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Failure to Disclose in a Real Estate Transaction

By January 27, 2022 No Comments
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In real estate transactions, saying nothing can be every bit as bad as saying something misleading or false. A seller has the obligation to disclose certain defects to a buyer before they complete the sale. If a seller fails to disclose those defects, they may be held liable for the cost of repair. In some cases, a court may even rescind the sale of the property.

The Seller Disclosure Form

During the transaction process, a seller will be asked to fill out a disclosure form. This is not a task they should take lightly. When completing the form, a seller is probably safer if they err on the side of disclosure because the consequences of not disclosing can be severe.

Texas has a detailed seller disclosure form for sellers of residential property that asks specific questions. The form covers such areas as:

  • Termite damage
  • Water damage
  • Compliance with building codes
  • Structural damage

There is also a broad catch-all question that asks whether a seller knows of anything that is in need of repair. Here, silence may be the same thing as lying, given a seller’s legal obligation to disclose.

The Seller Does Not Have to Disclose Every Single Defect

Whether a seller has to disclose a defect depends on whether that defect is “material.” Generally speaking, the concept of materiality looks at whether knowledge of a fact would have been important enough to another party that it would have impacted their decision-making. In the context of home sales, the question is whether a buyer’s knowledge of a particular defect would have caused them to pay less for a house or even walk away from a possible transaction. An example of a material defect would be major damage to a home’s foundation that needed tens of thousands of dollars of repair.

Not every residential property defect is material. Oftentimes, the court knows a material defect when it sees it. In these cases, both parties do not conclusively learn what is considered material until the case goes to trial. However, sellers should not take a chance and fail to disclose something, calculating that a court would not find that it was material unless they are dealing with the most major of defects.

In addition, a seller is only required to describe known defects in their home. Of course, they cannot pretend not to know about something very obvious in their own home and be willfully blind. However, if there was something they truly had no way of knowing, they may not be held accountable for not disclosing it.

Sellers Must Determine What to Disclose

For a seller, deciding what to disclose is a delicate consideration. On one hand, they want the transaction to go through at the agreed-upon price. On the other hand, they do not want to have legal risk in the future if a buyer discovers something is wrong with the home. Negotiating about defects in the home can be a hassle, but it is a buyer’s right if there are defects. Either party can choose to walk away from the deal. A buyer can opt not to complete the transaction if a seller will not adjust the price. A seller can exit the deal if a buyer wants too many repairs or too much of a reduction in price.

Nonetheless, and as noted above, a seller is not obligated to disclose every single defect within the home. For example, if there is a scratch on the wall or light bulbs need changing, that would not be material for the sale of the home. Those defects could easily be fixed at a minimal cost to a buyer, and a seller would be safe in not disclosing them. However, if there was structural damage, that should certainly be disclosed.

“As Is” Does Not Mean that a Seller Can Do Anything

There is a box on the Texas seller disclosure form that states the house is being sold “as is.” However, this is not a free pass for a seller to do anything they want during the sales process. They may still be held liable for fraudulent inducement of the transaction by concealing defects.

Sellers and their lawyers have become cleverer in the wake of certain decisions by the Texas Supreme Court about failure to disclose cases. Now, some sellers try to include a provision in the sales process that expressly waives any fraudulent inducement claims. This clause has been upheld when challenged in court. Buyers need to closely review sales contracts to look for any clause like this and decide if they want to make an issue of it. If this waiver is in a final contract, a buyer may lose the right to sue.

For buyers, deciding whether to sue for failure to disclose is a tough choice. There is no guarantee a court will find the defective material or that the seller knew about it, and there is a high bar to proving fraud. However, if a seller has lied or failed to disclose a defect, and it has caused significant losses, they can and should be held responsible for it.

Contact a Real Estate Lawyer to Learn About Your Legal Options

Before acting against a seller, you should consult with an experienced Houston real estate attorney. They will review your case and let you know if you have a viable lawsuit. Many people think a seller is automatically liable for anything that breaks after they sell their home. This is not the case. Things break all the time for new homeowners, and a seller is only responsible in limited circumstances. Further, the value of the repair may be so small that a lawsuit is not worth your time.

You may be better off trying to resolve the issue through negotiations and a settlement agreement rather than having a full trial. Nevertheless, you will have the option of filing a lawsuit against a seller over their failure to disclose a material defect.