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

5. An "UndisclosedDefect" Hypothetical

To appreciate how these elements often render dispute outcomes unpredictable, consider the case of the buyer who purchased a log house that leaked badly during rainstorms.44 As the buyers wandered through the house, inspecting it for themselves, they noticed a black tarp on the floor, mildew stains on the ceiling and walls, and a log broken off from an exterior corner. The seller attributed the problem to the roof not having been extended far enough to cover the log. The buyers never hired a professional home inspector. After closing and taking possession, the buyers discovered the leakage problem was very serious. Neighboring owners pointed out that the logs on the buyers' newly acquired home had been installed upside down, preventing the log surface from properly shedding water. During heavy rains, water collected between the logs, damaged the interior, and rotted the wood.45

As in so many undisclosed defect cases, this one easily could have been decided the other way. The buyers were not able to demonstrate conclusively that the seller had actually known the true cause of the problem. The court could have ascribed knowledge to the seller despite her denial if the buyers had shown that the seller discussed the inverted log situation with her more observant neighbors.46

The buyers' failure to have the house professionally inspected weakened their case and evidenced a lack of due diligence on their part. But by not hiring an inspector, the buyers preserved their claim of reliance on the seller's erroneous but plausible explanation for the water damage.

Whether the defect was patent or latent also was contested. By comparing the placement of the logs with those in neighboring homes, the buyers could have seen the differences for themselves. Buyers, after all, are solely responsible for items known to them or within their diligent attention.47 Conversely, a trier of fact could have concluded that the problem was subtle enough to be beyond the reasonable observation of the typical buyer.

Examples like this demonstrate the importance of warranties and representations and the world of difference between these and disclosure obligations. When it comes to the sale of "used" housing by ordinary homeowners-about eighty-five percent of all home sales48-amateur sellers are not held liable for impliedly warranting the condition of the property sold.49 As long as the buyer had a chance to inspect the property beforehand, what the buyer saw was what the buyer got-unless the buyer contracted for a warranty from the seller.50 Courts flatly refused to imply warranties for fear of giving buyers more than the benefit of their bargains51 and opening courtroom doors to endless litigation. Had the seller of the leaky log house warranted or represented that it was waterproof, she would have been forced to pay to cure the problem. Under a disclosure regime, she would have had a chance of escaping liability entirely-as she did in this case.