DISCLOSURE!
stamp disclosure in red over white background
Section 4 of the Purchase Contract entitled “Disclosures” is one of the most important segments of the contract and does the most to protect buyers from both seen and unseen problems with the property.
The Seller’s Property Disclosure Statement, otherwise known as the SPDS, is the sellers testimony to what they know about the property and what has occurred on the property while they have owned it.
The buyer and the buyer’s agent should read the SPDS carefully because there may be tip offs to potential problems which may not be noticeable. The buyer can ask for further enumeration of any item on the SPDS and this is also a good tool to be used by the Home Inspector.
Items of material fact must be disclosed, such as a roof leak, the presence of polybutylene plumbing, structural problems, wood infestation, electrical or environmental problems, sewer and wastewater treatment problems, high noise area, flooding, water damage, or the manufacture of meth. The SPDS can be used in a court of law to illustrate that the seller was covering up a problem. Legally required disclosures are mandatory and non-disclosure is considered fraud.
The seller, when filling out the form, should not guess. If he/she does not know the answer to a specific question, he/she should say unknown. That will alert the buyer to do some further investigation for the answer to that particular question. The SPDS is an important document referenced in the Disclosure section.
Very often, agents will put the SPDS, the Lead Based Paint Disclosure, and the Insurance Claims History on the Multiple Listing Service so that any potential buyer considering that property has access to as much information as possible prior to making an offer.
The Insurance Claims History, also known as the CLUE report, provides insurance history for the property for the past five years or the length of time the seller has owned the property, whichever is less. The seller can ask the insurance company for “a letter of experience” which details any claims made. The buyer can determine what, if any, problems are with the property including burglary. The seller should be able to get this letter from the insurance agent free of charge.
Any property built before 1978 must have a lead based paint addendum initialed and signed by the seller, the buyer, the seller’s agent, and the buyer’s agent. This is federal law and the penalties for noncompliance are very stiff. The buyer may investigate for lead based paint at his/her own expense. Most properties built prior to 1978 may have lead based paint which has been covered by a non-lead based paint.
Young children in the tenements on the east coast often would “gum” the window sills while looking down at the street. The incidence of mental dysfunction was noticeable and the federal government determined that ingesting lead based paint caused mental retardation. FHA buyers must be given the lead based paint pamphlet, “Protect Your Family from Lead in Your Home”.
Property in Tucson is identified by metes and bounds and by plat. Identification by a plat would be a typical subdivision, Rainbow Sunset Subdivison Lot 33. Metes and bounds uses Township, Range and Section, such as PTN W240.33′ E374.04′ S1050.61′ SW4 NW4 4.13 AC SEC 27-11-9.
If the property is in an unincorporated area- that is out of the City of Tucson and in the county- and five or fewer parcels are being sold, the seller must complete and have notarized an Affidavit of Disclosure. The seller is attesting to the presence or non-presence of utilities, type of road, septic or sewer, legal and or physical access to the property and other pertinent information. This resulted from the state trying to curb wildcat subdivisions when people purchased homes and then realized there was no water or the piece of property was considerably smaller than they believed.
The Affidavit of Disclosure must be signed by the buyer as well as the seller and it is recorded by the escrow officer with the paperwork transferring property from seller to buyer. The buyer may disapprove any of the items on the Affidavit within the inspection period or five days after receipt of the Affidavit.
There is an entire section on Due Diligence which I will discuss within the next two days and should be considered in conjunction with this section.
If there are any changes made to the SPDS during the period the property is in escrow, the seller has an obligation to notify all parties of the change. For instance, there is a hail storm and as a result there is roof damage. The buyer has five days after this notification to disapprove the contract and withdraw.
During the period of the escrow, the seller warrants that he/she will maintain and keep the property in good repair so that all mechanical systems are working at the close of escrow. The property is to be conveyed in the condition it was in when the buyer first made an accepted offer on the property. This includes all appliances, pool systems, special electrical systems, or other systems attached to the property. The seller will remove all personal property and debris from the property. I once wrote a contract which included “all dog feces to be removed from property and all holes filled.”
There are warranties which survive closing which include the fact the sell has notified the buyer of all latent defects which materially and or adversely impact the value of the property. Any payments in the previous 150 days to contractors regarding the property have been paid by the buyer, and that information concerning wastewater treatment is current and correct.
The buyer must warranty to the seller that anything which might impact his/her ability to purchase the property has been disclosed and that the buyer has done all inspections and accepts the property at the close of escrow. If the buyer is relying on verbal representations, they must be disclosed in writing.