Property Disclosure: The Real Estate Professional’s Guide To Reducing Risk

1. Property Disclosure:The Real Estate Professional’s Guide To Reducing Risk Marcia L. Russell, DREI

2. Introduction To Property Disclosure

3. Why Property Condition Disclosure Is Important • NAR statistics regarding lawsuits • E & O statistics regarding lawsuits • Elimination of Caveat Emptor in most states • New focus on environmental problems

4. Remedies For Failure To Disclose Defects • Actual damages • Punitive damages • Rescission of the transaction • License suspension or revocation • Board of REALTORS® disciplinary action

5. Misrepresentation • Definition • What is a material fact? • Opinion versus material fact

6. Theories of Legal Liability • Active fraud • Cooper & Co. v. Lester • Passive fraud • Naghad v. Century 21 Page One Realty • Negligent misrepresentation • Hamtil v. J.C. Nichols Real Estate

7. Theories of Legal Liability • Negligent non-disclosure • Amato v. Rathbun Realty • Gouveia v. Citicorp • Easton v. Strassburger • Tri-Professional Realty, Inc. v. Hillenburg • Negligent advice • Gerard v. Peterson

8. Reliance on Statements Made by Sellers • When brokers may be liable for incorrect statements made by sellers • Hoffman v. Connell

9. Other Bases of Misrepresentation Liability • Code of Ethics of National Association of REALTORS® • Licensing Act Liability • Consumer Protection Laws • Carter v. Gugliuzzi

10. Duty to Disclose • Analysis of “who represents whom” in a real estate transaction • Parahoo v. Mancini

11. Seller Disclosure • Use of property condition disclosure forms • Benefits of using disclosure forms • Trend toward mandatory disclosure

12. Property Disclosure Benefits • The seller • The purchaser • The real estate professional

13. Case Summary on Property Condition Disclosure Forms • Amyot v. Luchini • Englehart v. Kramer

14. Limiting Liability for Misrepresentation Claims • Implement procedures designed to reduce liability • Effective use of property condition disclosure forms • Involving third-party experts

15. Limiting Liability for Misrepresentation Claims • Conduct an inspection and watch for red flags • Document, document, document • Don’t predict the future • Answer questions carefully

16. The Role of Home Inspectors • Value of obtaining a professional evaluation of the property • Pre-listing home inspection • Wisdom of buyers conducting their own inspections

17. Stigmatized Property, Megan’s Law & Neighborhood Safety

18. Stigmatized Property • Property psychologically impacted • Event occurred or suspected to have occurred on property • No physical impact

19. Stigmatized Property • Most states have laws that declare stigmas are not material facts. • Stigmas include • Murder • Natural death • Suicide • Assault • Sexual assault • Felony crimes • AIDS and HIV

20. AIDS Disclosure • AIDS is a fatal disease • AIDS can be transmitted through • Sexual contact • Inoculation with HIV infected blood • Pregnancy

21. AIDS Disclosure • Fair housing concerns • HUD position • National Association of REALTORS® position

22. Disclosing Other Stigmas • Determine whether the information is fact or fiction • Check state laws • Determine materiality • Discuss disclosure with the sellers

23. Disclosing Other Stigmas • Benefits of disclosing other stigmas • New York Court reviews parties’ duties to disclose house was haunted • Stambovsky v. Ackley

24. Megan’s Law • Background • Federal law mandates community notification of location of sex offenders

25. Megan’s Law • The role of the real estate professional • Exemption for licensees in some states • Check state laws and licensing standards for guidelines on disclosure of sex offenders.

26. Constitutionality Concerns • Opponents argue sex offenders are being punished over and over by publishing their names and location. • Megan’s Laws declared unconstitutional in Hawaii and Connecticut.

27. Constitutionality Concerns • 2003 U.S. Supreme Court Ruling • Connecticut’s Megan’s Law declared constitutional

28. Responding to questions regarding neighborhood safety Property Management- crimes and dangerous conditions Elizondo v. Brightwood Townhomes Neighborhood Safety

29. Lead-Based Paint Disclosure

30. Lead-Based Paint Disclosure • Purpose of The Lead-Based Paint Hazard Reduction Act • Involves housing built prior to 1978 • HUD and EPA have issued joint regulations requiring the disclosure of known information on lead-based paint/hazards in target housing.

31. Regulations • The Regulations do not require testing or removal of lead-based paint. • If the lead paint is in good condition, it typically does not pose a problem

32. Lead Poisoning and Its Effects on Children and Others • Major sources of lead exposure • Children between the ages of 18 months & 6 years are at greatest risk • Testing for lead poisoning

33. Lead Poisoning and Its Effects on Children and Others • Lead-based paint is the most common cause of lead poisoning in children. • Health problems include: • Damage to the brain and nervous system • Behavior and learning problems • Slowed growth • Hearing problems • Headaches • Coma, convulsions and death

34. Lead Poisoning and Its Effects on Children and Others • The best way to determine if a child has high levels of lead in the blood is to do a blood test • Toxic signs

35. Lead Poisoning in Adults • Lead in drinking water • Pregnant women • Symptoms in adults

36. Brief History of Lead • The many uses of lead • Efforts to restrict the uses of lead

37. Summary of Housing Not Covered • Housing built after 1977 • Zero bedroom units • Housing for the elderly or persons with disabilities • Leases for less than 100 days • Foreclosure sales • Rental housing certified as lead-free

38. Agent Housing for the elderly Lead-based paint Lead-based paint hazard Risk assessment Target housing Zero bedroom units Definitions

39. Essential Requirements of Sellers/Lessors • Prior to ratification of a contract— • Sellers & lessors must disclose known lead-based paint and/or hazards & provide available reports to buyers & renters. • Buyers & renters must be given the pamphlet Protect Your Family From Lead in Your Home. • Buyers must be given a 10-day opportunity to conduct an inspection or risk assessment • Lead warning statements

40. Essential Requirements of Sellers/Lessors • Prior to ratification of a contract — • Records must be maintained for three years • Sample contract contingency • Sellers, lessors and real estate agents share responsibility for compliance

41. Essential Requirements of Sellers/Lessors • Buyers must acknowledge receipt of the Pamphlet, the required disclosures, and the 10-day opportunity to conduct a risk assessment or inspection for the presence of lead-based paint

42. Enforcement • HUD penalties up to $11,000 for each violation • EPA—Civil penalties up to $11,000 per violation; Criminal penalties up to $11,000 per violation • Private action with treble damages available

43. Testing • Paint inspection • Risk assessment • Testing methods

44. New Regulations for Federally Assisted Housing • HUD-issued rules require notification, evaluation and reduction of lead-based paint hazards in housing that receives federal assistance • Covered properties

45. Lead-Based Paint Pre-Renovation Rules • What is covered • Who is covered • What is required • When to give notice

46. Case Law • EPA imposes first civil penalties totaling $439,725. • EPA sites building owners for 46 violations of Lead-Based Paint Rules

47. Large Settlements in Property Management • Padilla v. Jois Realty • Hiraldo v. Kahn

48. Mold: A Growing Concern

49. Mold and How It Affects Real Estate • Latest environmental scare • Response by the real estate profession • Response by the insurance industry • Debate on health effects of mold

50. What Is Mold? • Type of fungi • Common indoor molds • CDC position on heath concerns