Full Disclosure Minimizes Legal Risk

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Just about everything we do these days exposes us to legal risk. So, it’s no surprise that a real estate transaction has legal risk, too. But, it’s not well known that the risk is disproportionate — it’s much riskier for the seller than for any other party. In a recent study, it was found that the seller was the defendant in 88% of cases!

Not to worry. We have a proactive plan to minimize your risk. Since most lawsuits in residential real estate allege lack of adequate disclosure, here is our three-step plan:

  1. Understand the legal standards for disclosure. Sellers in Colorado are required to disclose “latent defects” about which they have “actual knowledge”. Latent defects are defects that are not visible or apparent on casual inspection. A basement that floods once a year during a hard rain is a latent defect as it is unlikely that the buyer would actually see the house while this problem is occurring. A broken window is not a latent defect as you see it just by looking at it.In Colorado, you only have to tell what you actually know about your house. You might have a roof leak that is letting water into the attic but not showing up visibly anywhere in the house. It is a latent defect but you don’t know about it. If you tell a buyer that your roof does not leak and it later turns out that you have a leak in the attic, you have not violated any disclosure requirements. Strange as it seems, some states make sellers responsible even for things that they did not know. We don’t face that unreasonable standard here in Colorado.

    So when you fill out the disclosure form on your property, you are not giving the buyer some sort of guarantee that no problems exist. You are simply telling them everything you know about any latent defects.

  2. Go overboard on disclosure. The legal disclosure requirements are theoretically simple but present practical difficulties. Legitimate questions can arise about what constitutes a latent defect.  Discuss with your CHR agent, those areas where you wonder if disclosure is needed. When in doubt, it is best to over-disclose rather than under-disclose.
  3. Some matters are exempt from disclosure by Colorado statutes. A law passed in the early 1990’s says the following are NOT material facts and do NOT have to be disclosed when selling your house:
  • a) The fact that an occupant has or is suspected of having AIDS/HIV
  • b) The fact that there has been a murder or other felony or a suicide on the property
  • c) Any other facts that might psychologically impact or stigmatized a property – an example might be a suspicion that the house is “haunted”.

If items (a) or (b) apply to your situation, again, talk with your agent. Although not legally required to disclose, it may be advisable to do so for practical reasons.

Following these three simple guidelines will go a long way in protecting you from allegations of misrepresentation.