Claims for failing to properly disclose the condition of a seller’s home is one of the leading causes of lawsuits in in the sale of residential real estate in Arizona. Many of the lawsuits are the result using the Arizona Association of Realtor (“AAR”) forms.
The AAR Contract
The AAR residential Resale Real Estate Purchase Contract (“Contract”) requires that the Seller “shall deliver a completed AAR Residential SPDS form to Buyer within three (3) days after Contract acceptance.” Section 4a. It also requires that Seller warranty that “Seller has disclosed to Buyer and Broker(s) all material latent defects and any information concerning the Premises know to the Seller… which materially and adversely affect the consideration to be paid by Buyer.” Section 5b. This warranty survives the closing of the subject sale of the home.
Though the Contract advises the Buyer to “conduct independent inspections and investigations regarding the Premises within the inspection period…” the Contract places the burden of disclosing all latent defects of the home squarely on the shoulders of the Seller. And this burden can be overwhelming and fraught with legal peril even for the more experienced home seller.
The Seller Disclosure Form
The Contract requires the Seller to complete the Seller Property Disclosure Form (“SPDS”). The SPDS is 7 pages long and lists a whole host of questions regarding the condition of the home, many of which the Seller may not possess any personal knowledge. An example of some of the “yes” or “no” questions include:
- Are you aware of any damage to any structure on the Property by any of the following: (flood, fire wind, expansive soils, water, hail, other)
- Are you aware of any animals/pets that have resided in the Property?
- Has the Property been serviced or treated for pests, reptiles, insects, birds, or animals?
- Are you aware of any work done on the Property, such as building, plumbing, electrical or other improvements or alterations or room conversions?
- Are you aware of any past or present drinking water problems?
The SPDS form assumes that the Seller has lived in the home for many years and has extensively knowledge of the condition of the home, which may or may not be the case. The fact that many of the questions ask if Seller is “aware of” any past or present issues or problems, will not prevent the Buyer from claiming that Seller did have knowledge and intentionally failed to disclose.
Selling Home “AS-AS”
There is no requirement under Arizona law that a seller of a residential property must complete an SPDS or that a residential property cannot be sold “AS IS”. The Arizona Revised Statutes explicitly state that “all implied warranties are excluded by expressions like ‘as is'”. A.R.S. § 47-2316. Generally, the buyer bears the risk of loss under an `as is’ contract unless the seller fails to disclose concealed defects known to him S Development Co. v. Pima Capital Management Co., 201 Ariz. 10, 17 (Ariz. Ct. App. 2001)(citing Conahan v. Fisher, 463 N.W.2d 118, 119 (Mich.Ct.App. 1990).
Therefore, if home seller is using a Realtor, the AAR Contract should be amended to (i) remove the requirement that Seller provide Buyer with an SPDS in Section 4a; (ii) remove the Seller’s warranty contained in Section 5b; (iii) provide that the Buyer is purchasing the home “AS IS, WHERE IS” with all faults, and (iv) contractually prohibit Buyer from relying on any representations of Seller and that Buyer and must instead rely solely on his own inspection and investigations of the home.
Seller Required to Make Certain Disclosures
Regardless of what a written contract may provide, a home seller has an affirmative duty to disclose information to a buyer when the seller knows of facts materially affecting the condition or value of the property that are not readily observable or known to the buyer. This duty may arise in a number of circumstances, such as when disclosure is necessary to prevent a misrepresentation, when it would correct a mistake of the other party, or when the seller knows that disclosure is necessary to prevent a misrepresentation. Hill v. Jones, 151 Ariz. 81 (Ariz. Ct. App. 1986). “Unlike simple nondisclosure, a party may be liable for acts taken to conceal, mislead or otherwise deceive, even in the absence of a fiduciary, statutory, or other legal duty to disclose.” Lerner v. DMB Realty, LLC, 322 P.3d 909, 916 (Ariz. Ct. App. 2014)(citations omitted). Whether an undisclosed fact is so “basic” to a transaction that it may trigger a duty to disclose is normally a question of fact, as are questions about whether the buyer had a reasonable opportunity to discover the defect. Id. at 917. The courts will not enforce any contractual provision which results in freeing a party to commit fraud.
Sell Your Home, Don’t Buy a Lawsuit
There are plenty of ambulance-chasing lawyers who make a living suing unsuspecting home sellers for non-disclosure related claims. If you are selling a home using an AAR Contract, there are things you can do to minimize your risks. First, amend the Contract as suggested above. Second, do not provide a completed SPDS or any other written disclosure to a Buyer. Third, disclose information about the home to Buyer that you have actual knowledge regarding and that could possibly affect the price Buyer is willing to pay for the home. These three things may discourage a litigious buyer from suing you, but nothing will relieve you from your affirmative duty to disclose certain material facts or protect from any intentional acts of fraud.