Avoid These 3 Liability Pitfalls

Be sure you can deliver on your promises, or you put yourself at risk.

September 1, 2008

Given the current, challenging market, some real estate practitioners might feel so much pressure to close a sale that they promise things they can't deliver. Making such remarks is dangerous. It can hurt your professional credibility, violate ethical standards, and possibly violate duties owed to buyers and sellers, leading to costly legal actions.

Below are three potentially dangerous situations and suggestions on how to avoid future problems and litigation.


Situation #1: Disclosure Dilemma

The scene: You're making a listing presentation and the seller says, "We had some problems with water leaking in the basement. I repaired it myself about a year ago, and it seems fine, although we haven't had a heavy rain since I fixed it. I'm pretty sure it's OK so I didn't put it in the disclosure form. Is that OK?"
Don't say: "Sure, no problem."
The risks: Concealing a pre-existing property condition can be considered an intentional misrepresentation and could potentially lead to accusations of fraud. If a problem exists and has been corrected, point out the past problem and the steps taken to repair it so that buyers can make their own determination as to whether further investigation is required. Because it's your responsibility to give sound advice to your clients, it's up to you to inform the seller that omitting past water leakage could cause charges of fraud or deceit by the buyer against the seller, you, and your broker. It also raises the possibility that the sellers might sue you for breach of duty because you didn't advise them to include the information on the disclosure statement.
Do say: "The disclosure statement should be an accurate description of what the sellers know. It should disclose past problems, but can also describe the repairs so that prospective buyers can make their own judgment."


Situation #2: Predicting the Future

The scene: A potential buyer tells you that she likes the house but is unsure because she really wants a pool. She is also concerned that the land behind the home will be developed, resulting in more noise.
Don't say: "You can always install a pool in the backyard. And don't worry about a noisy school or shopping center being built, the property behind the house is all zoned for residential use."
The risks: Never make representations beyond your knowledge or control. Whether a yard can accommodate a pool requires examination of survey, zoning, covenants, easements, and rights-of-way. Unless you've checked these issues and are certain your information is accurate and current, don't make assumptions regarding how the property may be used. Instead, you can offer to check with the current owners to find out what they know. You can also provide your clients with a way that they can obtain the information from an authoritative source. And even if you have checked, be extremely cautious since zoning can change.
Do say: "There are several issues that can affect whether a pool can be built. You'll want to have your attorney check the survey, deed, and zoning to make sure there aren't any easements and restrictions that would prohibit a pool. Concerning the rear of the property, let me give you the phone number of the zoning office so that you can confirm whether the land behind the house is zoned for residential use only."


Situation #3: What to Say About Stigmas

The scene: While you're holding an open house, a potential buyer asks, "Did somebody get murdered or die of AIDS in this house?" You've never heard of a crime being committed at the property but you do know that the prior owner was an AIDS victim.
Don't say: "No, I've not heard anything like that."
The risks: State laws often provide guidance on how real estate licensees should respond to questions relating to the stigmatization of a property. Georgia is typical of the national trend. The Georgia Real Estate Commission states that under Georgia's Stigmatized Property Law, the owner or agent must answer truthfully to the best of their knowledge when questioned about whether a property was the site of a homicide, suicide, or felony. You should be familiar with the laws of your state and structure your answer accordingly. However, disclosing information about a previous owner or occupant having AIDS is different. According to the Americans with Disabilities Act, persons who have tested positive for HIV are "disabled" for legal purposes. Under the Federal Housing Act, disabled individuals are protected from intentional or unintentional discrimination in regard to real property. The ADA also dictates that owners or agents not disclose information about a person dying from AIDS.
Do say: "I don't know of any murder on the property. AIDS is treated as a disability under federal law, so neither I nor any agent can respond to your second question without breaking the law. If you believe that this information is relevant to your decision to buy the property, you must pursue that information on your own."

Howell Haunson has been practicing real estate law for more than 25 years. He is the director of education for Morris Hardwick Schneider, a real estate closing law company, and LandCastle Title, MHS’ title company. He can be reached at narpubs@realtors.org.