Can You Sue For Failure to Disclose Property Defects?

• October 31, 2019
• Business Law

Maryland law requires sellers to disclose certain known defects to buyers. If these defects aren’t disclosed, buyers can file a claim to receive compensation for the costs they face from undisclosed defects. However, to truly understand this issue, you must first understand the two different paths a seller can take: disclosure and disclaimer. Failure to disclose defects isn’t just a bad practice, it is also against Maryland law. The property’s owner should be forthcoming about defects that they are aware of. The agent or party selling the property should communicate those defects to buyers. If a buyer discovers defects after a purchase, they might be forced to spend money on repairs. Buyers then have the right to hold the party who failed to disclose property defects accountable for those costs. Obviously, if a seller doesn’t know about a defect, they can’t disclose it. In the case that a seller isn’t familiar with a property or doesn’t wish to have it inspected, they might choose to sell it “as-is” by filing a disclaimer instead of a disclosure. This provides some protection from liability if defects are later discovered by a buyer. However, selling a property as-is doesn’t completely absolve a property owner or agent from disclosing all defects. Before we look at disclaimers versus disclosures, let’s first look at a key section of Maryland law.

What Maryland Law Says About Disclosing Defects

To better understand the legal perspective on real estate defect disclosures, we must discuss Section 10-702 of the Real Property Article. This section sets forth that sellers should disclose what is known as latent defects. The law defines latent defects as “material defects in real property or an improvement to real property” that a buyer would not reasonably be expected to ascertain or observe by a careful visual inspection of the real property. Latent defects would also pose a direct threat to the health or safety of the buyer or occupant of the property, including a tenant or invitee of the purchaser. It’s important to note that the section applies only to single family residential real property improved by four or fewer single-family units.

Understanding the Difference Between Disclaimers and Disclosures

When selling a property, you can choose to file a disclaimer or a disclosure. In a disclaimer, the seller is selling a property as-is. In a disclosure, a seller is held accountable for any defects they didn’t disclose. Disclosures are inherently more thorough than disclaimers. Which route a seller chooses often depends largely on how familiar they are with a property.

Why Would You File a Disclosure Instead of a Disclaimer?

Some real estate agents might encourage a seller to simply file a disclaimer, so they don’t take on additional liability for defects. If the seller doesn’t know the property well, this might be preferable. For instance, a seller might be flipping a home and lack the knowledge of someone who has lived on a property for several years before selling it. Disclosures can make a property more appealing to buyers because they establish a basic level of trust and security. Buyers will feel more confident purchasing a home if they know what they’re getting. Skittish buyers might balk if the property could have costly defects. By disclosing all known defects, sellers could incentivize buyers to purchase their property, which could impact the value of a property and the length of time it remains on the market.

Examples of Property Defects

Property defects can include termite damage, broken water pipes, mold inside walls, broken HVAC systems and faulty electrical systems. Defects also include basic structural damage of a home, including damage to roofs, basements or plumbing. The list of questions posed in the disclosure form is a long one, so it is worth reviewing the document when you’re deciding whether to sell with a disclaimer or a disclosure.

Potential Outcomes of a Failure-to-Disclose Lawsuit

If a seller discloses defects and knowingly fails to tell buyers about them, they can be subject to legal action. Failure to disclose might jeopardize the sale. The buyer might demand compensation for the costs they face because of the defects. Real estate agents that facilitate a sale without disclosing known defects could also be subject to legal action or review by the real estate commission.

Best Practice for Sellers of a Property

It’s always best to be forthcoming with information about the property you are selling. If you are familiar with a property, then disclosures can enhance the appeal of your property. Regardless of how well you know a property, being honest about potential defects builds trust with agents and buyers. To avoid being vulnerable to legal action, do your best to inform buyers about a property’s defects. Failure to do so could put you in dangerous territory, and it could hurt your reputation with other buyers if you decide to sell another property.

Best Practice for Buyers of a Property

Spend some time familiarizing yourself with disclosures and disclaimers and know which one the seller has signed. Rely on several tools to make sure the property doesn’t contain significant defects. Home inspectors are valuable in the process, but even they might overlook a defect. Consider pulling permits to learn more about a property. Think about the history of the home and the seller’s knowledge of the property when deciding whether you trust them.

A Real Estate Attorney Can Help with the Process

Clearly, buyers and sellers face many pitfalls in real estate transactions. Even those with the best intentions could overlook key aspects of buying or selling a property. Thoroughness is essential, regardless of which side of the transaction you are on. If you are buying or selling a property, consider working with a skilled, experienced Maryland real estate attorney to help you with the process. Lusk Law, LLC, has years of experience helping buyers and sellers protect their interests. We believe that transparency and due diligence are critical in real estate transactions. We can help protect you from needless mistakes and ensure you won’t be held liable for a failure to disclose. If you have already bought or sold a property and need an attorney, we can work with you to help you understand your legal options. Contact Lusk Law, LLC today by calling (443) 535-9715. Advocates For Life’s Obstacles and Opportunities.