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

Reblogger Wendy Cutrufelli
Real Estate Agent with Alain Pinel Realtors

 

Thank you Karen Fiddler for a great blog about required disclosure on bank-owned sales - or the consequences!   Not specifically addressed in this blog (but supported by the judge's ruling) is that agents have "A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties."

 

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

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Indera Coggins
Re/Max 100 - Dunkirk, MD

Wendy, great post. Isn't that Real Estate 101? It's a seller's choice to disclose or disclaim. However, a material defect should be disclosed.

On the other hand, a bank owned property is exempt from this.

Bottom line, the buyer should have had an inspection done and that material defect will be pointed out by the inspector and therefore, buyer had the right to withdraw the offer.

Jan 07, 2011 03:32 AM
Wendy Cutrufelli
Alain Pinel Realtors - Walnut Creek, CA
Contra Costa Realtor

Hi Indera,

Actually, it isn't the "seller's  choice" to disclose on any real estate transaction.  The banks are exempt from the Transfer Disclosure Statement and the Seller Property Questionnaire that are required of "normal" sellers but they are not exempt from the law that requires disclosure of any material fact that they know about...as proven by the judge's ruling.  In this case, the material fact was a slipping slope.  It isn't customary practice for a buyer to order a geological engineer's report as a matter of course.  Had the bank disclosed the issue, the buyer then would have known to conduct their due diligence and order the inspection and made the appropriate decision to proceed with or withdraw from the transaction.  

Jan 07, 2011 04:36 AM
Karen Fiddler, Broker/Owner
Karen Parsons-Fiddler, Broker 949-510-2395 - Mission Viejo, CA
Orange County & Lake Arrowhead, CA (949)510-2395

Hi Wendy.....thanks for the reblog, I love this outcome and  the more people who see it, the better.

Jan 07, 2011 07:12 AM
Kevin Nash
Shorewest Realtors, Metro Milwaukee - Germantown, WI
ABR,SRES,CRS,CSRS

Hey Wendy, Good, I'm glad they got sued and shame on that agent for lying and covering it up under the flimsy premis of a current owner (the bank) never having lived their. They should lose their license.  How could any person, asset manager, bank employee lie just to make a sale is beyond me. I hope the appropriate board takes action. Thanks for the re-post.

Jan 08, 2011 02:51 PM
Not a real person
San Diego, CA

You might be exempt from disclosure but that doesn’t mean that you should disclose things you know about. Good for the judge!

Jan 29, 2011 09:17 PM