BUYER REWARE/SELLER BEWARE, REAL ESTATE PITFALLS

Introduction

Real estate lawyers in Pennsylvania commonly receive calls from buyers who have purchased a residential property and discovered myriad problems not fully or partially disclosed by sellers. They are usually surprised that bringing a lawsuit to resolve their issues can lead to a Frankenstein-like horror story which involves joining into a lawsuit a number of parties. Not only the seller must be joined, but often any realtors involved in the process, any contractors paid for by the buyers who inspected the property but 1) did not find evidence of the problems; 2) found some evidence of the problems, but noted that additional research may be required which could involve tearing down drywall; 3) or found some evidence of the problems, but protected themselves from liability by including some language in their contract which absolved them of responsibility.

Pennsylvania’s Real Estate Disclosure Law (“Seller Disclosure Law”), Pennsylvania Statute, 68 Pa.C.S. Sections 7301-7314 and Title 49 of the Pa. Code Section 35.335a set forth the requirements of what a seller must disclose during the course of a sale of residential property

Sellers are required to file a seller disclosure statement when they sell a house, but often the buyer, the seller, and any involved realtors do not fully understand the purpose of the seller disclosure statement. The PAR Seller’s Disclosure Statement, is generated by the PA Association of Realtors. The statement is usually used by realtors, but can also be used in sales without realtors. Realtors should also be aware of the contents of the statement, as they often become a party to a lawsuit due to issues raised or not raised in the disclosure statement, and they are often the victims of separate claims against them filed by the buyer and seller.

Of course, many of these lawsuits could be avoided if one, or even better, both of the parties hired a lawyer to advise them during the transaction. The fees charged by lawyers during the transaction are far less than the fees charged by lawyers after a transaction has imploded and litigation starts.

The law requires that a seller “must disclose all known material defects about the property being sold that are not readily observable,” and a seller may be liable for actual damages incurred, which could be quite costly. A violation of the  Seller Disclosure Law can also be considered a violation of the Unfair Trade Practices and Consumer Protection Law (UTPCPL, 73 P.S. Sec. 201-1 et seq), which permits recovery of attorney’s fees and possible triple damages.

Seller Pitfalls

During the hot sellers’ real estate market of the last few years, buyers and sellers have often decided to shortcut the buying and selling process, and have offered to buy a property “as-is”, sight unseen and without contractors’ inspections. Sellers who sell “as-is” often feel this protects them from making any or all disclosures. This assumption is incorrect. An “as-is” property advertisement does not absolve a seller of liability to disclose material defects.

However, just because a seller completes the statement (yes, no, unknown of N/A), does not necessarily mean that the seller is aware of a material defect that is not mentioned on the statement (see 49 Pa.Code Section 35.335a). A material defect is defined in the Code as “a problem with the property or any portion of it that would have a significant adverse impact on the value of the residential real property or that involves an unreasonable risk to people on the land.” The “property” is not limited to the house, and also includes the land itself, or any other structures on the property.

As a result, it may be wise for the seller to disclose any known past or present problems, even if it becomes known at a later date prior to signing the purchase agreement, or even later.  This includes any repairs made and whether the repairs fixed or did not fix the problem, and whether there is a warranty that extends to the buyer of the repair(s) made.

Buyer Pitfalls

Buyers should realize that a seller disclosure statement is not a warranty of any kind by the seller, and does not substitute for any inspections or warranties that the buyer may wish to obtain on their own. Although this may require some expense, the savings are often significant, especially if the house is expensive, and in some cases, may convince the buyer to walk away from the purchase, even if they have to forfeit a deposit.

A seller is only required to disclose defects that are personally known to them. This is a hugely important requirement A seller disclosure statement does not require any specific investigation or inquiry in order to complete the form. 68 Pa.C.S. Sec. 7308.  A seller may also reasonably believe that a material defect has been corrected (68 Pa.C.S. Sec. 7308.)

Buyers only have two (2) years in which to initiate a lawsuit from the date of final settlement. That is not much time, as problems may not surface after the property has been lived in for a period of time, and certain weather-related problems only arise after a number of seasons have passed.

Realtors’ Considerations

Although 68 Pa. C.S. Sec. 7310 requires the agent to be liable for a violation of the chapter unless the agent had actual knowledge of a material defect that was not disclosed, that does not mean that they cannot be sued under the theories of negligence, breach of fiduciary duty, or breach of contract related to the duties of a buyer or seller. Litigation is also lengthy, expensive, time consuming, and can damage a realtor’s reputation and referrals.

Recommendations

It is recommended that any realtors involved in a residential sale take the time to meet with the buyer and/or seller to review what is disclosed on the statement, to ask inquiring questions about defects and repairs, to determine if they feel their client is giving them correct information, to review the answers on the statement, or to suggest recommendations of what their clients should do to make the transaction as trouble-free as possible.

Realtors, if contacted by an unhappy buyer after a sale is finished, should cooperate and try and resolve the issues that have arisen, and even if some monetary contribution mission is suggested, it is still often far less expensive than hiring a lawyer or working through the legal process, even if there is not clear cut liability of the realtor.

For nearly five decades, Faye Riva Cohen has provided personalized, creative, and zealous legal representation to clients in the areas of Employment and Labor Law, Civil Rights and Discrimination, Estate Planning and Litigation, Real Estate, and Family Law. She enjoys a well-earned reputation for successfully litigating multi-faceted, complex cases against large and powerful adversaries, often in David and Goliath situations. Please feel free to contact her at: 215-563-7776 or frc@fayerivacohen.com.