buyer’s offer to purchase your property, you must: “(1) request from the county assessor the estimated amount of property tax levy with respect to the property and… specify the listed price as the value of the property to be used in the estimate” and “(2) provide a copy of the assessor’s response… in writing to the prospective buyer or the buyer’s broker.”
The statute also includes extensive discussion of specifically how the county assessor (sometimes referred to as the county clerk) must calculate the property taxes. Obviously, these requirements are intended to ensure that the buyer is not surprised by the amount of taxes that will be owed, after closing.
What Information Is Covered By the New Mexico Real Estate Disclosure Form?
While the New Mexico statute itself does not contain a specific form that you must fill out, the New Mexico Association of Realtors has created a sample form that contains all of the necessary information. (Check with your real estate agent or attorney to see whether they have a preferred form, or a form that would be somehow customized to your own piece of property.)
The disclosure form asks whether the seller is “aware of” a series of legal as well as physical problems with the property. For example, has there been smoke damage? Are there any outstanding liens on the property, or any easements that would affect the buyer’s rights? Are there any significant cracks in the exterior of the home? Water pressure problems? Remember, if you do not have any “awareness” of these areas of the home, you can answer “no.”
Certain pieces of information are explicitly excluded from disclosure. New Mexico Statutes § 47-13-2 notes that a seller “shall not be liable for failure to disclose and shall not have a duty to disclose… the fact or suspicion that the real property is or has been… the site of a natural death
the site of a homicide, suicide, assault, sexual assault or any other crime punishable as a felony.” Moreover, you have no duty to disclose whether your property was “owned or occupied by a person who was exposed to, infected with or suspected to be infected with the human immunodeficiency virus [i.e., HIV].”
The purpose of these carve-outs is to prevent the real estate market from being clouded by irrelevant pieces of information. Still, you should realize that buyers may ask these questions, and if there are any news stories on the Internet, for example about a crime committed on the property, you may want to be prepared with an answer, or to decline to answer.
New York: The Empire State
The Old Law Was “Caveat Emptor” or “Let the Buyer Beware”
Historically, New York home sellers had little duty to disclose. New York courts usually refused buyers’ claims for damages for home defects under the doctrine of “caveat emptor,” or “let the buyer beware.”
The buyer was expected to inspect the property and review the public records to determine whether or not there were any issues that might require repair or remediation or make the property a less desirable purchase. If the investigation uncovered a defect, the buyer’s only remedy was to request the problem be fixed before closing, or walk away from the purchase — if the purchase contract allowed it.
Exceptions to Caveat Emptor Rule Affect Seller’s Duty to Disclose
Over time, the New York courts created exceptions to the general rule of “caveat emptor,” thus increasing a seller’s risk of liability to the buyer for defects. A seller with a special relationship of trust to the buyer, such as trustee-beneficiary, guardian-ward, agent-principal, or attorney-client, could be liable for undisclosed defects.
Moreover, a seller who actively concealed a defect could be found liable to the buyer for damages caused by the defect. Active concealment means the seller knew about, but failed to disclose, a defect, and interfered with the buyer’s efforts to inspect the property. (See Laxer v. Edelman, 75 A.D. 3d 584 (2d Dept. 2010).)
Disclosure Requirements under the Property Condition Disclosure Act
To add to the courts’ findings, the New York legislature created the Property Condition Disclosure Act (the PCDA) (N.Y. Real Prop. Law § § 460-467). (It went into effect on March 1, 2002.)
Now, in addition to facing potential liability for failing to disclose under the exceptions to “caveat emptor,” you (as a home seller) must make certain disclosures under the law or pay a credit of $500 to the buyer at closing. While the PCDA requires you to complete a standardized disclosure statement and deliver it to the buyer before the buyer signs the final purchase contract, in practice, most home sellers in New York opt not to complete the statement and instead pay the credit.
Let’s take a closer look at what the disclosure requirements of PCDA mean for New York home sellers.
Who Must Make Disclosures
The PCDA applies to “residential real property,” which the law defines as a one- to four-family dwelling that is either actually used as a home or residence by one or more people, or intended to be used as a home or residence by one or more people.
The term does not include condominium units, cooperative apartments, vacant land on which the owner intends to build a residence, or property in a homeowner’s association that is not owned by the seller. (N.Y. Real Prop. Law §461(5).)
The law applies to all contracts for the purchase of “residential real property,” including long-term installment contracts and leases with either an obligation or an option to purchase the property. (N.Y. Real Prop. Law §461(4).)
Types of Disclosures New York Sellers Must Make
The PCDA requires you to complete a standard form disclosure statement, a copy of which is available on the New York Department of State website. The language of the disclosure statement comes directly from the law and contains 48 questions about the property. The questions are organized by topic, and the topics are:
general information: age, ownership, utility surcharges and possession of the property
environmental: whether the property is located within a flood plain, wetlands, or agricultural district, near a landfill; whether the property contains asbestos, lead pipes, or fuel storage tanks; whether a radon test has been performed on the property; or whether petroleum products or hazardous or toxic substances are known to have been spilled, leaked, or otherwise released on or from the property
structural: water, fire, smoke, or insect damage and the condition of the roof, and
mechanical systems and services: utilities, water source and quality, sewers, drainage, flooding.
The disclosure statement also asks you to check off any systems or property components that have known defects from a list that includes plumbing, air conditioning, heating, hot water, security and other detection systems, foundation, walls, sump pumps, floors, chimneys, patios, decks, or driveways. If any of these systems or components are defective, you should describe the defect in detail in the spaces provided on the form. (N.Y. Real Prop. Law §462).
Are You Exempt From the Disclosure Law?
You are not required to complete and deliver the disclosure statement for certain types of property transfers that are exempt from the PCDA. The following are exempt:
transfer ordered by the court in a lawsuit such as a probate, mortgage foreclosure, bankruptcy, legal partition, or divorce
transfer to your lender to satisfy your mortgage or prevent a foreclosure
transfer made to distribute the property of a decedent’s estate or trust, or made during the administration of a guardianship or conservatorship
transfer to another co-owner of the property, or to your spouse or a relative from a common ancestor, such as a parent, grandparent, child or grandchild
transfer that has not been ordered by a court, but is part of the settlement of a divorce, annulment, or legal separation
transfer to the state of New York, or any other unit of local government, whether part of a condemnation, or not, and
transfer of newly constructed property that has never been inhabited.
A New York Home Seller Need Not Investigate or Hire an Inspector
Under the PCDA, you do not have to make any investigation or inspection of the property or check the public records for information about the property before completing the disclosure statement. You are required to disclose only known defects, without making any special investigation or inspection.
The language of the disclosure statement reminds the buyer that it is not a warranty or guaranty from the seller regarding the condition of the property, and is not intended to substitute for any of the inspections, testing, or other research generally recommended to buyers.
Procedure for Completing and Delivering the Disclosure Statement
The real estate broker, agent, or sales person, representing you in your home sale — usually called the listing broker — is required to remind you of your disclosure duties under the PCDA, and will likely provide you with a copy of the standardized form disclosure statement. The listing broker is also required to share this information with any unrepresented buyer. Any listing broker who fails to inform you, or the buyer, about the PCDA may be liable to either for this violation.
You must complete the disclosure statement by answering the questions and explaining any known defects in detail in the space provided on the form, or on a separate sheet of paper that you may attach. Then, you sign the certification located near the bottom of the last page. Your signature means that your answers, and any explanations on or attached to the form, are true and complete to your actual knowledge as of that date.
The completed and signed disclosure statement should be delivered to the buyer before the buyer signs the final purchase contract. Typically, the listing broker will give the completed disclosure statement to the buyer or the buyer’s agent. If there is no listing broker, you may deliver the disclosure statement directly to the buyer or the buyer’s agent. The buyer then signs an acknowledgment of receipt and understanding, which is located at the bottom of the form. A copy of the completed form should be attached to the final, signed purchase contract.
Disclosure Statement Revisions and Updates
You must deliver a revised disclosure statement to the buyer if you become aware of an inaccuracy in the original statement, or if you discover a defect in the property after delivery of the original. However, you have no duty to revise or update the disclosure statement after the closing, nor after possession of the property is transferred to the buyer if that occurs on a date other than the closing date. (N.Y. Real Prop. Law §464.)
If You Don’t Make the Required Disclosures: Risks and Penalties
If you fail to timely complete and deliver the disclosure statement, you will owe the buyer a $500 credit toward the purchase price at the closing. (N.Y. Real Prop. Law §465(1)).
Many New York sellers’ attorneys interpret this relatively low penalty as an opportunity for their clients to opt out of the PCDA by paying the $500 in lieu of providing the form, and see this as avoiding the risk of potential liability for misstatements on the form.
However, paying the $500 statutory remedy does not protect you from liability under the case law exceptions to “caveat emptor,” described above. So, you should consult an attorney before making any decision not to complete the form, or not to otherwise disclose a material defect in the property. If you decide to give the $500 credit in lieu of the disclosure statement, ask the buyer to acknowledge in writing that the credit was accepted in lieu of the statement.
If you timely deliver a disclosure statement, with or without a revision or update, you may be liable to the buyer for a “willful failure to perform” the requirements of the law. (N.Y. Real Prop. Law §465(2)). New York courts have interpreted “willful failure to perform” under the PCDA narrowly. If you make a misstatement in the disclosure statement, it is likely that you will be liable to the buyer only if the misstatement actually prevents the buyer from learning about the defect through the usual inspections, or the defect could not reasonably be discovered through an inspection. In one case, for example, the court ruled that the seller was not liable because the buyer had hired an engineer to inspect the property, so the disclosure statement did not thwart the buyer’s ability to assess its condition. (See Renkas v. Sweers, 814 N. Y. S. 2d 892 (Sup. Ct., Monroe Co. 2005).)
If you are found liable to the buyer for a “willful failure to perform” the requirements of the PCDA, you may be required to pay the buyer’s actual damages causes by the defect.
North Carolina: The Tar Heel State
Real Estate Disclosure Law in North Carolina
The Residential Property Disclosure Act, codified as North Carolina G.S. 47E, requires the seller of residential real estate to complete a form—known formally as the Residential Property and Owners’ Association Disclosure Statement—disclosing conditions and defects with the property. The statute applies to any transfer of residential property (including leases with an option to purchase), whether or not a licensed real estate agent or broker is involved.
Specifically, the statute says that “a seller transferring residential real property shall disclose, in writing, to the buyer, agent and subagent, as applicable, all material defects of that property that are known at the time the property is offered for sale.” The law also requires that sellers“ provide the buyer with any information on radon from tests or inspections in [your] possession, and notify the buyer of any known radon hazards.”
The idea is to compel you to detail any facts of which you are aware that negatively affect the property. This could cover a wide variety of defects in your home, ranging from the condition of the roof to the condition of the gas tank. The legislature’s broader goal, of course, is to prevent the buyer from having any nasty surprises after moving into the home.
The North Carolina Real Estate Commission provides the approved form—a four-page document—that contains all of the necessary information. You must fill it out and provide written copies of this form to potential buyers.
The timing of your disclosure is important. According to North Carolina G.S. 47E-5, you must give the disclosure “no later than the time the purchaser makes an offer to purchase, exchange, or option the property.” If you fail to deliver the statement, the buyer can rescind his or her offer of purchase by written notice within three days of receiving the disclosure. Avoid any instinct to give your buyer the disclosure at the last minute, before the purchase contract is supposed to be signed. This might seem like a smart strategy if you assume that the buyer won’t have the time to read the statement or investigate the conditions before signing the contract. But North Carolina intentionally gives the buyer a few days to back out of the deal, if he or she sees something troubling on the disclosure.
What Issues or Defects Does the North Carolina Disclosure Cover?
North Carolina’s disclosure statement asks you 37 questions about various aspects of your home. Some of the questions are simply informational. For example: What is your address? When was the home constructed? Some of the questions are more ‘legal’ in nature: Are there any liens against the property? Are there any lawsuits involving the property? Is there a homeowners’ association in the neighborhood that restricts any of your rights?
The vast majority of the questions touch on specific elements of the home: Are you aware of any leaks in the basement? Are you aware of any problem with the water supply source? Are all of the appliances in good working order? Question #37 asks you to identify any additional fees that the homeowner can expect to pay. For example, is there a trash removal fee? Maintenance payments for a private road? These are the sorts of additional costs about which a buyer would want to know.
For each of these questions, you must answer “Yes,” “No,” or “No Representation.” “No Representation” simply means that you are not making any statements in one way or the other about the condition of the property. Keep in mind, this might raise some red flags in the eye of the buyer—especially if it’s an element of the home about which you would probably know.
Importantly, as the form reminds you, “you are only obligated to disclose information about which you have actual knowledge.” Actual knowledge means that you yourself actually possess information about that particular condition.
You are under no obligation to hire a home inspector to verify or shed light on any answer in the disclosure statement. To the contrary, the form specifically warns that “Purchasers are strongly encouraged to obtain their own inspections from a licensed home inspector or other professional.”
However, the legislature does give you the option to hire your own inspector, if you so choose. In fact, pursuant to North Carolina G.S. 47E-6, you can simply hire an inspector to write a report, in which case you no longer need to fill out the disclosure statement: “[T]he owner may discharge the duty to disclose… by providing a written report… [by an] engineer, land surveyor, geologist, pest control operator, contractor, home inspector or other expert, dealing with matters within the scope of… the expert’s license or expertise.” The statute further states that you “shall not be liable for any error, inaccuracy, or omission of any information” in such a report.
Finally, North Carolina G.S. 47E-4.1 provides for a further disclosure relating to mineral, oil, and gas rights, which is somewhat unique to North Carolina. The statute itself, here, has a series of six questions that you must answer on a separate sheet of paper—all of which can be included with your primary disclosure form. (Not surprisingly, most real estate transactions do not involve minerals or gas rights, so these questions may seem irrelevant.)
North Dakota: Peace Garden State
Real Estate Disclosure Requirements in North Dakota
North Dakota has some of the lowest levels of real estate disclosure regulation in the United States. While most states have passed clear legislation that would require a home seller to give a written disclosure report to potential buyers, North Dakota has not. The typical report in other states identifies any and all physical defects in the property, from a defective garage door to a leak in the cellar.
States that do not have this sort of detailed legislation ordinarily at least have a state agency or commission that regulates real estate agents and requires agents to make certain disclosures about the property that they are selling. The North Dakota Real Estate Commission fills this role, regulating the licensing of agents throughout the state.
Section 43-23-12.1(2) of the License Law requires that “If a buyer… is not represented by a real estate brokerage firm in the real property transaction, [the seller’s real estate agent]… owe[s] the following legal duties: to perform customary acts typically performed by real estate licensees in assisting a transaction to the transaction’s closing or conclusion if these acts are to assist the customer for which the services are directly provided; to perform these acts with honesty and good faith; and to disclose to the customer any adverse material facts actually known by the licensee which pertain to the title of the real property, the physical condition of the real property, and defects in the real property.”
In other words, if you are not represented by your own broker in the transaction, then the seller’s real estate agent has at least some minimal professional duties and responsibilities. He or she must assist with the mechanics of the transaction, do so with “honesty and good faith,” and disclose any “adverse material facts” that he or she “actually” knows about the property. These facts should relate to both the home’s physical condition and the seller’s legal title. Physical defects could include such things as a moldy basement or a broken HVAC system. A legal defect might include an easement running over the property, or some adverse claim to the title.
How Much Can a Buyer With No Broker Rely Upon the Seller’s Agent’s Disclosures?
For at least three reasons, unrepresented home buyers in North Dakota (which is likely a minority of buyers to begin with) would be wise to not rely too heavily upon the seller’s real estate agent’s disclosures.
First of all, not all real estate agents will be honest with you, despite their professional obligations and the threat of a lost license under the statute. Remember, they will typically receive a percentage of any sale. They therefore have a natural incentive to motivate you to buy the home, and may do so by being less than forthcoming about any defects with the home about which you’d want to know.
Second, you will notice that the statute does not require the agent to give you written disclosures of any defects. This is somewhat unusual; most state statutes are explicit that defect disclosures cannot be oral, but North Dakota leaves that issue somewhat ambiguous. Without a written record of what disclosures were made to you (and what disclosures were not made to you), you lack protection if you find a serious problem with the home after moving in. For example, imagine that you close on the home and then realize that there is no working electricity on the second floor. You want to sue, but the real estate agent claims that he or she told you of the defect and you chose to buy the home anyway. Oral disclosures do not protect you from potential liability.
Third, notice that the statute requires only that the real estate agent disclose defects that are “actually known.” Real estate agents in North Dakota are under no duty to affirmatively inspect the home, or verify its condition, before sale. If they do not happen to know of a defect; probably because the seller never mentioned it; they have no obligation to disclose anything.
As you can see, North Dakota’s minimal disclosure regulation is not exactly buyer-friendly. Given this, your best security is to hire your own professional inspector. Your real estate attorney or agent can probably suggest someone with a good reputation. This person can give you an independent assessment of the home, so that you know exactly what you are buying and can negotiate over repairs.
An additional possibility is to ask the seller to provide written disclosures about the state of the property. This is, after all, a negotiated purchase, and you have a right to ask for information. A seller who refuses may have something to hide; and a seller who complies will have every reason to be honest, because fraud can be a basis for legal action even without a separate law requiring seller disclosures. While the inspectors’ findings are likely to be the most complete, information from the seller, who may have lived in the house for years and knows its history and quirks, can be an invaluable guide for follow-up by the inspector.
Oklahoma: The Sooner State
Oklahoma Brokers Must Make Sure the Buyer Receives a Disclosure Statement
An Oklahoma listing broker must make sure the home seller’s disclosure statement and any amendments to it are available to any potential homebuyer before the seller accepts the buyer’s offer to purchase. (See 60 Okla. Stat. § 836(A-B).) The written statement should be on a form created by the Oklahoma Real Estate Commission rather than one created by you. (See 60 Okla. Stat.)
Oregon: The Beaver State
The Oregon Property Disclosure Statement – What You Must Disclose
In Oregon, a seller’s property disclosure statement must be in substantially the same form as and use the language provided by the state legislature in the statute, ORS 105.464. The form takes the guesswork out of what you must disclose.
The property disclosure statement requires you to answer specific questions regarding the condition of your property, relating to:
title to the property and existing encumbrances, such as easements and liens
domestic water sources and irrigation
insulation, including whether there is insulation in the ceiling, walls, and floor
dwelling structure, including whether the roof leaks and whether any unpermitted additions exist
dwelling systems and fixtures, such as the electrical and plumbing components of the house
common interests, like homeowners’ association dues and shared common areas.
For most questions, you will be required to answer “Yes”, “No,” or “Unknown”. Each answer must be based on your actual knowledge.
Let’s say the question is: Is the outdoor sprinkler system operable? If the sprinkler system is operable without any leak or other problems, the correct answer is more than likely “Yes.” Alternatively, if you have never used the sprinkler system, or have not used it in several years, the proper answer is likely “Unknown.” If you are uncertain, answering “Unknown” is the best answer. Such answer should alert the buyer, if he or she is concerned, to inquire further regarding that issue.
Consider each answer carefully. If you are unsure how to answer, ask your real estate
What Is a Material Defect?
The last question in the disclosure statement acts as a “catchall” to make sure all issues that may influence a buyer’s decision to purchase the property are fully disclosed. Specifically, it asks “Are there any other material defects affecting this property or its value that a prospective buyer should know about?” You must answer “Yes” or “No”. “Unknown” is not an option. If you answer “Yes,” you will need to provide a written explanation.
A material defect is a condition that may have a significant (negative) impact on the value of the property. For instance, toxic mold growing in the crawl space below your kitchen may significantly impact the value of your property. Likewise, a venomous spider infestation may significantly impact the value of your property. Oftentimes it is unclear whether a condition is material. Don’t be afraid to ask your real estate agent or attorney.
For Obvious Defects, Simply Not Knowing May Not Be Good Enough
Although answers to the questions in the disclosure statement need only to be based on your “actual knowledge,” a buyer may not believe that you didn’t know about a particularly obvious defect. If toxic mold is growing under the kitchen sink, smells odd, and is visibly obvious, but you fail to disclose it, a buyer may infer that you knew of the mold, and therefore sue you upon discovering it after the sale.
To avoid such a dispute with a disgruntled buyer, it is worth examining your closets, drawers, and other easily accessible areas of the house for obvious defects. This may be especially prudent if you are selling a house that you have not lived in recently (such as a rental). However, you don’t have an obligation to seek out hidden, unknown defects.
Fully Disclose All Known Defects, Even If the Buyer Retains an Inspector
To protect his or her investment, a buyer may have the house professionally inspected. An inspector will do a thorough examination of the house and likely prepare a written report. However, the inspector can’t see water damage through fresh paint, determine whether underground plumbing is leaking, or otherwise find hidden defects. If an inspector misses a defect you knew about and failed to disclose and perhaps even took steps to hide, you are at risk of being sued.
Pennsylvania: The Keystone State
What Types of Information and Defects Must Pennsylvania Sellers Disclose?
The standard form covers the home’s structure, such as the roof, basement, foundation and walls. Among other things, the form also asks the seller to let buyers know if the house has been treated for termites or has had water or sewage problems. Buyers need to be told if the house has been remodeled. Buyers also need to know whether the plumbing, electrical, heating and air conditioning systems are in good, working order.
If appliances and other equipment are included in the sale, then the seller needs to be honest about the condition of these appliances. If there are hazards or environmental contaminants on the property, the seller must disclose these as well. If there are any title, insurance, or financial issues, the seller must note these on the form.
And just in case anything got left out, the form includes a section for “Additional Material Defects,” where sellers are expected to disclose anything that didn’t otherwise fit the categories on the form.
What Types of Defects Are Not Included in the Pennsylvania Disclosures?
The Pennsylvania courts have been very clear that the concept of the disclosure applies only to things that can be repaired and have a fixed cost associated with the problem. But what if the house had something bad happen in it? For instance, what if the previous owner died of natural causes in the bedroom? Or a murder/suicide or a rape occurred in the house? Is this type of psychological damage something that Pennsylvania sellers are expected to disclose to buyers?
The Pennsylvania Superior Court found (in a case called Milliken v. Jacono, 2012 PA Super 284), that sellers do not have to disclose this type of information to buyers. The house at issue had been the site of a murder/suicide, which the sellers had purchased from the deceased owners’ estate. Despite court decisions in other states holding that psychological damage did need to be disclosed, the Pennsylvania court came to the opposite conclusion. So, in Pennsylvania, the law continues to require sellers to disclose only identifiable damage.
Another example of what is not included: what the neighbors are like. Even though the presence and activities of neighbors can have a significant impact on your use of your property, the fact that the neighbors are, for example loud, prone to holding frequent parties, or are actually part of a group home for mentally challenged adults, would not be things that sellers must disclose.
Also, defects that are not “material” do not need to be disclosed, as discussed next.
How Bad Must a Defect Be to Count as “Material?”
Not all problems in a house are equally serious, and the seller needs to disclose only those considered “material.” A leaky sink that just needs something tightened is dramatically different than a crack in a plumbing pipe that needs to be completely replaced. A material defect is a problem that cannot be corrected with simple maintenance – something that will require significant effort to repair.
As a practical matter, however, sellers are usually best advised to disclose any defect that they’re not sure whether to call “material” or not — or to fix it before completing the disclosure form.
What If the Seller Doesn’t Know About Every Defect?
Some defects are hard to find, or are just not noticeable to people untrained in construction and building. This raises the question of how much the seller should be expected to know and thus disclose. Under Pennsylvania law, the answer depends on exactly how much relevant expertise the seller has. In fact, it requires that the seller disclose, on the form, his or her level of knowledge and training in the areas of engineering, architecture, and other areas related to the construction and condition of property.
So, if you are a seller who has professional expertise in a related area, you will be held to a higher standard of disclosure than a home seller who has no experience in a related field — that is, you won’t readily be able to claim that you didn’t notice a problem that anyone with your background should have noticed, even if a layperson wouldn’t have. This also benefits the nurses and graphic artists of the world, because without relevant professional expertise, they are limited to disclosing only those things that they actually know about.
In either case, however, the seller is not required to complete any investigation or analysis of the property in order to complete the disclosure form. Still, sellers should be careful about trying too hard to hide behind their lack of knowledge. The law specifically states that “the seller shall not make any representations that the seller or the agent for the seller knows or has reason to know are false, deceptive or misleading.”
For example, let’s say Tony and Carmela sell their three-bedroom, two-story house so they can move to the suburbs. Months after the sale, they find out the new owner is experiencing water problems in the basement. The couple rarely went to the basement when they lived in the house and had no knowledge that problems were, in fact, developing down there. They would not be liable to the new owner for failing to mention water problems on their disclosure form. It would be the same story if a minor leak had once developed in the slab, but they’d had this portion replaced and believed that the problem had been completely corrected. But Tony and Carmela might, arguably, be found responsible if their neighbor had once said, “Hey, did you notice you can see boxes floating around at window level in your basement” and the couple had failed to look into the matter.
What Happens If the Seller Does Not Disclose a Defect?
If the sellers do not tell the buyers about known problems with the property, they can be found responsible for the costs of the repair as well as other actual damages the buyer may suffer. The law will not allow the buyer to claim punitive damages.
Rhode Island: The Ocean State
Disclosure Laws in Rhode Island for Home Sales
As a seller, you should familiarize yourself with Rhode Island Code § 5-20.8-2. This section of state law provides: “As soon as practicable, but in any event no later than prior to signing any agreement to transfer real estate, the seller of the real estate shall deliver a written disclosure to the buyer and to each agent with whom the seller knows he or she or the buyer has dealt in connection with the real estate.”
The timing is important. You must give the buyer the disclosure statement before a purchase contract is signed. Intuitively, this makes sense. A buyer who learns of severe defects with the property might quickly renegotiate the price, or back out of the sale entirely.
Rhode Island also has the unusual requirement that sellers must provide a copy of the disclosure not just to the buyer, but also to any real estate agent with whom the buyer has interacted. Clearly, the legislature wants to ensure that the buyer, seller, and agents are all aware of the property’s condition.
What Information Is Covered By the Rhode Island Real Estate Disclosure?
The statute charges the Rhode Island Real Estate Commission, a state agency that oversees real estate transactions and licensing, with creating the disclosure form to be used in real estate transactions. Before even getting to the potential defects, you will see that the form covers a series of specific facts about the home—for example, its age, your length of occupancy, any specific local taxes or assessments, and the presence of any hazardous material (such as lead paint or asbestos).
From there, the disclosure delves into practically every element of a property that you might imagine, from the condition of the chimney to the basement. For each element, you are asked to check a box as to whether you know of any “defects/malfunctions.”
You can check “Yes,” “No,” “UK” (unknown, if you do not have knowledge of whether as defect exists or not), or “NA” (not applicable, if that particular feature does not exist in your home). The Rhode Island Real Estate Commission asks you about 91 separate areas, so as to give the buyer a comprehensive snapshot of your knowledge of the property’s condition. And just in case any topic was left out, the form includes numerous lines for additional information.
Both you and the buyer must sign the disclosure before any formal offer of sale is made. Needless to say, you should both keep copies for your records.
What If I’m Unsure About Whether a Particular Defect Exists in My Home?
Not every Rhode Island homeowner knows every inch of his or her home. What if you have no idea about the integrity of the structure of your house, or whether there are any problems with the water pumps? Fortunately, the statute requires only that you “state all deficient conditions of which the seller has actual knowledge.” If you have no idea whether a particular aspect if your home is working or not, you can simply check the “UK” (“Unknown”) box on the form.
At the very top of the disclosure form, the buyer is reminded that he or she should not assume that what you disclose is the full story of the condition of the home: “[T]he seller is providing the buyer with this written disclosure of all deficient conditions of which the seller has knowledge. This is not a warranty by the seller that no other defective conditions exist, which there may or may not be. The buyer should estimate the cost of repair or replacement of deficient conditions prior to submitting an offer on this real estate.”
In other words, you are not giving the buyer any guarantee that, just because you do not know about a defect, it does not exist. Moreover, the form specifically advises the buyer to hire an inspector to conduct a thorough review of the property before closing the sale. This sort of professional inspection is common in real estate transactions. Even if an inspection does not turn up anything that concerns the buyer, it still gives the buyer peace of mind. You have no duty to pay for such an inspection. As the statute says, “Nothing contained in this section shall be construed to impose an affirmative duty on the seller to conduct inspections as to the condition of this real estate.”
South Carolina: The Palmetto State
Real Estate Disclosure Law in South Carolina
You can have a look at the state law that governs disclosures by sellers like yourself; it’s at South Carolina Code § 27-50-10 et seq. The statute applies not just to direct sales of residential property, but also to leases of property with an option to purchase (for example, if you lease your property to your neighbor for three years, and include in the contract a clause that after three years, the tenant has the right of first refusal to buy the land).
Interestingly, the statute does not apply when “both parties agree in writing not to complete a disclosure statement.” In other words, if you and the buyer agree that no disclosure statement is required, and specifically state that in the purchase contract, South Carolina law will not force you to submit one.
According to South Carolina Code § 27-50-40, you must “shall furnish to a purchaser a written disclosure statement” and it may be “delivered electronically through the Internet or other similar methods.” (In other words, you can simply email it to the buyer, or have your agent email it to them.)
The statute requires that the disclosure statement include information on: (1) the water supply and sanitary sewage disposal system; (2) the roof, chimneys, floors, foundation, basement, and other structural components and modifications of these structural components; (3) the plumbing, electrical, heating, cooling, and other mechanical systems; (4) information about current or prior infestations of wood-destroying insects or organisms; (5) whether any zoning laws, building codes, boundary disputes, or easements affect the property; (6) the presence of lead-based paint, asbestos, radon gas, methane gas, or toxic material; and (7) whether there are any operable rental or lease agreements on the property.
The South Carolina Real Estate Commission has created a sample disclosure form that lays out all of this information. The five-page form asks 24 questions that comprehensively cover all of the statute’s areas of concern. You must answer “Yes,” “No,” or “No Representation” to each of the questions. If you answer “Yes,” you are encouraged to attach an additional page to explain the defect at issue. And if you answer “No Representation,” remember that this will be a ‘red flag’ to the buyer that he or she should check out that particular aspect of the home before closing.
You must also be proactive when considering whether to enter any information in the various “other” clauses, for example “other land use restrictions” and “other appliances.” These are a clear indication that (per the statute) you are not meant to hide behind any failure of the form to ask the precise question that applies to your property, but are expected to tell the buyer about any and all material defects.
Your responsibility for accurate disclosures does not end once you hand the buyer the form. According to South Carolina Code § 27-50-60, if you disclosure an inaccuracy or additional defect requiring disclosure, “the owner shall correct promptly the inaccuracy by delivering a corrected disclosure statement to the purchaser or make reasonable repairs necessitated by the occurrence before closing.”
Study each of these disclosures carefully before answering, and check with your real estate agent or attorney if you are uncertain how to answer.
Do I Need to Have My Home Inspected Before Filling Out the Disclosure?
The answer is: No! South Carolina Code § 27-50-40 is very clear that “conditions of the property of which the owner has no actual or constructive knowledge” are not included in the disclosure statement. If you do not know of a problem with the electrical generator, for example, you do not need to hire a mechanical engineer to come inspect the generator before you give the buyer the disclosure statement.
It is very likely that the buyer will want a home inspection to be performed to verify whatever is contained in your disclosure statement, but that cost and expense doesn’t fall on your shoulders. Indeed, the South Carolina Real Estate Commission’s disclosure form specifically encourages this, and so does South Carolina Code § 27-50-80, which states that “This [law] does not limit the obligation of the purchaser to inspect the physical condition of the property and improvements that are the subject of a contract covered by this article.”
South Dakota: MT. Rushmore State
Disclosure Laws in South Dakota for Home Sellers
The legal basis for South Dakota’s disclosure requirement is South Dakota Stat. § 43-4-37 et seq., which broadly covers disclosure statements. The law states: “The seller of residential real property shall furnish to a buyer a completed copy of the disclosure statement before the buyer makes a written offer.” Moreover, if you (the seller) become aware of any other conditions requiring disclosure between when you give the buyer the statement and when you close on the transaction, you must make an amendment to the statement.
In some states, real estate agents and attorneys are left to their own devices to draft disclosure forms that fit the requirements of the legislation. In South Dakota, the legislature has done this work already, codifying the entire disclosure form in South Dakota Stat. § 43-4-44. (To state the obvious, this means that your disclosures to potential buyers cannot be oral; you must actually give the written disclosure form, as provided in this statute).
Keep in mind, the buyer can terminate the sale within three days of receipt of the disclosure statement or amendment, under South Dakota Stat. § 43-4-39.
What Issues or Defects Does the South Dakota Disclosure Form Cover?
The South Dakota Department of Labor and Regulation has created a standard disclosure form—four pages long and mostly mirroring the language of the statute—that you, as a home seller, must fill out. You’ll see that you must certify that the information presented is accurate as of the date of the form, and that the buyer must also sign the form (as proof that he or she actually received it).
The form has about 100 questions divided into different sections. First, you will answer questions about the property itself—the address, how long you’ve owned it, whether there have been boundary surveys, and whether you are aware of any easements or liens on it. Next, you’ll answer a long series of questions about the condition of various aspects of the home: the roof, the attic, the plumbing, the basement, and the sewers, just to name a handful. For each, you must state whether you are aware, “Yes”, “No”, or “Not Sure” whether there are any material defects with respect to that element of the home.
Importantly, the form also contains an “Other” clause; a general catchall, asking “Are you aware of any other material facts or problems that have not been disclosed on this form?”. This is a clear signal that your task is to make full disclosure to the buyer, not to hide behind any missing question on the form.
The form also encourages you to attach additional information or pages, should you need to explain any responses in more detail. This can be especially useful if you want to alert potential buyers to a known defect (and thus comply with the statute), but then note that the defect is relatively minor (and thus reassure the buyer).
Tennessee: The Volunteer State
Disclosure and Disclaimer Laws in Tennessee for Home Sales
Tenn. Code Ann. § 66-5-201 et seq. broadly covers disclosure requirements for home sellers in Tennessee. As a home seller, you generally must provide the buyer with a disclosure statement before a purchase contract is signed.
A disclosure statement is a short document signed by the seller that lists “any material defects known to the owner” about the property. Tenn. Code Ann. § 66-5-202 requires that the statement also include a notice to prospective buyers that they may wish to obtain professional advice or inspections of the property.
However, the buyer is permitted to waive his or her right to receive a full disclosure statement under this law. A buyer may do that if, for example, his or her intention is to demolish the entire home anyway, or if time is of the essence in the transaction.
If the buyer does make this waiver, then you must provide what is known as a disclaimer statement. In a disclaimer statement, you are telling the buyer that you make “no representations or warranties as to the condition of the real property” and that buyer will be receiving the real property “as is;” that is, with all defects that may exist. Like the disclosure statement, the disclaimer must be given to the buyer before a purchase contract is signed.
What Defects Must a Tennessee Home Seller Disclose?
Your disclosure statement must identify any material defects in the property about which you have actual knowledge. Tennessee’s legislature conveniently provides a model form within Tenn. Code Ann. § 66-5-202, which fulfills all of the statutory requirements. The Tennessee Realtors Association also promulgates a similar seven-page form, which is available online for free. Speak with your own real estate attorney or agent to see whether he or she has a preferred disclosure form.
Regardless of which form you use, it will contain a few dozen questions, which you can answer with “Yes,” “No,” or “Unknown.” These concern various aspects of the home, ranging from your legal title (for example, whether any contractors have placed liens on the home after a payment dispute) to the condition of the plumbing system (for instance, whether the sewer lines or outdoor sprinkler system works).
Remember, you are required only to check “Yes” or “No” if you actually know the answer to the question being asked. There is nothing wrong with checking “Unknown” if you truly do not know.
Beyond the questions contained in the disclosure form given to the buyer before the purchase contract is signed, Tenn. Code Ann. § 66-5-202 also requires certain specific disclosures to be contained in the purchase contract itself. You must disclose “the presence of any known exterior [water] well”; the results of any known “percolation test or soil absorption rate performed on the property”; the existence of a “sinkhole” on the property; and any known “groundwater erosion causing a surface subsidence of soil, sediment, or rock.” Obviously, these potentially hazardous environmental conditions would be of interest to a potential buyer.
There are certain issues you need not disclose. Like many states, Tennessee has a specific section of its statute providing that home sellers do not need to provide any information to potential buyers about whether or not prior residents were “afflicted with human immunodeficiency virus (HIV) or other disease which has been determined by medical evidence to be highly unlikely to be transmitted through the occupancy of a dwelling place.” Similarly, you do not need to disclose whether the property was the site of a homicide or suicide. All of these topics might spook certain potential buyers, but the legislature acknowledges that they should not be relevant to the sale.
You also do not need to perform research on your home. According to Tenn. Code Ann. § 66-5-201, a seller “shall not be required to undertake or provide any independent investigation or inspection of the property in order to make the disclosures.” In other words, you are not required to hire a mechanical engineer to make sure that the HVAC system works before submitting the disclosure statement to the buyer. You merely need to answer the questions on the disclosure form to the best of your own personal knowledge. If you do provide the buyer with an expert report such as the inspection report of a licensed land surveyor or engineer, you are not liable for its contents. According to Tenn. Code Ann. § 66-5-204, an owner “shall not be liable for any error, inaccuracy or omission” contained therein. It is up to buyers whether to believe the expert’s report, or commission a report of their own.
Texas: The Lone Star State
Disclosure Laws in Texas for Home Sales
Seller disclosures in Texas are governed by Texas Property Code Section § 5.008. That statute provides: “A seller of residential real property comprising not more than one dwelling unit located in this state shall give to the purchaser of the property a written notice” of material defects in the property. The statute asks sellers to use the disclosure form developed by the Texas Real Estate Commission (TREC), which is a state agency charged with generally overseeing the real estate market.
This form must be delivered to the buyer “on or before the effective date” of the property purchase contract. In other words, you cannot have the buyer sign the purchase contract a d become bound by it, and then a week later, hand the buyer a disclosure form saying that the electricity in the house does not work. Obviously, this sort of material defect would have influenced the buyer’s decision about the transaction, or at least the price the buyer was willing to pay for the home.
If you fail to deliver the disclosure form pre-contract, the buyer may terminate the contract for any reason within seven days after receiving the notice from you. Given all of the uncertainties and stresses involved in selling your home, you do not want to create this additional layer of uncertainty by allowing the buyer to escape the contract.
Both you and the buyer will sign the disclosure form, as proof that it has been given and received. (Obviously, you should retain a copy for your records.)
What Defects Does the Texas Disclosure Statement Cover?
Before considering the specifics of what the Texas disclosure form covers, it is useful to remember what the form does not cover. Importantly, the form only needs to be “completed to the best of seller’s belief and knowledge as of the date the notice is completed and signed.”
This means that you are not required to conduct any independent inspections of your property, or hire an engineer or professional inspector to verify the condition of any aspect of your home. If the information required by the form is unknown to you, the statute simply directs you to indicate that fact on the form.
The statute also specifically excludes certain information from required disclosure: “A seller or seller’s agent shall have no duty to make a disclosure or release information related to whether a death by natural causes, suicide, or accident unrelated to the condition of the property occurred on the property or whether a previous occupant had, may have had, has, or may have AIDS, HIV related illnesses, or HIV infection.” The purpose of this is to prevent buyers from making decisions based upon irrelevant information about prior owners of the property.
Now let’s turn to what is on the form. The Texas statute is very specific about the information that home sellers must disclose to prospective home buyers. TREC’s three-page form is divided into several sections.
On the first page, you are asked to check whether your property has specific elements: for example, central air conditioning, a swimming pool, or a satellite dish. It then asks you to explain in detail whether you are aware of any “known defects” with the elements you have identified.
You are also asked to disclose whether you are aware of any prior problems or repairs to particular aspects of the property. Is there a history of termite infestations? Previous structural damage? Evidence of radon gas? These are the sorts of potential issues about which a buyer would want to know before signing a purchase contract.
Remember, though, that you need only disclose information that you personally know. Thus, if you have no reason to believe that the home contains asbestos, you have no obligation to hire an inspector to find out before submitting the form. (The buyer has every right to do this, however, but at his or her own expense.)
Utah: The Beehive State
Required Seller Disclosures in Utah
The only disclosure explicitly required by Utah law is that sellers tell prospective buyers whether there has been “use, storage, or manufacture of methamphetamines” in the home. (See Utah Code. Annot. § 57-27-201.)
Utah Code. Annot. §57-1-1 outlines the disclosures that sellers do NOT have to make. A seller does not have to disclose that a home was the location of a homicide, a suicide, a decontaminated methamphetamine lab, or residence by a person with a life-ending disease such as AIDS.
Despite these minimal statutory requirements, however, Utah sellers routinely provide much more information to buyers, as described next.
Disclosures Made by Sellers to Avoid Legal Liability
In Utah, most real estate agents have their home-selling clients fill out a set of standard disclosure forms, and then give these to the buyers prior to closing.
These disclosures provide a wide range of information, such as the seller’s knowledge of any zoning or legal violations on the property, legal actions affecting the property, location within a Greenbelt, damage to the roof, past-due utility payments, problems with culinary water, damaged sewer or septic tanks, damaged heating and cooling devices, damaged equipment, damaged features, damaged appliances, damaged fireplace or stove, termite damage, rot, mold, remodeling that affected a significant portion of the home, structural defects, boundary disputes, easements, electrical defects, water damage, hazards, toxins, location within the governance of a homeowners association (HOA), past-due assessments to the HOA, and any property damage claims reported to an insurance agency. Most sellers should also take special care to disclose that square footage estimates are estimates only.
The reason for these disclosures is simple. While most home buyers conduct an inspection and a “walk through” prior to purchasing a home, many of them also discover defects after closing. At that point, however, it’s difficult for them to bring suit against the seller for failure to disclose these defects unless they can also prove that the seller committed fraud. By disclosing as many defects as possible before the closing, sellers can actually increase buyers’ awareness of issues with the home and reduce the chances of a fraud suit.
Vermont: The Green Mountain State
Real Estate Regulations in Vermont
Vermont has not law that specifically requires you to give a formal disclosure statement to a potential buyer of your house regarding its various physical defects.
Vermont does, however, have extensive legislation around the specific issue of lead. Lead was a common element of paint before the 1980s, and can lead to various health problems, particularly for children and pregnant women. The Vermont Lead Law requires that you disclose to potential buyers any known information about lead-based paint and lead-based hazards before selling your house. Purchase contracts must include an extensive disclosure form about lead-based paint. Moreover, buyers have up to ten days to check for lead hazards after signing the purchase contract.
Vermont has further regulations in place if you choose to use a licensed real estate agent to sell your property. Vt. Admin. Code 20-4-1800:4.5 requires that a real estate agent must “fully and promptly disclose to a prospective buyer all material facts within the [agent’s] knowledge concerning the property being sold.” Some examples of material facts include:
a defect that could significantly diminish the value of the land, structures, or structural components such as the roof, wiring, plumbing, heating system, water system, or sewage disposal system
a limitation in the deed that could substantially impair the marketability or use of the property and thereby diminish its value
a recognized or generally accepted hazard to the health or safety of a buyer or occupant of the property, and
facts the agent reasonably believes may directly impact the future use or value of the property.
The law further requires that if you, as the seller, tell the agent not to disclose a material defect of your property to a buyer, the agent must quit. If you try to tell the agent to lie for you, the agent also must quit, or face the loss of his or her license, if the buyer discovers the fraud and files a report.
The Vermont Real Estate Commission’s Office of Professional Regulation, a division of the Secretary of State, is charged with ensuring that agents maintain high standards of honesty in dealing with consumers. If a buyer gets burned by a real estate agent’s failure to disclose a material fact about the property, that agent runs the risk of being punished by the Commission, for example by having his or her license suspended or revoked. This is a steep price to pay, and most agents are unwilling to risk this sort of liability by lying to a prospective buyer.
In plain English, all of this means that any licensed Vermont real estate agent has a legal obligation not to lie to a buyer. If the agent knows that the HVAC is busted, for example, the agent cannot tell the buyer that it’s fine. The agent also cannot repeat any lies that you may have told the buyer.
Most likely, you are using a licensed Vermont real estate agent to sell your property. Nothing in the statute requires the agent to perform a complete floor-to-ceiling investigation of your home before approaching buyers, nor does it require the agent (or you) to hire a professional inspector to find potential physical defects. The agent needs to disclose to the buyer only what he or she actually knows or has observed about the property.
That said, the buyer will likely want to hire an inspector for this purpose. Neither you nor your real estate agent need to bear that cost.
The Value of Making Disclosures to Home Buyers in Vermont
As a Vermonter, you may think that you are lucky to live in a state that doesn’t force you to reveal damaging defects about your property. However, you may be surprised to learn that there are some long-term benefits and protections associated with making disclosures to prospective buyers, and that as a result, many Vermont sellers proactively make such disclosures.
Different Vermont real estate agents use slightly different disclosure forms for their clients. The Vermont Realtors’ Association offers one popular form online, although your own agent might have a preferred version. Most of the questions ask you to check “Yes,” “No,” or “Don’t Know” in response to a few dozen questions about your property. The form asks simple questions about the physical condition of the house, such as “Does the roof leak?” and whether the home contains asbestos. You are also asked questions about legal matters, such as whether there are any easements or liens on the property.
Although the standard versions of the Vermont form are relatively short (about six pages), the answers to the questions should give potential buyers a fairly comprehensive snapshot of any known defects with your property. The form also gives you additional space in which to explain any of your responses to those questions in greater detail, and encourages you to attach pages if necessary.
Why make an extensive written disclosure if Vermont law does not require you to do so? First, it sets clear expectations. The buyer will see from the start that you are being open about the condition of the house. The relationship between you will feel collaborative, rather than adversarial. This alone is incredibly important for such a large-scale transaction.
Second, the disclosure prevents the buyer from later claiming that you covered up a particular defect, and thus are liable for fraud or breach of contract. Imagine that the foundation is unstable and needs to be buttressed. If the buyer moves into the home and discovers the problem, he or she will face the significant cost of remediation. If you failed to disclose that issue, the buyer might feel duped and decide to sue. Had you disclosed the issue, however, the buyer could not that he or she didn’t know about the problem before purchasing the home. In other words, disclosure can serve to insulate you from liability.
Virginia: Old Diminion
What’s on the Virginia Disclosure Form
The Virginia Residential Property Disclosure Act (found in Title 55, Chapter 27 of the Code of Virginia) governs the information sellers must disclose to prospective buyers. As a seller in Virginia, your basic “disclosure” requirement is to provide the buyer with a signed “Residential Property Disclosure Statement”. (This form can be found at the Virginia government’s website for the Department of Professional and Occupational Regulation.)
When you look the form over, however, you will see that it is less of a “disclosure” statement than one saying the seller is not disclosing much of anything! Basically, the form provides notice to buyers that it is up to them to inspect and investigate the property on their own.
The disclosure statement (Code of Virginia §55-519) gives notice to the buyer that the seller:
makes no representations or warranties about the condition of the property or its attachments
makes no representations regarding adjacent parcels
makes no representations about whether historic district ordinances affect the property
makes no representations regarding whether property is protected under the Chesapeake Bay Preservation Act
makes no representations about nearby registered sexual offenders
represents that there are no undisclosed pending actions under the Uniform Statewide Building Code, or zoning violations that have not been fixed
makes no representations about whether the property is in a dam break inundation zone
makes no representations regarding whether any storm water detention facilities are on the property, and
makes no representations about the presence of any wastewater system on the property.
You, as the seller, must provide the signed disclosure form to the buyer before the purchase and sale contract takes effect. If a seller fails to do this, the buyer may void the contract, possibly even after the completion of the sale. (Code of Virginia § 55-520 (B).)
You can expect that any savvy buyer will read this form, realize you have revealed basically nothing about the property, and then require, as a contractual condition to closing the deal, the opportunity to further investigate and inspect the property. You will likely need to allow these inspections, and negotiate the details about them, and any significant need for follow-up repairs, with the buyer.
Exceptions to Who Must Fill Out the Disclosure Form
There are some exceptions where the disclosure statement is not required. No disclosure form is necessary in sales between co-owners or between relatives, or in certain tax, bankruptcy, trust, and foreclosure sales. (Code of Virginia § 55-518 (A).)
Also, a builder selling a new home for the first time is not required to complete the disclosure form. The builder-seller does, however, need to provide the buyer with written disclosure of any known defects that are in violation of the building code.
Other Disclosures Virginia Home Sellers Must Make
There are a few, limited situations where, in addition to the disclosure statement, a seller must provide the buyer with other disclosures. For example, in certain locations, the seller must give notice of any known mining operations, or mines, shafts, or pits affecting the property. (Code of Virginia § 55-518 (B).)
Also, a specific disclosure is required if the property has a septic system needing repair or maintenance and the seller has a waiver from the State Board of Health allowing the seller to keep using the septic. The seller must inform the buyer that the waiver will not apply to the buyer, and that upon the sale of the property the septic system will need to be repaired before it can be used. (Code of Virginia §32.1-164.1:1.)
Additionally, if the home is near a military air base, the seller must inform the buyer whether it is in a noise zone or accident potential zone (Code of Virginia §55-519.1).
Also, if you know that the house contains defective drywall, you must disclose this in writing to the buyer. (Code of Virginia §55-519.2.) Virginia has created standard disclosure forms for the septic, military air base and drywall issues.
Prohibitions Placed Upon on Virginia Home Sellers
Even though the seller’s disclosure obligations are minimal, Virginia law does have some standards governing a seller’s behavior. For example, a seller who knows about a problem may not say or do anything to distract the buyer from finding the problem.
Also, a seller may not cover up a known defect. The seller must also answer honestly any questions from a buyer about a potential problem with the property. So, this would suggest that if you are trying to sell a home with a large hole in the wall, it would be a bad idea to super-glue a poster over the hole to hide it from a prospective buyer, or deny that the hole exists if the buyer specifically asks about it.
Washington: The Evergreen State
Which Residential Sellers Must Make Disclosures?
Not every home seller is governed by this law. It applies only to sellers of “residential real property,” which refers to real property (land) consisting of between one and four residential dwelling units, including mobile homes.
The law also covers unimproved residential real property if it is zoned for residential use but no residential units have yet been placed on it. (See, Revised Washington Code Section 64.06.005.) Commercial real estate is NOT covered by this portion of the law.
Even if the type of property being sold is covered by the law, sellers in certain situations need not make disclosures, including if they are making the transfer:
as a gift to a spouse, domestic partner, child, parent, brother/sister, or child of a spouse or domestic partner
between spouses or domestic partners in connection with a dissolution of the relationship (such as a divorce), or
where the buyer has had an ownership interest in the property any time within two years of the date of the transfer.
(See Revised Washington Code Sect. 64.06.010 for the complete list.)
Finally, you have no legal duty to investigate or provide a potential buyer with information regarding the presence or lack of registered sex offenders near your property. (See, Revised Washington Code Sect. 64.06.021.) Buyers may look up this information on their own, however. A federal law known as “Megan’s Law” compels the states to make information on the location of registered sex offenders available to the public. If you want to see what buyers may be looking up in your area, go to the Washington Association of Sheriffs and Police Chiefs website.
How and When Sellers Must Make Disclosures
Your seller disclosure statement must be made in writing on a standard form. If you are using a real estate agent, he or she will likely be able to provide you with a copy of the form. To see the language of what will be on the form for improved property, go to Section 64.06.020 of the Revised Washington Code. If you will be selling unimproved residential real property, you can view the language at Revised Washington Code Sect. 64.06.015.
The form will outline the minimum information required of you and also make it easier to ensure you do not forget important disclosure areas.
Once you and the buyer have signed a written agreement for the sale of your property, you must deliver a copy of your completed disclosures to the buyer within five business days.
A buyer may, in certain situations, waive the right to receive your disclosure statement. In certain situations, however, the buyer may not waive receipt of the “Environmental” section of the seller disclosure statement.
What’s Covered by the Washington Seller Disclosure Form
As you’ll see on the form, the main categories of disclosure for selling your Washington home (“improved”residential real property) are:
1) Title and Legal – This section requires you to state that you have the legal authority to sell the property (the property must be in your name and no one else can have a right of first refusal, an option to purchase, a lease or rental agreement covering, or a life estate in the property).
2) Water – These disclosures involve things like the source of your household water (whether you have a well or obtain water from the public water system), whether the property receives irrigation water, and whether or not the property has an outdoor sprinkler system.
3) Sewer/On-Site Sewage System – Here, you must disclose details about what type of sewage disposal system the property utilizes.
4) Structural – Under this section, you must disclose things about the general structure of the building such as whether the roof has leaked, whether there are any defects with the chimney or the foundation, and how old the structure is.
5) Systems and Fixtures – This section requires you to disclose items that are being included with the property as part of the sale, such as the electrical system, the plumbing system, and the hot water tank. You must also disclose any defects with any of these included items, and state whether your property has smoke alarms.
6) Homeowners’ Association/Common Interests – If your property is a condo or part of some other development that’s governed by a Homeowners’ Association, you will need to say so, provide contact information for the person who can give the buyer copies of the relevant documents, and state whether there are any common areas or joint maintenance agreements for shared features of the property like walls, fences, or landscaping.
7) Environmental – Here, you are required to disclose flooding, drainage problems, or material damage to the property due to events such as fire, earthquakes, or landslides.
8) Manufactured and Mobile Homes – If the property includes a manufactured or mobile home, you’ll need to make a few additional disclosures regarding any alterations made to the unit.
9) Full Disclosure by Sellers – This is the ‘catch-all’ provision, emphasizing the importance of these disclosures: If there is anything that could affect the property that you have not covered by the categories already addressed and that the buyer “should know about,” you must disclose it here.
You will have fewer things to disclose if you are selling a new home that has never been occupied. For instance, you would not be required to disclose certain things regarding the structure itself (under Section 4 of the form) or items pertaining to systems and fixtures (Section 5 of the form).
For unimproved residential real property the categories are similar, although the form, of course, leaves out matters regarding structure, systems, fixtures, and so on, and adds sections on some basic matters such as soil stability and the availability of utility services.
A few additional seller disclosures are required for sales of land that is in close proximity to a farm (see, Revised Washington Code, Sect. 64.06.022).
If Changes Occur After Giving Buyers the Disclosure Form
Once you make your seller disclosures, you remain under an obligation to make sure your disclosures remain accurate until closing. If you learn, from anywhere other than the buyer or someone acting on the buyer’s behalf, about any change in circumstance or condition that makes any of your prior disclosures inaccurate, then you must update your disclosure form and deliver the amended statement to the buyer.
You need not, however, amend and redeliver your disclosure statement if you take whatever action is necessary to correct the new issue so that your disclosure statement, as originally made, is once again accurate. You have until three business days prior to the closing date to take care of this. (See, Revised Code of Washington Sects. 64.06.040 and 64.06.015.)
What Will Happen If You Don’t Make Complete Disclosures
Some sellers shy away from making complete disclosures, fearing that they will scare buyers away from the property or give rise to demands for a reduction in purchase price. Such fears are usually unfounded, however. For starters, not providing these disclosures may cause your ultimate home sale to fall through; if you fail to provide a prospective buyer with the disclosure statement, the buyer has a right to rescind the sale agreement.
Seller disclosures are an important part of the typical home sale in Washington State. Unless the buyer has specifically waived receiving the form (which rarely happens), the statement is almost always required.
What’s more, the purpose of these seller disclosures is not to judge whether or not your property is ”perfect” many homes have sustained some sort of damage throughout their existence, and buyers know that. The purpose of providing these disclosures is to give a potential buyer the information needed to make an informed decision about purchasing a property that, whether in its current condition or after a few necessary fixes, can provide the buyer with something they can enjoy, and something you can feel confident selling. The more you disclose, the more the buyers can trust that they’re entering into the transaction with full knowledge of what’s ahead.
West Virginia: The Mountain State
Real Estate Regulations in West Virginia
West Virginia does not have law that requires you to give a formal disclosure statement to a potential buyer of your house. West Virginia courts enforce caveat emptor clauses in purchase contracts. Under the doctrine of caveat emptor (“let the buyer beware”), judges ordinarily refuse to compensate buyers for home defects found after the purchase unless the seller did something to actively prevent the buyer from inspecting the property to find all of the defects.
Despite the lack of legislation on disclosure and the caveat emptor doctrine, the West Virginia Real Estate Commission (WVREC) does have some relevant regulations around disclosures of property defects. The WVREC is the state agency charged with overseeing the real estate market and licensing real estate agents. The West Virginia Real Estate License Act § 30-40-19 states that WVREC “shall have full power to refuse a license for reasonable cause or to revoke, suspend or impose any other sanction” against a real estate agent if the agent makes “any false promises or representations of a character likely to influence, persuade or induce a person involved in a real estate transaction.”
In plain English, this means that any licensed West Virginia real estate agent has a professional obligation to be honest with potential buyers. They may not make “any material fraud, misrepresentation, concealment, conspiracy, collusion, trick, scheme or other device whereby any other person relies upon [their] word, representation or conduct.” Most agents would not want to risk liability, or the loss of their license, in order to aid in a single sale.
Most likely, you are using a licensed real estate agent to sell your property. These regulations mean that your real estate agent cannot lie for you; the agent cannot tell a potential buyer that your house is in perfect condition if, in fact, you’ve already told the agent that your heating system is busted. Fortunately, nothing requires the agent to perform a complete basement-to-roof investigation of your home before approaching buyers, nor does it require the agent (or you) to hire a professional inspector to investigate potential physical defects. The agent merely cannot make a misrepresentation in order to capture a sale.
The Value of Making Disclosures in West Virginia
You may think that you are lucky to live in a state that doesn’t force you to reveal damaging defects about your property. However, you may be surprised to learn that there are some long-term benefits and protections associated with making disclosures–and that, as a result, many West Virginia sellers proactively make the disclosures.
A generic real estate seller disclosure form is all that you need. Your real estate agent or an attorney should be able to offer you a template. The form will likely ask you to identify the property’s address, and then check “Yes,” “No,” or “Don’t Know” in response to a few dozen questions about your property. For example, you may be asked how old the home is, whether it contains asbestos, and whether you are aware of any major appliances that need to be replaced.
Your answers should give potential buyers a fairly comprehensive snapshot of any known material defects with your property. The form will likely also give you additional space to explain any of your responses to those questions in greater detail, and encourage you to attach pages if necessary.
What is the purpose of supplying a disclosure form? First, it sets clear expectations between you and the buyer. The buyer will begin to trust you because you are voluntarily admitting to problems with your home, even though doing so could lower the purchase price; the value of this trust cannot be overestimated in a complex, stressful transaction like a home sale.
Second, the disclosure prevents the buyer from later claiming that you committed fraud. How? Imagine that you sell your Charleston home to a buyer. The buyer moves into the house, and then discovers that there is an enormous mold infestation in the basement. The cost to remediate it will be thousands of dollars. The buyer might try to sue you for fraud or breach of contract, perhaps alleging that you said the house was in perfect condition.
Even though you may have strong legal arguments against this type of lawsuit, since West Virginia does not require any specific disclosure, it would still be a headache. Making a full and forthright disclosure would ensure that the buyer’s expectations match reality. It would also present incontrovertible proof that the buyer actually knew about the condition before buying the home. The signed and dated disclosure form, therefore, would serve as important evidence in your defense.
Wisconsin: The Badger State
Which Wisconsin Home Sellers Must Make Disclosures
Most, but not all, sellers in Wisconsin are required to submit a real estate condition report to any potential buyer. The law makes an exception, however, for sellers who may not have a reasonable idea of the condition of the property because the seller does not actually own the property. These types of sellers include a personal representative of an estate, a trustee, a conservator, or any person serving as a fiduciary by virtue of court order.
If you find yourself serving in one of these positions and attempting to sell a property, you will not have to provide a condition report. Keep in mind, though, that you may ultimately be held responsible if it can be shown that you knowingly concealed a defect in order to expedite the sale of the home.
If you are not in one of the exempt categories of seller, you will have to provide the real estate condition report described in this article.
What Wisconsin Home Sellers Must Disclose
The real estate condition report required under state law prompts the seller to answer a series of questions regarding the condition of certain aspects of the property. Your real estate agent is likely to provide you with a blank copy of the “Real Estate Condition Report” form, or you can read the required language in Chapter 709 of the Wisconsin Statutes.
Multiple questions require feedback about structural defects in the property, such as in the roof, foundation, HVAC, wiring, and plumbing systems. Other questions address possible environmental problems, such as well water problems, asbestos, lead paint, radon, or on-site fuel tanks.
The remaining questions focus on legal issues to do with the property, such as boundary line disputes, shared well agreements, or encumbrances.
You must indicate next to each question whether or not you are aware of a defect falling into the category described by that question. If you answer “yes” to any of the questions, you must provide a written explanation to detail the flaw.
If the property you are selling is a condominium, you must provide the prospective buyer with the name of the condominium, the date that the condominium was created, the name and address of the condominium association along with a contact person, and a statement as to the amount of condominium fees or assessments currently due and owing.
Near the end of the form, you must also disclose how long you have lived at the home.
It is important to remember that the real estate condition report is not a guarantee as to the house, nor does it put the buyer in the position of purchasing a trouble-free, “like-new” home. Wisconsin law requires you to disclose any condition or defect that would result in a significant negative effect on the property value, that would significantly impair the health or safety of future occupants, or that would significantly shorten or negatively affect the normal life of the property. This means that you must have knowledge of a defect to the property and must reasonably believe that this defect will have a significant negative effect on the property. If both of those conditions are not met, you may not be required to disclose the defect.
When Wisconsin Home Sellers Must Give Disclosure Report to Buyers
Wisconsin law requires you to provide the completed real estate condition report to the buyer no less than ten days after you have accepted the buyer’s offer to purchase, but it can be provided earlier. Some sellers will provide the condition report to a prospective buyer before even receiving an offer to purchase.
There are advantages and disadvantages to providing the report this early. On one hand, this type of early disclosure may scare off potential buyers (if there is a significant defect identified in the report). On the other hand, if the buyer receives the condition report before submitting an offer, that buyer enters the deal feeling knowledgeable about the property’s condition – and cannot later rescind the offer on the basis of information contained in the report itself.
Regardless of when you provide the real estate condition report, realize that in the event that you accept an offer and the buyer has an inspection done on the property, any defects identified by the inspector will be relayed back to you. If the sale subsequently falls through, you are now aware of these newly discovered defects and must amend your real estate condition report to add them.
Wyoming: The Equality State
Real Estate Regulations in Wyoming
Wyoming does not have a law that requires you to give a formal disclosure statement to a potential buyer of your house. To the contrary, Wyoming’s courts enforce caveat emptor clauses in purchase contracts. Under the doctrine of caveat emptor (“let the buyer beware”), judges ordinarily refuse to compensate buyers for home defects found after the purchase unless the seller did something to actively prevent the buyer from inspecting the property to find all of the defects. Judges view the burden for pre-purchase investigation as falling on the buyer, rather than the seller.
Despite the lack of legislation on disclosure and the caveat emptor doctrine, Wyoming does have some regulations around real estate sales. These come into play largely when you use a licensed real estate agent. Under Wyoming Code 33-28-303, “a broker shall disclose to any prospective buyer all adverse material facts actually known by the broker.” What are adverse material facts? They may pertain to the title and the physical condition of the property, any material defects there, and any environmental hazards affecting it. Further, the broker “shall not perpetuate a material misrepresentation of the seller which the broker knows or should know is false.”
In plain English, this means that any licensed Wyoming real estate agent has a legal obligation not to lie to a buyer. If the agent knows that the water pump is busted, for example, the agent cannot tell the buyer that it’s in good working order. The agent also cannot repeat any lies that you may have told the buyer.
Why would an agent be worried about this sort of situation? The Wyoming Real Estate Commission is the state agency charged with overseeing real estate licensing and enforcing real estate laws. If a buyer gets burned by a real estate agent’s failure to disclose a material fact about the property, that agent runs the risk of being punished by the Commission, for example by having his or her license suspended or revoked. This is a steep price to pay, and most agents are unwilling to risk this sort of liability by lying to a prospective buyer.
Most likely, you are using a licensed real estate agent to sell your property. Fortunately, nothing in the statute requires the agent to perform a complete floor-to-ceiling investigation of your home before approaching buyers, nor does it require the agent (or you) to hire a professional inspector to find potential physical defects. That said, the buyer will likely want to hire an inspector for this purpose, but neither you nor your real estate agent need to bear that cost.
The Value of Making Disclosures in Wyoming
You may think that you are lucky to live in a state that doesn’t force you to reveal damaging defects about your property. However, you may be surprised to learn that there are some long-term benefits and protections associated with making disclosures, and that as a result, many Wyoming sellers proactively make the disclosures.
Different Wyoming real estate agents use slightly different disclosure forms for their clients. You can easily find example forms online, which are generally about four to five pages long. The forms ask you to check “Yes,” “No,” or “Don’t Know” in response to a few dozen questions about your property. The form asks simple questions about the physical condition of the house, such as “Does the roof leak?” and whether the home contains asbestos. You are also asked questions about legal matters, such as whether there are any easements or liens on the property.
Although it is short, the answers to the disclosure form questions should give potential buyers a fairly comprehensive snapshot of any known defects with your property. The form also gives you additional space to explain any of your responses to those questions in greater detail, and encourages you to attach pages if necessary. (Because Wyoming does not have an “official” form, however, you should talk with your real estate attorney or agent about the preferred documentation for your situation.)
Why make a written disclosure if the law does not require you to do so? First, it sets clear expectations. The buyer will see from the start that you are being open about the condition of the house, and have less reason to react with shock and dismay if his or her own inspection report turns up defects.
Second, the disclosure prevents the buyer from later claiming that he or she didn’t know about a particularly defect. Imagine that there is a major, ongoing leakage issue in your basement, and you clean it up, sell during a dry summer, and do not say anything to the potential buyer. Even if the sale does close successfully, the buyer will, as soon as the rains come, discover the problem. Any claim that you “didn’t know” about it would be, at best, difficult to believe. The buyer will be angry; not just because you were dishonest by omission, but also because the buyer will now have to face the unexpected cost of fixing the leak. This creates a risk that the buyer may sue you for breach of contract or fraud.
The Mortgage Process
Home Owners Insurance (HOI)
Once processing has a complete loan application with supporting documents, they will submit the loan to underwriting. Underwriters will review the application, supporting documentation and lender guidelines. They will then either issue a “conditional approval or possibly deny or suspend the file. Assuming the loan is approved there may be “conditions” to the approval that need to be resolved before they can issue a “clear to close”. Examples may include documenting the source of a large deposit, writing a letter explaining employment history, providing updated paystubs, or missing pages of a bank statement.
After the initial underwriting approval (conditional approval) is issued, the file is sent back to processing to work on getting the items requested by the underwriter.
There are two main types of underwriting conditions:
Prior to doc (PTD): Items that must be resolved before docs can be ordered.
Prior to funding (PTF): Items that must be resolved prior to funding (closing).
Review and re-submission of conditions. The processor and/or mortgage originator will work on obtaining the underwriting conditions. This often means that you, the borrower, will be hearing from the mortgage company with a list of additional items that are needed.
Once the processor has obtained everything from the conditional approval list, the file is sent back to underwriting for review. If the documents appease the underwriter, final approval is issued. Sometimes, the documents provided may trigger additional questions or requirements from an underwriter, in which case, they issue a revised approval with new conditions to be satisfied. This will continue until final approval is reached.
Final approval: This means that all prior to doc conditions have been met. There may or may not be prior to funding conditions remaining. At this point, loan documents can be prepared.
Loan Closing Documents
Lender Final Verification
Funding and Recording
What is an appraisal?
How can I boost my home’s appraisal value?
If you’re trying to sell your home, there are lots of relatively inexpensive things you can do to improve your home’s appraised value.
√ Unmade beds or a few dirty dishes won’t affect your value, but plaster cracks, water-stained walls, soiled carpeting, pests, or persistent odors might. Patch the walls and do other touch up work to put your best face forward.
√ Appraisers often value houses in $500 increments, so if there’s a repair over $500 that can or should be made, do it. Fix leaky faucets, broken windows and cracked ceilings.
√ Check your curb appeal. Overgrown landscaping and broken garage doors will work against you and your appraisal, especially if property values have declined in the neighborhood. Take the time to make the outside of your home look welcoming, like someplace you’d want to buy or visit.
√ Itemize your improvements. Jot down the repairs and updates you’ve made over the years, when you did them and how much they cost. Remember the items that an appraiser might not notice, like a new roof or insulation and even minor items like a new kitchen sink count too. Please note that improvements do not represent a dollar for dollar increase in value, but every little bit helps!
√ Display your neighborhood pride. If there have been positive changes to your neighborhood, like new schools or new roads…let the appraiser know.
√ Don’t show your age. The newer your home appears to be, regardless of its actual age the better. Bring carpet, tile, windows and other permanent fixtures into the 21st century.
Who appraises the home and how do I know they will do a good job?
How long does an appraisal take?
What can I do if I’m not happy with the Appraisal?
Preliminary Title Report (Prelim)
A preliminary title report is ordered and needs review by your lender. It’s not going to be one of the most riveting documents you’ll ever read. But you should examine the preliminary title report closely, as it’s one of the most important documents a buyer will receive.
Among dozens of documents that serve to disclose to the buyer important knowledge about the property, the preliminary title report documents ownership, vesting and detail regarding anything that is recorded against the property. For a buyer, the title report will reveal various liens, encroachments, easements and anything else recorded against the property. The title company compiles the report from a search of county records in order to issue title insurance, and any liens against the property are listed as “exceptions” to title insurance.
Here are some important pieces of the title report you should review carefully.
The Legal Description
The legal description is everything you won’t see in any Realtor marketing or advertising. It’s the literal description of where the property is located and the boundaries of the property in relation to the nearby streets and intersections. In the case of a condominium or planned unit development (PUD), the legal description will include the property’s interest in any common areas, exclusive or non-exclusive easements, and details on any parking or storage that conveys with the property.
Here’s an example of a legal description from a preliminary title report of a property: “Beginning at a point on the Westerly line of Fifth Avenue, distant thereon 250 feet Southerly from the Southerly line of Balboa Street; running thence Southerly along the Westerly line of Fifth Avenue 25 feet; thence at a right angle Westerly 120 feet,” and so on.
Property taxes always show up as the primary “lien” on a title report. A property cannot be transferred to a new owner when any outstanding property taxes are due to the city, county or town. As the top lien, they will indicate whether taxes are due or paid in full. Taxes must be settled before any debt holder gets paid.
Mortgage liens are generally listed directly below property taxes and they’re always ordered first, second, and third. The largest lien holder generally takes first position, though there are certain conditions where a secondary lien holder will be in first position. When a sale closes, the liens must be paid in the order that they appear on the title report. In the case of a “short” sale, there are not enough proceeds from the sale to pay off the property taxes and all of the lien holders. One or more lenders will get “shorted” by the amount they’re owed. In order for the sale to close, the lender must agree to the short payoff.
Chain of Title
A chain of title is the sequence of historical transfers of title to a property. The “chain” runs from the present owner back to the original owner of the property. In situations where documentation of ownership is important, it is often necessary to reconstruct the chain of title.
If there’s an easement recorded against the property and another owner has access to the property via the easement, that would be recorded against the title report. This stays with the report until both parties agree to remove it.
Restrictions, historic oversights, planning requirements.
From time to time, there will be items on the preliminary title report that aren’t run of the mill. If the home is located in a historic district and therefore subject to the rules and restrictions of that district, it will show up on the title. In this case, if there are restrictions about changing the facade of a house or requirements that facade alterations comply with a local historical oversight committee led by the local planning department, a potential buyer needs to know this.
In the case of a condo or PUD, there are Covenants, Conditions and Restrictions (CC&Rs), which are recorded against the property. Any new buyer is buying the condo subject to the rules and regulations documented in the CC&Rs. This is why it’s important for potential buyers to pull these from the report and review them. Once you’re the owner, you’re subject to those rules.
Glossary of Terms
Glossary of Terms: A-C
Derived from Latin battere, “abatement” a common legal term meaning “the beating down, removal, or diminishment” of something. For example, lead abatement refers to finding and removing lead paint. Abatement usually refers to “Rent Abatement”, the incentive offered by a landlord, including free rent, early occupancy, or reduction of fees.
Abstract of Title
Abstract of title is a historical summary of the recorded instruments and proceedings on the title of a property.
A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.
Adjustable-rate mortgage (ARM)
An ARM is a loan that has a varying interest rate and payment based on an adjustment period. The adjustment is dependent on the variation in a benchmark index, usually the LIBOR or prime rate. This loan is also known as a variable rate mortgage.
The date the interest rate changes on an adjustable-rate mortgage.
Adjusted Sales Price
Adjusted sales price is the price on the contract less all credit concessions by the seller.
Amenities are the enhancements that buildings offer its owners or tenants. These usually include a doorman, health club, garage, children’s playroom, common lounge, etc.
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.
A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.
Annual percentage rate (APR)
This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual note rate on your loan.
The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.
A written justification of the price paid for a property, primarily based on an analysis of comparable sales of similar homes nearby.
An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.
An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.
The increase in the value of a property due to changes in market conditions, inflation, or other causes.
The valuation placed on property by a public tax assessor for purposes of taxation.
The placing of a value on property for the purpose of taxation.
A public official who establishes the value of a property for taxation purposes.
Items of value owned by an individual. Assets that can be quickly converted into cash are considered “liquid assets.” These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.
When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.
An attorney-in-fact is a person appointed to perform legal acts for another under a power-of-attorney.
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.
The term applied when a buyer assumes the seller’s mortgage.
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.
The final lump sum payment that is due at the termination of a balloon mortgage.
By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a “Chapter 7 No Asset” bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an “A” paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.
Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
Usually refers to a fixed rate mortgage where the interest rate is “bought down” for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A “lender funded buydown” is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to “qualify” at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.
When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a “cash out refinance.”
Certificate of deposit
A time deposit held in a bank which pays a certain amount of interest to the depositor.
Certificate of deposit index
One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.
Certificate of Eligibility
A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.
Certificate of Occupancy (C of O)
The Certificate of Occupancy is a certificate issued by a local governmental entity responsible for the use of land in the community where the property is located stating that the structures on the property or any improvements made to these structures comply with the codes, ordinances and regulations of that governmental entity and that they may be occupied.
Certificate of Reasonable Value (CRV)
Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.
Chain of title
An analysis of the transfers of title to a piece of property over the years.
A title that is free of liens or legal questions as to ownership of the property.
This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.
Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
See Settlement Statement.
Cloud on title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
An additional individual who is both obligated on the loan and is on title to the property.
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.
Common area assessments
In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.
In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances. This is an outgrowth of the Spanish and Mexican heritage of the area.
Comparable sales (Comps)
Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as “comps.”
Competent parties are persons or organizations legally qualified to manage their own affairs, including entering into contracts.
Complete performance is the execution of a contract by virtue of all parties having fully performed all terms.
A condition in a contract is any fact or event which, if it occurs or fails to occur, automatically creates or extinguishes a legal obligation.
A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
A conforming loan is a mortgage issued within the framework of FNMA/FHLMC (Fannie Mae/Freddie Mac) guidelines in terms and amount. In general, any loan which does not meet these guidelines is a non-conforming loan. A loan which does not meet guidelines specifically because the loan amount exceeds the guideline limits is known as a jumbo loan. The Office of Federal Housing Enterprise Oversight (OFHEO) set the criteria on what constitutes a conforming loan limit that Fannie Mae and Freddie Mac can buy. Criteria include debt-to-income ratio limits and documentation requirements. The maximum loan amount is based on the October-to-October changes in median home price, above which a mortgage is considered a jumbo loan, and typically has higher rates associated with it.
Conformity is the homogeneous uses of land within a given area which results in maximizing land value.
Consideration is anything of value, as recognized by law, offered as an inducement to contract.
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Constructive notice occurs when one of any affected parties are bound by the knowledge of a fact even though they have not been officially notified of such fact.
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
An oral or written agreement to do or not to do a certain thing.
Contract Buyer’s Policy (Title Insurance)
Contract Buyer’s Policy is title insurance that protects the contract buyer against defects in contract seller’s title.
Refers to home loans other than government loans (VA and FHA).
An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.
Conveyance is the transfer of title to real property.
A cooling-off period is a three-day right of rescission for certain loan transactions.
A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.
Co-ownership occurs when title to real property is held by two or more persons at the same time; also called concurrent ownership
Cost of funds index (COFI)
One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.
Cost approach is an appraisal method for estimating the value of properties that have few, if any, comparables and are not income-producing.
A counter-offer is a new offer made by either the buyer or seller when rejecting a previous offer.
A covenant is a promise made in writing.
Covenant Against Encumbrances
A covenant against encumbrances is a promise in a deed that the title does not cause encumbrances except those set forth in the deed.
Covenant for Further Assurances
Covenant for further assurances is a promise in a deed that the grantor will execute further assurances that may be reasonable or necessary to perfect the title in the grantee.
Covenant of Quiet Enjoyment
A covenant of quiet enjoyment is a promise in a deed or lease that the grantee or lessee will not be disturbed in the use of the property because of a defect in the grantor’s or lessor’s title or lease.
Covenant of Right to Convey
A covenant of right to convey is a promise in a deed that the grantor has the legal capacity to convey the title.
Covenant of Seisin
A covenant of seisin is a promise in a deed ensuring the grantee that the grantor has the title being conveyed.
Covenant of Warranty
A covenant of warranty is a promise in a deed that the grantor will defend the title against lawful claimants.
A record of an individual’s repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.
A credit score is a numerical rating provided on a credit report that establishes creditworthiness based upon a person’s past credit/payment history and their current credit standing.
A person to whom money is owed.
A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.
Credit repository or Credit Agency
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
Glossary of Terms: D-E
An amount owed to another.
The debt-to-equity ratio, also referred to as the loan-to-value ratio, is a rule used by banks requiring that a borrower invest a minimum amount of equity cash (usually 10% to 25% of the purchase price) as a condition to obtaining a mortgage. The rule is used in conjunction with the carrying-cost rule to determine how much money a bank will lend. A ratio of 1 means 100% leverage of a property, and higher than 1 means negative equity.
Debt-to-Income Ratio or Debt-Service Ratio
The debt-to-income ratio is the relationship of a borrower’s monthly payment obligation on long-term debts divided by gross monthly income, expressed as a percentage. It is also known as bottom ratio.
The legal document conveying title to a property.
Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
Deed of trust
Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.
A deed restriction is a limitation on land use appearing in a deed.
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
Deficiency judgment is a court judgment obtained by a mortgagee for the amount of money a foreclosure sale proceed was deficient in fully satisfying the mortgage debt.
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
Delivery and Acceptance
Delivery and acceptance occurs when the transfer of a title by deed is given by the grantor to the grantee.
A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an “earnest money deposit.”
A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income. The current term for depreciating residential real estate is 27.5 years.
Disclosure and Informed Consent
Disclosure and informed consent is a real estate agent explaining his position in the agency relationship and the verbal and written consent of the relationship by the client.
The disclosure statement is an accounting of all financial aspects of a mortgage loan required of lenders to borrowers in residential mortgage loan as regulated by the Federal Reserve Board.
In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount.
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
A dual agent is a broker or salesperson who represents both the buyer and seller in the same transaction.
Due diligence is the investigation and review of a property to determine any legal liability.
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
Earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.
A right of way giving persons other than the owner access to or over a property.
Easement appurtenant is a right of use in the adjoining land of another that moves with the title to the property benefiting from the easement.
Easement by Condemnation
Easement by condemnation is exercising the right of eminent domain.
Easement by Grant
Easement by grant is created by the express written agreement of the landowners, usually in a deed.
Easement in Gross
Easement in gross is a right of use of the land of another without the requirement that the holder of the right own adjoining land.
The economic life is the period of time during which property is financially beneficial to an owner.
Effective Interest Rate
Effective interest rate is the actual rate of interest paid on a loan.
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
An improvement that intrudes illegally on another’s property.
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
Equity is the difference between what something is worth and any loan secured by the asset (i.e. the value of a property less the outstanding mortgage).
Equitable title is an interest in real estate such that a court will take notice and protect the owner’s rights.
Erosion is the wearing away of land by water, wind or other processes of nature.
Escheat is the right of the government to take title to property left by a person who dies without leaving a valid will (intestate) or qualified heirs.
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
Once each year your lender will perform an “escrow analysis” to make sure they are collecting the correct amount of money for the anticipated expenditures.
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
Estate at Sufferance
Estate at sufferance is the continuation to occupy property after legal authorization has expired.
Estate at Will
Estate at will is a leasehold condition that may be terminated at any point by either party.
Estate for Life
This is the interest of real property that ends with the death of a person.
Estate for Years
Estate for years is a leasehold condition of definite duration.
Estate from Year-to-Year
Estate from year-to-year is a leasehold state that automatically renews itself for consecutive periods until terminated by notice by either party; also called estate from period-to-period or periodic tenancy.
Estate in Real Property
Estate in real property is an interest sufficient to provide the right to use, possession, and control of land. It also establishes the degree and duration of ownership.
Examination of title
The report on the title of a property from the public records or an abstract of the title.
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.
The lawful expulsion of an occupant from real property.
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. “Executrix” is the feminine form.
An express agency is a relationship created by an oral or written agreement between a principal and an agent.
Exclusive Agency Agreement (Exclusive Listing)
An exclusive agency agreement is between a broker and a seller designating the broker as the seller’s sole agent for the purpose of selling his or her property. This agreement does not preclude the owner from effectuating a sale on his own.
Exclusive Right To Sell Agreement
An exclusive right to sell agreement is between a broker and a seller designating the broker as the seller’s sole representative for the purpose of selling property. In contrast to an exclusive-agency agreement, under an “exclusive-right-to-sell agreement”, a commission is due to the broker even if the apartment is sold directly by the owner.
Exclusive Use Zoning
Exclusive use zoning is a type of zoning in which only the specified use may be made of property within the zoned district.
An executed contract is an agreement that has been fully performed.
Glossary of Terms: F-J
Fair Housing Act of 1968
The Fair Housing Act of 1968 is a federal act prohibiting discrimination in the sale, rental or financing of housing on the basis of race, color, religion, gender or national origin.
Fair Housing Amendments Act of 1988
This federal act prohibits discrimination in the sale, rental, financing, or appraisal of housing on the basis of race, color, religion, gender, national origin, handicap, or familial status.
Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.
Fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
Fannie Mae (FNMA)
The Federal National Mortgage Association, which is chartered by Congress, a shareholder-owned company that is the nation’s largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
The greatest possible interest a person can have in real estate.
Fee simple estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
Fee Simple Absolute
Fee simple absolute is the inheritable estate in land providing the greatest interest of any form of title.
FHA Insured Loan
An FHA insured loan is a mortgage insured by the Federal Housing Administration. (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
The finance charge is the amount imposed on the borrower in a mortgage loan, consisting of origination fee, service charges, discount points, interest, credit report fees, and finders’ fees.
A loan secured by personal property, such as real estate property. The stock and lease of a cooperative corporation also constitute such personal property, and a loan secured by these instruments is referred to as a financing loan. Generally, real estate brokers refer to these financing loans as mortgages because they operate in the same manner, even though technically they are not.
A first mortgage is a mortgage whose lien is superior to the lien of any other mortgage on the same property. This lien is superior either because it was recorded prior to all other mortgages or because the mortgagee of another mortgage which had been recorded ahead of this mortgage has agreed to have a lien subordinated to the lien of this mortgage.
A lender’s agreement to make a loan to a specific borrower on a specific property.
The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.
A mortgage in which the interest rate does not change during the entire term of the loan.
Personal property that becomes real property when attached in a permanent manner to real estate.
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Freddie Mac is the nickname for Federal Home Loan Mortgage Corporation (FHLMC), a corporation wholly owned by the Federal Home Loan Bank System that purchases FHA, VA, and conventional mortgages.
Fully Amortizing Mortgage
A fully amortizing mortgage is a mortgage with scheduled uniform payments that will fully pay-off the loan over the term of the mortgage.
Functional obsolescence is a flawed or faulty property that is rendered inferior because of advances or changes.
General Warranty Deed
A general warranty deed is a deed denoting an unlimited guarantee of title.
Good Faith Estimate
A Good Faith Estimate is an estimate of the fees a mortgage borrower will be required to pay at closing. It is required by Federal law that the lender provides the Good Faith Estimate within three business days of the initial loan application.
Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)
In a mortgage, the grace period refers to a specified time frame in which payment may be made without the borrower being in default.
A “grandfather clause” allows an activity to continue that was once considered acceptable or legal, but has since had the rules or laws changed. An example of this is when a building once allowed pets, but subsequently changed the House Rules to not allow pets. The existing tenants or owners are allowed to keep their pets, but new occupants to the building are not allowed to bring them in. The existing pets and owners are “grandfathered”.
A grant is a transfer of title to real property by deed.
The person to whom an interest in real property is conveyed.
The person conveying an interest in real property.
Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.
Home equity line of credit
A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.
A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
Homeowners’ association (HOA)
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
A type of insurance often purchased by home buyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.
Housing Expense Ratio
The housing expense ratio is the relationship of a borrower’s monthly payment obligation on housing (principal, interest, taxes, insurances and other applicable housing expenses) divided by gross monthly income, expressed as a percentage. It is also referred to as top ratio.
HUD-1 settlement statement
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the “closing statement” or “settlement sheet.”
An examination of a property by a qualified inspector or engineer to understand the condition and to check for structural damage, termites, any required repairs or equipment replacement, etc.
The interest rate is the cost of borrowing money from a lender. Rates will vary and will change over time.
A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety.
A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor. Alternative spelling is “judgement.”
A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.
Glossary of Terms: L-N
A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time.
A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.
An alternative financing option that allows home buyers to lease a home with an option to buy. Each month’s rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as “lenders.”
A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.
Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner’s insurance policy.
Stands for “London Interbank Offered Rate”, and is the average yield of interbank offered rates for one-year U.S. dollar-denominated deposits in the London market. LIBOR is a common index used as a benchmark for adjusting mortgage interest rates in adjustable-rate mortgages.
A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.
For an adjustable-rate mortgage (ARM), a limit on the amount that the enterest rate can increase or decrease over the life of the mortgage.
Life estate is a freehold estate created for the duration of the life or lives of certain named persons. It is a non-inheritable estate.
A cash asset or an asset that is easily converted into cash.
Lis pendens means a “lawsuit pending”. See Notice of Lis Pendens.
The term used by brokers to market an apartment for sale or rent.
The listing broker represents the interests of the seller or landlord in the sale or rental of his or her property.
The loan commitment is the written obligation from a lending institution to provide a mortgage to a borrower.
Also referred to by a variety of other terms, such as lender, loan representative, loan “rep,” account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.
How a lender refers to the process of obtaining new loans.
Loan Origination Fee
The loan origination fee is the financing charge required by a lender.
After you obtain a loan, the company you make the payments to is “servicing” your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.
The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).
An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.
The time period during which the lender has guaranteed an interest rate to a borrower.
The market value of a property is an estimation of the price for a property in relation to the current real estate market.
The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down.
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.
A mechanic’s lien is a statutory lien available to anyone supplying labor or material to the construction of an improvement of land that ahs not been properly compensated.
Merged credit report
A credit report which reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.
Occasionally, a lender will agree to modify the terms of your mortgage without requiring you t refinance. If any changes are made, it is called a modification.
A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.
For a more complete discussion of mortgage banker, see “Types of Lenders.” A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers or correspondents.
A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.
The lender in a mortgage agreement.
Mortgage insurance (MI)
Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. Mortgages above 80% LTV that call themselves “No MI” are usually a made at a higher interest rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance themselves. Also, FHA loans and certain first-time home buyer programs require mortgage insurance regardless of the loan-to-value.
Mortgage insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.
The borrower in a mortgage agreement.
Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called “deferred interest.” The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.
A net listing is a method of establishing the listing broker’s commission as the entire amount above specified new amount to the seller. This method of establishing a broker’s commission is illegal in New York State.
No cash-out refinance
A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is caculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a “rate and term refinance.”
Many lenders offer loans that you can obtain at “no cost.” You should inquire whether this means there are no “lender” costs associated with the loan, or if it also covers the other costs you would normally have in a purchase or refinance transactions, such as title insurance, escrow fees, settlement fees, appraisal, recording fees, notary fees, and others. These are fees and costs which may be associated with buying a home or obtaining a loan, but not charged directly by the lender. Keep in mind that, like a “no-point” loan, the interest rate will be higher than if you obtain a loan that has costs associated with it.
A nonrecourse note is a type of note in which the borrower has no personal liability for payment.
Some legal documents, including certain leases and contracts of sale, are notarized by a certified Notary Public to verify the authenticity of a signature.
A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
The interest rate stated on a mortgage note.
Almost all lenders offer loans at “no points.” You will find the interest rate on a “no points” loan is approximately a quarter percent higher than on a loan where you pay one point.
Notice of default
A formal written notice to a borrower that a default has occurred and that legal action may be taken.
Notice of Lis Pendens
Notice of lis pendens is a public record warning all concerned parties that title to a property is the subject of a lawsuit and any lien resulting from the suit will attaché to the title.
Glossary of Terms: O-R
An offer is made to purchase a property at a specific price. Once an offer is accepted, then a contract of sale is issued by the either a private party, a real estate agent or a seller’s attorney.
Open-ended Listing Contract
An open-ended listing contract is a contract between a seller and a real estate broker that does not have a termination date.
An open-end mortgage is a mortgage that may be refinanced without rewriting the mortgage contract.
Origination is the first step in the mortgage loan process consisting of the completion of the application.
Original principal balance
The total amount of principal owed on a mortgage before any payments are made.
On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called “discount points.” One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.
A property purchase transaction in which the property seller provides all or part of the financing.
Payment change date
The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.
Periodic payment cap
For an adjustable-rate mortgage where the interest rate and the minimum payment amount fluctuate independently of one another, this is a limit on the amount that payments can increase or decrease during any one adjustment period.
Periodic rate cap
For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.
Any property that is not real property.
This stands for principal, interest, taxes and insurance. If you have an “impounded” loan, then your monthly payment to the lender includes all of these and probably includes mortgage insurance as well. If you do not have an impounded account, then the lender still calculates this amount and uses it as part of determining your debt-to-income ratio.
A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.
Planned unit development (PUD)
A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.
Points refer to the payment made to a lender as consideration for issuing a mortgage, usually based on a percentage of the loan amount. Each point is equal to 1% of the principal of the mortgage.
Power of attorney
A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.
A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.
Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner’s decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.
A fee that may be charged to a borrower who pays off a loan before it is due.
This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.
Generally, a primary residence of an owner or renter is one that they occupy the majority of time, usually considered to be 6 months and 1 day out of every year.
The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges. See remaining balance.
Principal, interest, taxes, and insurance (PITI)
The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.
Private mortgage insurance (MI)
Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.
Processing is the second step in the mortgage application process which involves the verification of information stated on the application. Credit reports and the appraisal are also ordered at this time.
A written promise to repay a specified amount over a specified period of time.
Property Condition Disclosure Form
This form is a comprehensive checklist pertaining to the condition of the property including its structure and any environmental issues in and around the property.
The property description is an accurate, legal description of the land.
The tax issued by a municipality on the ownership of a property.
A meeting in an announced public location to sell property to repay a mortgage that is in default.
Planned Unit Development (PUD)
A project or subdivision that includes common property that is owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.
Purchase money transaction
The acquisition of property through the payment of money or its equivalent.
Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The “top” or “front” ratio is a calculation of the borrower’s monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner’s association fees) as a percentage of monthly income. The “back” or “bottom” ratio includes housing costs as will as all other monthly debt.
A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.
A rate cap is the limit on interest rates during the term of an adjustable rate mortgage.
A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.
Ratios are guidelines applied by the lender during underwriting a mortgage loan application to determine how large a loan to grant an applicant. The ratios the lenders use are generally the Loan-to-Value Ratio, Housing-to-Income Ratio, and Debt-to-Income ratio.
Real estate agent
A person licensed to negotiate and transact the sale of real estate.
Real Estate Settlement Procedures Act (RESPA)
A consumer protection law that requires lenders to give borrowers advance notice of closing costs.
Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
Real Property Tax Lien
This lien is a tax levied against real property by the local government and has priority over all other liens.
A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.
The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”
The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.
The process of paying off one loan with the proceeds from a new loan using the same property as security.
The amount of principal that has not yet been repaid. See principal balance.
The original amortization term minus the number of payments that have been applied.
A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.
Right of first refusal
A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
Right of ingress or egress
The right to enter or leave designated premises.
Right of survivor-ship
In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.
Right of Survivor-ship
The right of survivor-ship is the right of an owner to receive the title to a co-owner’s share upon death of the co-owner, as in the case of joint tenancy and tenancy by the entirety.
Right-of-way is an easement allowing someone to use the land of another for a specific purpose.
Running with the Land
Running with the land refers to rights that are passed with the title of property from the grantor to the grantee.
Glossary of Terms: S-Z
A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.
The sale price, also referred to as the purchase price, refers to the amount of money paid by the purchaser to the seller.
Sales Comparison Approach
The sales comparison approach is an appraisal tool for estimating the value of a property with other similar properties that have sold recently.
Satisfaction of Mortgage
The satisfaction of mortgage indicates that a mortgage has been paid in full
A mortgage that has a lien position subordinate to the first mortgage.
The buying and selling of existing mortgages, usually as part of a “pool” of mortgages.
A loan that is backed by collateral.
The property that will be pledged as collateral for a loan.
An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.
The seller contribution is a payment by the seller of a property of some, or all, of the buyer’s closing costs
A seller’s agent is the listing agent that works in the best interests of the seller.
An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.
See HUD1 Settlement Statement
A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Any mortgage or other lien that has a priority that is lower than that of the first mortgage.
A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.
Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.
Tenancy by the Entirety
Tenancy by the entirety refers to co-ownership limited to husband and wife, with the right to survivorship.
Tenancy in common
As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.
The amortization term is the period of time in which the interest and principal payments of a loan must be made.
A term mortgage is a mortgage with interest payments only during the mortgage term, with the principal due at the end of the term.
A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.
A legal document evidencing a person’s right to or ownership of a property.
A company that specializes in examining and insuring titles to real estate.
Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.
A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.
Transfer of ownership
Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.
State or local tax payable when title passes from one owner to another.
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.
Two- to four-family property
A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.
A fiduciary who holds or controls property for the benefit of another.
In mortgage lending, underwriting is the decision-making process used to determine whether the loan risk is acceptable to the lender. Underwriting involves the satisfactory review of the property appraisal and examination of the borrower’s ability and willingness to repay the debt and sufficiency of collateral value of the property.
Unencumbered property is property that is free of any lien.
Unity of Interest
Unity of interest occurs when co-owners all have the same percentage of ownership in a property.
Unity of Possession
Unity of possession occurs when all co-owners have the right to possess any and all portions of the property owned, without physical division.
Unity of Time
Unity of time occurs when co-owners receive title at the same time in same conveyance.
Unity of Title
Unity of title occurs when co-owners have the same type of ownership in a property.
A mortgage that is guaranteed by the Department of Veterans Affairs (VA).
Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.
Veterans Administration (VA)
An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.
Zoning are the laws regulating land use.
Zoning ordinance is a statement settling forth the type of use permitted under each zoning classification and specific requirements for compliance.