FAQ: Seller's Disclosure Notices
Q: What is a Seller’s Disclosure Notice?
A: Seller’s Disclosure Notices are a way for residential buyers to have as much information as possible about the condition of the property before purchase. These disclosures require the seller to document any known defects or malfunctions as well as maintenance history to the best of their knowledge. This disclosure is a legal representation of fact by a seller and is subject to liability if a buyer reasonably relies on its accuracy in making a purchase decision.
Q: Is my seller required to submit a Seller’s Disclosure Notice?
A: Most Texas residential transactions require a Seller’s Disclosure Notice. However, there are exceptions. The statute lists a number of transfers to which the requirement does not apply–a few are listed below:
Made as a direct part of a court order, foreclosure or bankruptcy
Back to a lender in lieu of foreclosure
From a lender to a new buyer resulting from the lender’s repossession of the property pursuant to a foreclosure or deed in lieu of foreclosure
From a fiduciary to a new buyer to settle an estate, guardianship, conservatorship or trust. This would include executors, administrators and trustees
From one co-owner to another
Between spouses or direct relatives
As part of a divorce
To or from a governmental entity
An unoccupied new residential home
A home whose value represents 5% or less of the property value as a whole
Q: So if my seller inherited or never occupied the property they are exempt, correct?
A: Wrong! Unless the transfer is made directly from the executor as part of the distribution of the estate, your seller will still need to submit a disclosure notice. Additionally, individual heirs must still make the disclosure if the estate has already been distributed or if no probate will occurred.
Q: What if my seller holds the property in a revocable grantor trust?
A: Though this is a gray area, it is better for a trustee of this type of trust to submit a disclosure notice. Only trustees of irrevocable trusts, conveying the property as part of the distribution of the trust, are exempt. Otherwise, everyone would form trusts to avoid the disclosure liability.
Q: What about a duplex or condo? Is my seller required to submit a disclosure for these types of properties?
A: No. The requirement only applies to a single unit residential property.
Q: What about leases?
A: Leases are not included in the Seller’s Disclosure Notice requirement.
Q: Where can I find a Seller’s Disclosure Form?
A: There are many versions of the Seller’s Disclosure form available. However, TREC has created a form that asks the minimum information required by the statute. You can find that form here.
Q: Wait, so do I still need to have an inspection completed?
A: Yes, a Seller’s Disclosure Notice does not take the place of an inspection.
Q: What if my buyer reviews the disclosure and wants to terminate the transaction?
A: A buyer can terminate a transaction for any reason up to seven days after finally receiving a notice, if not received prior to contract.
Q: What if my buyer believes that the seller misrepresented the condition of the property after closing?
A: Since the Seller’s Disclosure Notice is a legal representation of fact by the seller, the buyer may have grounds to pursue a lawsuit, but in order to be successful, the buyer must prove, among other things, that the seller knew or should have known of the problem, made an intentional misrepresentation about the issue in the Disclosure Notice, and that the buyer relied on the misrepresentation to their detriment. Seller’s only duty is to complete the notice to the best of their current knowledge, without the duty to independently investigate the veracity of the statement. If the seller is unsure of an answer, they can indicate that; however, typically only actual and intentional misrepresentation is actionable by a buyer.
Content derived from Jeffrey A. Rattikin, Attorney at Law, RattikinLaw Fort Worth, www.rattikinlaw.com. Copyright 2017, All Rights Reserved. This Title Tuesday tip is not a legal representation or statement of law, but is presented for general informational purposes only. Please confer with legal counsel of your choice for any and all legal questions.