Disclosure to Home Sellers

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					    Property Disclosure:
The Real Estate Professional’s
   Guide To Reducing Risk
      Marcia L. Russell, DREI
Introduction To Property
       Disclosure
     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
Remedies For Failure To
Disclose Defects
   Actual damages
   Punitive damages
   Rescission of the transaction
   License suspension or revocation
   Board of REALTORS® disciplinary
    action
Misrepresentation
   Definition
   What is a material fact?
   Opinion versus material fact
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
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
Reliance on Statements
Made by Sellers
                When brokers may
                 be liable for
                 incorrect
                 statements made
                 by sellers
                Hoffman v. Connell
Other Bases of
Misrepresentation Liability
   Code of Ethics of National
    Association of REALTORS®
   Licensing Act Liability
   Consumer Protection Laws
       Carter v. Gugliuzzi
Duty to Disclose

   Analysis of “who
    represents whom”
    in a real estate
    transaction
   Parahoo v. Mancini
Seller Disclosure

   Use of property condition disclosure
    forms
   Benefits of using disclosure forms
   Trend toward mandatory disclosure
Property Disclosure Benefits

   The seller
   The purchaser
   The real estate professional
Case Summary on Property
Condition Disclosure Forms

 Amyot v. Luchini
 Englehart v. Kramer
Limiting Liability for
Misrepresentation Claims

   Implement procedures designed to
    reduce liability
   Effective use of property condition
    disclosure forms
   Involving third-party experts
Limiting Liability for
Misrepresentation Claims
   Conduct an inspection and watch for
    red flags
   Document, document, document
   Don’t predict the future
   Answer questions carefully
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
Stigmatized Property,
    Megan’s Law &
Neighborhood Safety
Stigmatized Property
               Property psychologically
                impacted


               Event occurred or
                suspected to have
                occurred on property

               No physical impact
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
         AIDS Disclosure
   AIDS is a fatal disease
   AIDS can be transmitted through
       Sexual contact
       Inoculation with HIV infected blood
       Pregnancy
        AIDS Disclosure
   Fair housing concerns
   HUD position
   National Association of REALTORS®
    position
Disclosing Other Stigmas
 Determine whether the information
  is fact or fiction
 Check state laws
 Determine materiality
 Discuss disclosure with the sellers
Disclosing Other Stigmas
 Benefits of disclosing other stigmas
 New York Court reviews parties’
  duties to disclose house was
  haunted
       Stambovsky v. Ackley
Megan’s Law
 Background
 Federal law mandates community
  notification of location of sex
  offenders
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.
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.
Constitutionality Concerns
   2003 U.S. Supreme Court Ruling
       Connecticut’s Megan’s Law declared
        constitutional
    Neighborhood Safety
   Responding to questions
    regarding neighborhood
    safety

   Property Management-
    crimes and dangerous
    conditions

   Elizondo v. Brightwood
    Townhomes
Lead-Based Paint
      Disclosure
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.
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
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
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
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
Lead Poisoning in Adults
   Lead in drinking
    water

   Pregnant women

   Symptoms in
    adults
Brief History of Lead
   The many uses of lead
   Efforts to restrict the uses of lead
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
Definitions
   Agent                 Lead-based paint
                           hazard
   Housing for the
    elderly               Risk assessment

   Lead-based paint      Target housing

                          Zero bedroom
                           units
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
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
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
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
Testing
   Paint inspection
   Risk assessment
   Testing methods
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
Lead-Based Paint
Pre-Renovation Rules
   What is covered
   Who is covered
   What is required
   When to give notice
Case Law
   EPA imposes first civil penalties
    totaling $439,725.
   EPA sites building owners for 46
    violations of Lead-Based Paint Rules
Large Settlements in
Property Management
   Padilla v. Jois Realty
   Hiraldo v. Kahn
Mold: A Growing Concern
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
What Is Mold?
   Type of fungi

   Common indoor molds

   CDC position on heath concerns
What Is Mold?
   Type of fungi

   Common indoor molds

   CDC position on heath concerns
CDC: Making Your Home
Less Mold Friendly
               Maintain indoor
                humidity below
                50%
               Use air
                conditioners and
                dehumidifiers
                during humid
                months
               Maintain adequate
                ventilation
               Add mold
                inhibitors to paint
How Molds Reproduce
   Food source
   Source of moisture
   Optimal temperature
Building Materials and
Construction
                 Tight building
                  construction
                 Moisture control
                 New building
                  materials
Common Sources of Indoor
Moisture
   Overflow from sinks        Leaking roofs
    and sewers
                               Clothes dryer not
   Wet and damp areas
                                properly vented
   Moisture from cooking
    and bathing                Firewood stored
   Humidifiers                 indoors
   Flooding                   Over watering
   Plumbing leaks and          plants
    broken pipes               Older doors that
   Condensation on             lack good seals
    improperly insulated
    pipes                      Cracks or holes in
                                the building
Toxic Mold—Stachybotrys
Chartarum
                Thrives on
                 materials high in
                 cellulose
                Can create
                 mycotoxins
                Adverse reactions
                 to toxic mold
                People affected
                 more than others
Health Effects of Mold

                 Allergies
                 Infections
                 Irritations
Health Effects of Mold

                 Common health
                  effects
                 Serious health
                  effects
EPA: A Brief Guide to Mold,
Moisture and Your Home
   Guidelines for cleaning up mold
    problems
   Guidelines for preventing mold
    growth
EPA: A Brief Guide to Mold,
Moisture and Your Home

   Key to mold control is moisture
    control

   Moisture and mold control
    prevention tips from the Guide
Removing Mold
   Proper equipment
   Shut down
    systems
   Minimize spreading
    of spores
   Remove visible
    mold
   Disinfect surface
Mold in My Home: What Do
I Do?
   How can I tell if I have
    mold?
   Should I test for mold?
   General clean-up
    procedures
   What should I save or toss?
Mold Issues and the Real
Estate Professional
 The real estate agent duties
 State law requirements regarding
  disclosure of latent defects
 California Code
Mold Issues and the Real
Estate Professional
   Risk Reduction Tips
     Education
     Visual inspection by concerned party

     Seller disclosure
Crisis in the Insurance
Industry
   Multi-million dollar judgments

   Debate as to proven health effects
       CDC position

       Texas Medical Association
Texas—Mold’s Ground Zero
   70% of claims in 2001 were in Texas

   Mold claims skyrocketed from 1,050
    in Q1 of 2000 to 14,706 in Q4 of
    2001.

   Mold tax
  Texas: Paid Losses for
  Water Damage Claims
$800
                   Sharp increase in water losses were
$700                 obviously part of the problem.
$600

$500

$400

$300

$200

$100

  $0
        1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001*

Source: Texas Department of Insurance            * 2001 (estimate based on Jan. - Mar. data)
The Response from the
Insurance Industry
 Homeowners’ insurance becoming
  unavailable and unaffordable
 Exclusionary endorsements
 Other options
The Lawsuits
 California homeowner awarded
  $18.5 million
 Tenants awarded $1 million in
  Delaware
 Ed McMahon sued for $20 million
 Multi-million dollar Texas mold
  verdict reduced
Other Environmental
           Concerns
Hazardous Materials
   Effect on property values
   Testing requirements by lenders
   Health concerns
The Real Estate
Professional’s Role
   Become familiar with common
    hazards in market

   Recognize potential hazards

   Avoid making representations about
    environmental condition of property
The Real Estate
Professional’s Role

   Environmental contingency clause

   Seller property condition forms

   Home inspectors
CERCLA and SARA


    Creates liability for cleanup

    Innocent landowner’s defense

    Potentially responsible parties

    Liability of the real estate agent
Environmental Due Diligence



   The process of taking all appropriate
    and reasonable steps to ascertain
    there is no contamination at the
    site.
Evaluating Environmental
Hazards
   Preliminary Site Assessment

   Phase 1 Environmental Assessment

   Phase 2 Environmental Assessment

   Phase 3 Environmental Assessment
De Minimis Settlement

   The EPA will consider a de minimus
    settlement with innocent landowners
    that would limit the amount that
    must be contributed for the clean-
    up.

   Factors considered by EPA to
    establish de minimus settlement.
Asbestos

 Naturally occurring silicate mineral
 Link to cancer
 Use in construction materials
 When asbestos is dangerous
 Litigation update
Common Places Where
Asbestos Is Found
   Vinyl flooring material
   Patching compounds & textured paint
   Ceiling tiles & sprayed ceilings
   Stove & furnace insulation
   Door gaskets
   Pipe insulation & wall/ceiling insulation
   In some appliances, roof shingles, &
    siding
Removal of Asbestos
   Damaged asbestos should be
    repaired, enclosed or removed by a
    trained professional.

   EPA publication Asbestos in the
    Home: A Homeowner’s Guide
Radon

   Radon is a naturally occurring
    odorless, tasteless radioactive gas
   Radon is the second leading cause
    of lung cancer after cigarette
    smoking
   EPA estimates that 1 out of 15
    homes has radon levels in excess
    of its guidelines
Radon

   Testing for radon
     Easy and affordable
     Costs

     Charcoal canister and alpha tract
      detector
     Factors to consider when testing

   Real estate transactions and radon
Radon

   Radon reduction methods
     Increase natural ventilation
     Seal cracks and openings
     Seal floors in basements
     Naturally ventilate the crawl space
     Filter the water through a bed of
      granular activated carbon
Radon

   The EPA Guidelines
       If buying or selling a home, have it tested.
       If buying a new home, ask if radon-
        resistant construction features were used
        and if the home has been tested.
       Fix the home if the radon level is 4 Pico
        Curies per liter or higher.
       Radon levels of less that 4 pCi/L still pose a
        risk and in many cases may be reduced.
Underground Storage Tanks
   Definition

   EPA regulation under RCRA

   EPA updated regulations

   Exempt tanks
Underground Storage Tanks
   The role of the real estate
    professional
       Red flags


   Leaking underground storage tanks
Waste Disposal Sites

                 Golf courses and
                  office buildings are
                  being constructed
                  on landfill sites.

                 Impact on the real
                  estate industry
Noise
           Noises that are known
            should be disclosed to
            purchasers

           Noise is a major
            source of stress

           Alexander v. McKnight

				
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