Looking For A Lawsuit? Don’t Disclose

Anyone who has bought or sold a house in the last ten years has seen the Disclosure forms that are attached to most real estate contracts today.  Even states where it is not required to have these Real Estate Disclosure Addendums have them as a routine practice. 

What Is A Disclosure Form?

Every real estate board probably has a little different version.  But in the broadest scope a Disclosure Addendum is designed for the Seller of a property to “disclose” anything they know about a property that a potential home Buyer would want to know.  Some example items would be;

• Has the house had termites?
• Is the house in a blasting zone?
• Does the house have a chronic sewer line back-up problem?
• Is the house haunted?

Each of those examples given, amongst literally hundreds and hundreds more, are items any potential Buyer would want to know.  And laugh if you will on the last one.  But I read about a case where the courts ruled the Sellers should have notified the Buyers that they thought the house was haunted. 

How Does This Pertain To Real Estate Investing?

Investment property Sellers here in the Kansas City area are notorious for putting on their Disclosures “Owner Never Occupied” and little else.  They just figure that will get them off any responsibility that comes down the line.

Well neither I, nor the states of Kansas and Missouri, believe that to be true.  As a real property owner you still have knowledge of expenses incurred.  You know that a basement is a problem or not.  Your tenants have told you the sewers back up, or the roof leaks in heavy rains, or that there is a foul smell that comes from the attic in the hottest parts of the summer. 

Do You Feel Lucky?  Well, Do You?  Punk!

Disclose what you know…or should have known.  I would venture to say that most lawsuits stem from an initial failure to fully disclose known issues with a house.  You ignore it and figure that by the time Mr. Home Buyer figures it out you’ll have your proceeds and be on down the road.  But when the sewer starts backing up and the plumber comes out and says it looks like the main line is shot and that he had given an estimate on it about 6 months ago…or Joe the busy-body neighbor says “Oh, yeah.  They always had plumbers over for that.”  Well, you are going to have issues.  Trust me.

Problems leave a paper trail.  You will be found out sooner or later.  If there is a problem not only must you disclose, you should.  It’s the right thing to do.  Deal with it up front, without the attorney fees.  It’ll save you a lot of money in the end. 

And if I know about it, or any other real estate agent for that matter, I must disclose whether you do or not.  It’s the law.  It’s my license.  It’s the right thing to do.

Editor’s note:  This post was reprinted from BBQCapital.com.  BBQCapital is Kansas City’s premier real estate investing blog.