Q: We are representing a Seller who is an attorney. He completed the disclosure documents but provided very little information. At the open house, a neighbor has informed me that there has been some flooding in the area even though the Property is not in a flood zone. The neighbor claimed that water had entered the Seller’s detached garage once. We asked the Seller about it and he stated it was not a big deal because the water never entered his house. When we encouraged him to disclose that water had entered his garage, he demanded that we provide him with the “case law or statutes” that mandates he disclose this event. What do we do? Do you know what he needs? Can you provide us with the “case law or statutes”?
A: Yes, we know the California law (“legal authority”) that mandates that all sellers must disclose all material facts that they know affecting value or desirability when selling any property in California. However, if we were to provide you with that legal authority for you to provide the Seller, then you would be providing the Seller with legal advice. Even though he is an attorney licensed to practice law in California (and thus should already know that he cannot mislead a buyer or misrepresent his knowledge when answering the questions on the required disclosure forms), the Seller cannot require his Agent to provide him with legal research. The failure to fully disclose can be grounds for an allegation of fraud against the Seller; the Seller’s demand that you provide “legal authority” for that concept goes far beyond the course and scope of your duties and responsibilities.
Whenever a Seller demands “proof” or “legal authority” for the obvious reality that all sellers must disclose all known material facts, the best practice is to provide the Seller with an Advisory that explains the Seller’s disclosure obligations. Broker Risk Management created the first comprehensive document that provides the best advice and information about the proper preparation for, and completion of, the seller disclosure documents. Our Seller’s Disclosure Advisory was adopted by C.A.R. when they created the Disclosure Information Advisory (“DIA”). PRDS also has an excellent Advisory for Sellers on this same topic (PRDS® SARC 7/17).
See Weekly Practice Tip: Seller Advisory Regarding Completing TDS and Other Seller Disclosure Forms (July 28, 2017)
The three Advisories listed above were all created by qualified California real estate attorneys and experienced brokers based upon relevant California law. These Advisories are the best synopses of a Seller’s legal duties and responsibilities. No “legal authority” is cited in those Advisories nor should there be any; real estate professionals cannot practice law without a license and should only provide real estate services and advice.
PRACTICE TIPS:
1. Whether or not you have previously provided the Seller with an Advisory regarding completing the disclosure forms, provide the form again (preferably attached to an email to the Seller) stating that, “The Advisory summarizes the relevant law but, since I am not an attorney, I cannot provide you with legal advice or legal research.” If the Seller has any questions or concerns regarding what to disclose or how to disclose it, the Advisory states that the Seller should “consult with a qualified California real estate attorney for advice.”
2. Even if the Seller is an attorney, mediator, arbitrator or a judge, that does mean that that the Seller has any significant expertise in real estate law and thus should be provided the same advice as any other seller: “Consult with a qualified California real estate attorney for advice.”
3. Encourage the Seller to disclose what the Seller actually knows about the water in the garage and anything else that may constitute a “material fact” about the condition, use, value or desirability of the Property. Since the Seller failed to disclose the water in the garage, be aware of the possibility that the Seller may have failed to disclose other material facts as well.
4. If the Seller continues to refuse to make full and complete disclosure, then you are left with only two options: (a) do not continue to represent the Seller or (b) disclose the information yourself after you have documented (in an email to the Seller) that despite the information provided in the Seller Advisory, the Seller is proceeding against your advice and recommendation to disclose his knowledge about the water in the garage.
5. Remember, it is not your obligation to investigate the validity of any claims made by anyone about the Property nor are you obligated to only believe what the Seller tells you. Your obligation is to disclose the information you know. The Seller cannot instruct you to withhold information about the Property. If it was a trivial issue, then disclosing it cannot harm the Seller. If it was a significant issue, then disclosing that information actually protects the Seller’s interests by avoiding a claim from a Buyer that the Seller failed to disclose known information.
6. If information from any source (such as from a neighbor) regarding any condition or defect affecting the Property is received by you (regardless of who you represent in the transaction), you must disclose that information to the Buyer. To make the required Agent disclosure, you should Attribute the information to the source(s) that provided it, Disclose the information succinctly and Disclaim any knowledge of the issue. Then state that you will not investigate or verify that information (this is the “ADD Rule”). In this instance, the disclosure would read:
On [insert date] , the neighbor [identify by name if possible] informed me that there had been some flooding in the area and water had entered the detached garage on the Property. Seller has claimed it was one minor incident. I have not and will not investigate or otherwise verify the information supplied by the Seller or the neighbor. Buyer should investigate.
7. The disclosure should be included in the Listing Agent’s visual inspection disclosure (AVID) either in the “Other” section or as an Addendum to the AVID.
This Weekly Practice Tip is an attorney-client privileged document for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.