J. Patrick Sutton Cases & Issues Blog

Seller's Disclosures and Big Issues in Residential Real Estate Transactions

There's generally conceded to be a conflict between the "as-is" clause in Texas form real estate contracts and the fact that sellers are required by law to fill out a long form full of disclosures. If a buyer is buying the property "as-is," doesn't that mean the buyer has waived defects? No! A seller must fill out the disclosures in good faith, and a buyer is entitled to rely on those disclosures.
A case I'm involved in now illustrates why it's so important for sellers to fill out the mandatory disclosures completely and in good faith. Without going into too many specifics, the seller's disclosures expressly stated the home was not in a flood zone and was not covered by a flood policy. In fact, the property was both, as everyone agrees. Soon after the buyers purchased, a flood ravaged the home, causing major damage. Would an "as-is" clause defeat the buyer's recovery? Of course not: the seller expressly represented that the home was NOT in a flood zone and was NOT covered by a flood policy. The buyer is entitled to rely on statements like that, especially in situations where there's no reason the buyer would doubt the seller's representations.

Foundation damage is another common, important building system that a buyer can't readily determine has problems. In some cases I've handled, the seller has literally painted a concrete floor to conceal large cracks just before putting a house up for sale. A buyer has a legitimate claim that the seller misrepresented the condition of the home; the "as-is" clause is meaningless where a buyer is actively misled in this way.

Contrast the scenarios above with a situation where a house had gaping holes in the roof but the seller wrote "roof -- okay" on the disclosures. If the evidence showed that the house had interior water damage from rain, sunbeams coming through, and birds living in the house, the buyer is going to have a hard time recovering because anyone would recognize that the roof had problems despite the representation to the contrary on the seller's disclosures.

Real estate fraud cases involving the seller's disclosures often have conflicting facts, but not always. Some cases all but win themselves -- as where a seller says No to something that only the seller would be in a position to know, but the answer is actually an emphatic Yes!

Also, it never ceases to amaze me how sellers will ignore the importance of the seller's disclosures, and often their real estate salesperson didn't point out how important every line item is. I've handled transactions on the buyer side where the seller literally wrote lines down the "No" column for every important building system, without even attempting to disclose problems or determine the facts, or else didn't fill in anything but signed the disclosures anyway! In both cases, I wrote polite notes to the seller demanding that the seller make a good faith attempt to go over every line and give a proper, well-considered answer. In both cases, the seller wrote back and apologized for not understanding they were supposed to pay attention to all those line items!

The golden rule definitely applies to seller's disclosures, and there's no excuse for not paying attention to major, expensive building systems and flooding-type issues when selling your home. The loss and heartache to buyers who buy rotten properties is profound, even life-altering, since home purchases are the largest purchases most people make in their lives.
J. Patrick Sutton Cases & Issues Blog