PROPERTY CONDITION DISCLOSURE FORMS: HOW THE REAL ESTATE INDUSTRY EASED THE TRANSITION FROM CAVEAT EMPTOR TO "SELLER TELL ALL"

Real Property, Probate and Trust Journal, Summer 2004 by Lefcoe, George

II. FROM CAYEAT EMPTOR TO FULL DISCLOSURE FOR USED HOME BUYERS

A. The Justification for Caveat Emptor

When sellers had no disclosure obligations, they were protected from lawsuits by the mantra caveat emptor-let the buyer beware. The policy behind the norm can be distilled from the complete maxim: caveat emptor, qui ignorare non debuit quod jus alienum emit-"let a purchaser, who ought not to be ignorant of the amount and nature of the interest which he is about to buy, exercise proper caution."11 Between buyer and seller, the earlier rule burdened the buyer with evaluating the physical condition of the acquired property. True, the seller might know more about the property's covert shortcomings, but being human, the sellers might have learned to live with problems that buyers might find unacceptable, they could forget incidents that occurred years earlier, or they could even decide not to mention conditions that might jeopardize a sale or force a price reduction.12

The rule of caveat emptor presumes that the buyer is in a better position than the seller to ascertain whether the condition of the property fully satisfies the buyer's particular needs, tastes, and plans. The "due diligence" of a buyer hoping to reside in the residence without making major renovations will differ significantly from that of a buyer intending to demolish the house and build anew. The former will need a careful home inspection, while the latter should look for an architect and general contractor to review local zoning and building codes, lot dimensions, soil characteristics, and other matters pertaining to new construction.

B. Disclosure of Known Material Latent Defects Not Readily Apparent to the Buyer

Strict adherence to caveat emptor left buyers vulnerable to latent defects, even those known to the seller. To correct this inequity and reconcile the doctrine of caveat emptor with the rising tide of consumer protection law, from the 1960s onward, courts began conditioning the application of the doctrine by requiring sellers to disclose known material latent defects not known or readily apparent to the buyer.13

While property condition disclosure is now a statutory requirement in two-thirds of states, the common law remains important, and not just in the states without disclosure laws. For the most part, seller disclosure statutes have been drafted to complement, but not to modify or otherwise interfere with, the evolving common law of seller disclosure.14 Sellers remain obligated to disclose known material latent defects (as defined by courts over time) not readily observable to buyers.

Each of these elements-known, material, latent, and reliance-can give rise to factual disputes.15 For this reason, sellers are rarely able to obtain early dismissal of buyers' suits based on sellers' disclosure failures. Just as in suits predicated on fraud or negligent misrepresentation,16 these fact-intensive contests are seldom subject to dismissal by demurrer, motion to dismiss, or motion for summary judgment. Buyers also must be prepared to underwrite their participation in this expensive process, as they have the burden of proof on each element.