Bank-Owned Properties Exempt From Disclosures......True, But The Judge Ruled Differently

Reblogger Charita Cadenhead
Real Estate Agent with Keller Williams Realty

Karen has posted some outstanding news that I believe is a giant step forward for mankind.  Banks that own foreclosed properties have hidden behind the "guise" of ignorance for too long.  EVERY owner (bank owned or otherwise) should have an obligation to disclose material facts whether known at the time of the listing or after the fact.

Original content by Karen Fiddler, Broker/Owner BRE# 01494165

 

In a normal real estate transaction, buyers are provided with disclosures from the sellers. These disclosures are usually in the form of questions which allow a seller to disclose any and all of the problems they know about which would affect the home. If part of the purchase contract, the seller is obligated to truthfully tell the buyer all defects/negative conditions associated with the property.

This could include:

Plumbing Leaks
Deferred Maintenance
HOA Rules
Neighborhood Noise

The list can be quite extensive...and in California includes an area to discuss "material facts or defects not otherwise disclosed to the buyer." It's very clear that the intent is to give the buyer all information they need to make an informed decision....and if the sellers withhold information they have, they can be held liable for damages. But this does not apply to bank-owned properties (REO).

In California, foreclosed properties are exempt from making these disclosures for the simple reason that the bank has never lived in the home and as such should have no knowledge of defects and/or past problems. Up to a point.

I have a client who purchased a REO a year ago and did not get any disclosures. We performed a home inspection and did our due diligence. He moved in and all seemed well. Then the back slope started to move. As they started to work on fixing the problem (the retaining wall was incorrectly built) they happened to contact a geological engineer who had given an estimate to the BANK prior to the sale. What?

Yes....this property had been in escrow before, and the buyer had backed out when they found that the hill was unstable (there were no visible signs of this, but the previous buyer had a personal reference which alerted him to this potential).

The bank did not disclose this.
The listing agent did not disclose this.

My buyer sued both....claiming that although they were not obligated to provide normal seller disclosures and property questionnaires, if they discover a defect, they are liable to disclose this information. Clearly both the lender and the listing agent were aware that the slope was moving, and the cost to repair. The judge agreed and between actual damages and punitive damages.....well, let's just say he paid off his second mortgage and had a very nice holiday. :).

The basic rule of real estate is still intact.....Disclose, Disclose, Disclose!

 

Karen Fiddler
Broker/Associate
The Fiddler Realty Team/eVantage Real Estate
Lic # 01494165

www.searchfororangecounty.com

Serving all of Orange County, California Real Estate!
Buyer's Agents, Listing Agents, Short Sales, REOs, Equity Sales, Investors

SEARCH THE MLS HERE

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Rainer
482,868
Chandler Real Estate Liz Harris, MBA
Liz Harris Realty - Chandler, AZ
#ChandlerRealEstateAgent

I think when there is a material fact, there is a material fact.... It doesn't matter who the seller is.  On REO properties, the banks/investors and their agents have repair receipts and/or typically have estimates/inspections done.  Again, if it is a material fact, disclosure is so very important. 

Jan 05, 2011 03:44 PM #1
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758,987
Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Absolutely Liz, but you know Banks have been getting away with their responsibility to disclose for far too long.

Jan 05, 2011 03:50 PM #2
Rainer
62,222
Tracie Burlage
Rose and Womble Realty, Va Beach Oceanfront - Virginia Beach, VA
Va Beach Homes
Finally! A win for the little guy. How backhanded and well, "cruddy" of the bank not to disclose on their own. Glad they happened to get caught and the judge saw it for what it was. Which bank owned the property? Was it a biggie?
Jan 05, 2011 03:55 PM #3
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758,987
Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Tracie I wish that I knew the answer, but Karen didn't reveal.

Jan 05, 2011 03:58 PM #4
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Joni Bailey
101 Main St. Realty - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

Charita: Have you always been an ambassador? How could I miss that?! If not, CONGRATULATIONS. I am loving that sweet baby, too!!

Jan 05, 2011 04:21 PM #5
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758,987
Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Hi Joni.  I've only been an Ambassador since 12/28/10.  Thanks.  My grandbaby is just getting to be a little man.

Jan 05, 2011 04:25 PM #6
Rainmaker
650,247
Barbara Hensley
RE/MAX Properties - Rockwall, TX
Homes for Sale in Rockwall County, Texas

Charita, thanks for sharing this.  I have not known of a bank/lender to lose.  Yea, for the little guy, the buyer!

Congrats on becoming an Ambassador.  I always watch for your posts and learn something every time!  Love the pic of your grand baby!

Jan 05, 2011 11:10 PM #7
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758,987
Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Thanks Barbara (on all 3 counts).  It is very nice to see the little guy win for a change.

Jan 05, 2011 11:14 PM #8
Rainmaker
1,114,018
Paula McDonald
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279

I missed this one Charita.  Good stuff but i personally am MORE than ready to see these REO's go away.

Jan 06, 2011 12:35 AM #9
Ambassador
758,987
Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Trust me Paula, you are not alone.

Jan 06, 2011 12:48 AM #10
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Joni Bailey
101 Main St. Realty - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

Well good for you! I can't think of a better person to be an Ambassador! Woo hoo! The little man is too cute!!

Jan 06, 2011 02:06 AM #11
Rainmaker
238,132
Donna Paul
Keller Williams Realty Gold Coast - Dix Hills, NY
Long Island Home Specialist,All About Real Estate

I always say the same thing it's always best to DISCLOSE..... no matter what... I just love your new profile pic... althoug I miss your pic.... I wish you could do BOTH.

Jan 06, 2011 04:52 AM #12
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Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

HI Charita...just stopped by to thank you for the reblog. We need to get the word out that buyers have a right to all information that is important to their decision....and there are consequences.

Jan 06, 2011 11:25 AM #13
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Charita Cadenhead

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