The sale of residential real estate is an exciting moment for sellers and buyers alike. On the closing date, both parties are usually happy, the seller to have sold the home and the buyer to have purchased it. However, once the buyer moves in and begins to use the home, defects may begin to surface. On occasion, buyers become so discontented with the residence that they decide to threaten the seller with a lawsuit. The result of litigation will likely depend on the disclosures made by the seller prior to the closing.
In the past, the prevailing legal maxim in real estate transactions was illustrated by the Latin phrase “caveat emptor,” which can be roughly translated to “let the buyer beware.” This meant that the seller involved in a transaction owed no duty to disclose any property defects and the buyers had to look out for their own best interests. The law has since evolved to place a greater burden on sellers to disclose defects in residential property. Due to the increase in buyer litigation, sellers of residential real estate must be aware of their duty to disclose.
In Minnesota, the seller must make a written disclosure to the prospective buyer of all material facts of which the seller is aware could adversely and significantly affect an ordinary buyer’s use and enjoyment of the property or any intended use of the property for which the seller is aware. Facts that have been held to be material include, but are not limited to, physical defects in the property, existing damages to the property, development near the property, water intrusion problems, and failed mechanical systems. Minnesota law also requires specific disclosures for radon, hazardous waste disposal or contamination, individual sewage treatment systems, lead paint (if the residence was constructed prior to 1978), the location of wells, methamphetamine production, underground storage tanks, and the existence of any exclusion from market value due to home improvements (where the exclusion will end upon the sale of the property and result in an increase in taxes). A seller is required to make good-faith disclosures based upon his or her knowledge at the time of the disclosure. If the seller subsequently learns of any inaccuracies, the seller must notify the buyer in writing as soon as reasonably possible.
A seller is not liable for any error, inaccuracy, or omission of any information that was not within the personal knowledge of the seller, that was based entirely on information provided by a qualified third party (such as a home inspector), that could be obtained only through inspection or observation of inaccessible portions of the property, or that could be discovered only by a person with expertise beyond the seller’s knowledge. Under Minnesota law, there is also no duty to disclose the fact that the residential property is or was occupied with someone infected with HIV or diagnosed with AIDS; was the site of a suicide, accidental death, natural death, or perceived paranormal activity; is located in a neighborhood containing any adult family home, community based residential facility, or nursing home; is in any way impacted by a sex-offender notification or related information (so long as the seller provides timely written notice of where such information can be obtained), or is impacted by airport zoning regulations (so long as the seller provides timely written notice of where such regulations can be obtained).
A seller who is aware of material defects pertaining to the real estate and fails to make the required disclosures may be liable to the buyer. Within two years after the closing date, the buyer may bring a civil action to recover damages or other equitable relief as determined by the court. Although the sale of the property is not automatically invalidated due to a seller’s nondisclosure of material facts, a court could still order a rescission of the sale.
Sellers may limit their liability by having the buyer obtain a written report from a home inspector. If the buyer obtains a written report, the seller does not have to furnish written disclosures. However, if the seller is given a copy of the report, the seller is required to disclose any known material fact that went unidentified by the inspector. Sellers may also limit their liability by obtaining their own inspections prior to listing the real estate for sale. A thorough inspection may uncover defects that the seller was unaware of or potentially forgot. With this information, the seller can choose to make the necessary repairs prior to listing the real estate or provide prospective buyers with the written report to avoid future claims of nondisclosure.
A seller may also seek to waive the written disclosure requirements by selling the property “as is.” This allows the seller to place the burden of due diligence on the buyer and avoid the hassle of negotiating repairs. However, a seller must be aware that any contemporaneous or subsequent disclosures may void the attempt to sell the property “as is.”
The failure to make proper disclosures can come back to haunt sellers after the closing date. Beyond the legal consequences, sellers also face the headache of dealing with a scorned buyer. By understanding the disclosure requirements, sellers of residential real estate can limit their liability and be forthright with buyers without over disclosing immaterial facts.
Joseph Heck is an attorney at Fryberger Law Firm. He can be reached at Fryberger’s Duluth office at (218) 722-0861.
The material in this article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
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