New state law requires more home sale disclosure by sellers, but has few teeth

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http://www.startribune.com/stories/417/2870844.html

Published Jun 1, 2002

New state law requires more home sale disclosure by sellers, but has few

teeth

Donna Halvorsen

Star Tribune

The water seeps into the basement every time there's a heavy rain. You push

the water toward the drain until the seepage stops and the floor begins to

dry. Then you forget it until the next time.

But that seepage, common in Minnesota basements, cannot be dismissed as just

a nuisance when you sell the house.

Starting Jan. 1, sellers for the first time will have to disclose problems

in their houses, whether it's a wet basement, leaky roof, malfunctioning

furnace or snakes in the back yard.

" It's not caveat emptor [buyer beware] anymore, " said Steele Propp, a

Bloomington real estate agent. " You have to disclose. "

In requiring seller disclosure, Minnesota became the 30th state with such a

law. Sellers here often fill out disclosure forms now, but the forms they

use, drafted by the Minnesota Association of Realtors, are not recognized by

law as part of the home sale contract. Legally, Minnesota sellers now are

required to disclose only such hazards as lead paint, septic tanks and

abandoned wells.

The new law could give buyers more information, and it also could direct

some legal liability away from real estate agents. It does little to provide

recourse for buyers when defects are not disclosed.

The law shortens the time buyers have to file suit. Also, the law says

sellers can't be held responsible for hidden problems -- such as radon, mold

or water inside walls -- that could be detected only by an expert, unless

the seller knew about them. It will continue to be difficult to prove that

the seller knew about problems.

It's not clear whether the new law would help people like and

Madore, who learned of serious water damage in the basement of their Apple

Valley home soon after they closed on the purchase in 1998. The sellers'

disclosure statement said they had installed gutters to deal with a one-time

water problem in the lower level. The sales contract said the $133,900 home

had neither a wet basement nor water damage.

But the Madores said they discovered that the lower-level walls and floors

were moldy and water-damaged, and that a contractor found water stains

indicating long-term problems. Although the contractor found more than

$20,000 of water damage, the Madores eventually settled their claims for

$7,000, paid partly by the seller and partly by agents for both parties. The

seller continued to contend that he was unaware of the damage.

" This new change does nothing more than give both the sellers and agent an

out, " Madore said. " Even if the agents get their own inspection (to

limit their liability), the inspection does not have to meet any

requirements. "

The law was pursued by the Realtors' association. Glen Dorfman, the trade

group's chief executive and lead lobbyist, said agents were being sued for

problems that sellers didn't tell them about and were paying millions to

settle those lawsuits.

The association argued that those who know most about the house -- the

people who live in it -- should be required to disclose problems. The

Legislature agreed, passing the disclosure bill in March. It takes effect

Jan. 1.

Agents aren't off hook

But state Commerce Commissioner Jim Bernstein said real estate agents will

not be let off the hook.

" It's the real estate agent who's the expert in the transaction, " he said.

" They're supposed to ask questions and tell the buyer what they know. They

can't use, 'It's not on the [disclosure] form' as an excuse. "

Agents still will be obligated to inform buyers of every problem they know

about, regardless of whether sellers note it on the disclosure form.

Under the law, sellers will have a disclosure obligation similar to that of

agents. They will have to disclose in writing " all material facts pertaining

to adverse physical conditions in the property of which the seller is aware

that could adversely and significantly affect " the buyer's " use and

enjoyment of the property. " " Material fact " is not defined.

While buyers might get more information about houses, they won't necessarily

know about every problem.

" Unless the homeowner is the original owner or is very conscientious about

their home, they may not fully understand the condition of their property, "

said Eden Prairie home inspector Hankey, who is certified by the

American Society of Home Inspectors.

Said Minneapolis attorney Dunlevy, " I think most people know if

there's four inches of water on the basement floor, but a lot of stuff, the

sellers don't know. "

Propp, who is a buyer's agent, is optimistic that sellers will disclose what

they do know. " Most people are honest, " he said. " A liar's going to lie no

matter what the law is. "

He also is optimistic that agents will live up to their obligation. Agents

who attend seminars on the issue are being told, " Disclose, disclose,

disclose, " he said. " If you see something, you tell. That is what's being

taught. "

Edina attorney Todd Iliff said the new statute " clarifies the law and maybe

broadens it. People are going to be more aware of it. Real estate agents are

going to be saying, 'Hey, seller, you have to disclose. There's a law.' "

Problems for buyers

But if a problem isn't disclosed, it will continue to be difficult to get

the seller or anyone else to pay to fix it, attorneys say.

" The buyer doesn't have a practical and effective remedy right now under

Minnesota law, " Chanhassen attorney Rice said. " This statute doesn't

change that. "

Rice said the cost of taking a case to trial and the difficulty of proving

what the seller or agent knew will be barriers for buyers, as they are now.

" The odds are very much in favor of the seller, " he said.

Dunlevy said the buyer's new right to disclosure " may be a right without a

remedy, " in part because few sellers have " bags of money sitting around " to

pay court judgments.

Buyers also will have less time to sue under the law. The statute of

limitations has been reduced from six years after discovering a problem to

two years from the closing on a house.

" Two years is kind of short, and it's going to sneak up on you, " Iliff said.

Inspections are key

While the law puts new emphasis on the role of the seller, it also shines a

spotlight on home inspectors, who aren't regulated in Minnesota. Both the

seller and the real estate agent can fulfill their disclosure requirements

by having the house inspected and submitting an inspection report to the

buyer.

Inspections are becoming increasingly important in home sales, and the new

law " makes them even more important, " Dunlevy said.

According to a recent study by the American Society of Home Inspectors and

the National Association of Realtors, 77 percent of home buyers across the

country had inspections done before buying a house.

Hankey, the inspector, said buyers should ask the seller to fill out a

disclosure form even if an inspection is done because neither a private or

municipal inspection can give buyers all the information they need. As

examples, he said, the inspector cannot operate the air conditioning system

if the outdoor temperature is below 65 degrees, cannot evaluate a

snow-covered roof and might not be able to detect the risks of ice dams in a

summer inspection.

Hankey noted that the law does not require sellers to to tell buyers about

problems they're aware of but that are not included in the inspection

report. The law requires them to provide only information that " contradicts "

the report.

Dorfman said " the best agents " will have sellers fill out a disclosure form

and have an inspection. Agents and sellers will want to hire the

best-qualified inspectors they can find, he said, because only an accurate

inspection will provide protection against legal liability.

In some cases, two inspections might be done. Propp said he will tell buyers

they should hire their own inspector even if the seller has an inspection

done.

But no matter who hires them, the inspectors can't be held responsible for

any problems they miss. Under their contracts, inspectors' liability is

limited to refunding the inspection fee, which generally is about $300.

" We don't have a really accepted process for home inspections, " attorney

Rice said. " To me, that's a huge gap. "

-- Donna Halvorsen is at dhalvorsen@... .