Rep Should've Revealed Disclosure Law

South Dakota Supreme Court; Saiz v. Horn, 2003

November 1, 2003

South Dakota’s highest court has found that a buyer’s representative had a fiduciary duty to inform buyer clients that the seller was required to give them a state-mandated property disclosure form. Craig and Patricia Saiz signed a buyer’s agreement with a licensed real estate broker and eventually bought a house with his assistance. The seller never gave the couple a property disclosure form as required by state law, but a home inspection made before closing found no structural problems.

However, several years later, the Saizes experienced cracks in exterior walls and found signs of past water penetration.

They sued, alleging that the buyer’s rep breached his fiduciary duty to them and that they wouldn’t have purchased the property had they received the seller’s property condition disclosure form. As it turned out, the seller had completed a disclosure form for an earlier prospective buyer, which stated that the property had a history of water penetration and cracks in the walls.

The trial court ruled that the state’s property condition disclosure law placed no duty on the buyer’s rep and so found for the rep. However, the state Supreme Court reversed this ruling, finding that although the state’s law didn’t place a duty on the rep to ensure the buyers received a disclosure form, his agency relationship with the buyers required him to inform the buyers of the seller’s legal obligation. The high court stated that the very reason the buyers retained a representative was to provide advice on “rules and procedures involved in a real estate transaction.” Consequently, said the court, the rep could be liable for the buyer’s losses of $15,000 to $20,000 to repair the home.

Seller not responsible for lead disclosure

U.S. District Court, District of Maine; Keegan v. The Downing Agency Inc., 2003

A Maine federal district court has followed the direction set two years ago by an Illinois federal district court in Flowers v. ERA Unique Real Estate Inc. ( United States District Court, Northern District of Illinois, 2001) by ruling that the federal Residential Lead-Based Paint Hazard Reduction Act of 1992 doesn’t impose a duty on a buyer’s agent to ensure that the buyers receive a lead-based paint disclosure statement for any property built before 1978.

In the Maine case, Kevin and Heather Keegan had contracted with a buyer’s representative and purchased a house. The sellers’ agent compensated the buyer’s representative. After closing, the buyers found that the home contained lead-based paint. They sued the buyer’s rep for violation of the 1992 law.

A judge ruled that, as in the Flowers case, the Act’s language requires only the seller or the seller’s agent to provide a lead-based paint disclosure form to buyers. The act’s text doesn’t mention any such duties for a buyer’s rep. Although regulations created by the U.S. Department of Housing and Urban Development do place such a duty on a buyer’s representative who is paid by the seller or the seller’s agent, the court ruled that this requirement conflicts with the language of the law. Therefore, the court dismissed the Keegans’ allegations.

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