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03/20/07: New Seller Disclosure Form For District Homebuyers

HOUSING COUNSEL

By Benny L. Kass

Q: I am a real estate broker in the District of Columbia. I understand that effective February 9, 2007, we are required to provide potential homebuyers with a new Seller’s Disclosure Statement, and once a buyer gets that statement, they have the right to cancel their sales contract by giving written notice to the seller no later than five days after receipt of the form.

Here’s my dilemma. On January 20th, I obtained a listing agreement from a seller and I was fortunate to get a full price contract on February 4, 2007. The contract purchaser was provided with the Seller Disclosure Statement then in existence.

Since the buyer did not go to settlement yet, must I provide the new form to that purchaser? I am concerned that the purchaser may get “buyer’s remorse” and use the new form as an excuse to terminate the contract.

Can you advise me how to deal with this situation?

A: You are correct. On February 9, 2007, the DC Department of Consumer and Regulatory Affairs (DCRA) published a revised Seller’s Disclosure Statement in the District of Columbia Register, which means that the requirement to provide the new form became effective on that date.

First, I have to correct one of your statements. According to the regulations promulgated by District (17 DCMR Chapter 27, §2708.13), “the Seller, not the broker and not the management company, condominium, cooperative or homeowners association “ is required to complete the form.

If the property in question consists of one to four residential units, and the transaction involves a sale, exchange, installment land sale, a lease with an option to purchase, or any other option to purchase, the disclosure form must be provided to a potential buyer. There is one interesting caveat to this requirement, namely that the purchaser must express an interest, in writing, to reside in the property in question. This requirement will normally be found in the sales contract itself.

There are a number of exclusions, however. The disclosure requirement does not apply in the following situations:

  • court ordered transfers;
  • foreclosure sales;
  • a transfer by a fiduciary (such as a personal representative, guardian or conservator) if the person conveying the property was not personally occupying the property;
  • transfers between parents and children, or from one spouse to another, and
  • the sale of a newly constructed property that has never been lived in.

Generally, the disclosure statement must be provided to a potential purchaser in all other circumstances.

Although the new form contains more detailed information about the property, it is easier to read, and is more logical than the previous one. It consists of many subtopics broken down in four general areas: structural condition, operating condition of property systems, appliances and fixtures, and exterior and environmental issues. For all practical purposes, however, the substance of both forms is the same.

What rights does a potential buyer have under the law?

When the buyer is given the disclosure statement, he/she has five calendar days in which to terminate the sales contract by giving written notice to the Seller. However, this right to terminate is waived if not exercised before:

  • the buyer makes an application for a mortgage loan and the lender discloses in writing that the right to rescind will terminate when the loan application is made;
  • settlement on the property takes place, or
  • the person with a lease with an option to purchase begins to occupy the property.

It should be noted that the seller of a condominium unit, cooperative apartment, or a house in a homeowners association is only obligated to disclose information as to the unit or house, and not the common elements or common areas outside of the property actually being sold.

Can a buyer rely on the disclosures provided by the seller? That’s a tough legal question which the Courts in the District of Columbia have not yet addressed. The form specifically states that:

THIS STATEMENT IS NOT A WARRANTY OF ANY KIND BY THE
SELLER OR BY ANY AGENT REPRESENTING THE SELLER IN THIS
TRANSACTION, AND IS NOT A SUBSTITUTE FOR ANY INSPECTIONS
OR WARRANTIES THE BUYER MAY WISH TO OBTAIN.

Nevertheless, the Statement is a disclosure by the Seller of the defects or information actually known by the Seller. Accordingly, while buyers are strongly encouraged to obtain an independent home inspector and make their sales contract contingent upon receiving a favorable inspection report, the fact remains that if the Seller makes material misstatements or omissions in the disclosure form, the buyer may have a legal case.

You asked the question as to whether the new disclosure form should be provided to contract purchasers, even though they have already received the old form. Connie Maffin, the Chair of the DC Real Estate Board, advised me that she is “encouraging everyone to immediately use the new form on new and existing listings”. According to Maffin, the law is in effect, and although the Board will not immediately enforce violations in the immediate future, Sellers are required to honor the law.

Does this mean that a buyer who received a second form has another “bite at the apple” to terminate the contract? That is another legal issue which has no definitive answer. Since the new disclosure statement is substantially similar in content to the old form, and since the potential buyer already had the opportunity to cancel when he/she received the older form, a strong argument can be made that the court will not permit the termination. And sellers and buyers should consult their own counsel for more specific legal advice.

Litigation is expensive, time-consuming and always uncertain. But compliance with the law is the hallmark of our legal system, so the new form must be provided to all potential purchasers, even if they currently are under contract.

Ms. Maffin has promised that the form will soon be available on the DCRA website (www.dcra.dc.gov).

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