I wanted to write a blog pertaining to Seller Disclosure Duties and AS-IS Clauses used in Short Sales. As we all know, property disclosures pertaining to the condition of the property lead to a significant source of legal disputes and claims between Buyers, Sellers, and involved Brokers. Unfortunately, disclosure problems seem to increase when the transaction involves an underwater Seller or upside down property. Often times, the Sellers feel removed from the transaction since they are not receiving proceeds beyond potential HAFA relocation assistance. Another reason is that often times the sale takes so long, that the initial disclosures become outdated, and/or the property condition changes during the long short sale transaction.
Also, too many Sellers and/or Agents become falsely complacent, and use a standard “As-Is” Clause that they believe blankets them from liability or they believe it reduces their clients disclosure duties. This is legally not the case.
In my opinion an AS-IS Clause is not much more than a preemptive notice to Buyer’s that Sellers do not intend to make repairs if requested, but the As-Is Clause definitely does not substantially reduce the Seller’s Disclosure duties pertaining to Material Defects related to the property that Seller has an active knowledge of existence.
Many Agents have asked me:
My Sellers wants to sell the property AS-IS, and want to make sure this shields them from any potential liability?
According to the court in Shapiro v. Hu (1986)
An "as is" clause puts buyers on notice that the seller is making no warranties about the quality or condition of the property. It is sort of a "red flag" that the property is not perfect.
Resale property contains no implied warranty as to the quality or condition of the property. Any warranties must be express.
The use of an "as is" clause relieves the seller from liability for defects in the property's condition that were not concealed by fraud or misrepresentation.
With That Being Said:
What the "as is" clause did accomplish, according to the court, was to alert the buyer to the deteriorated nature of the property, and gives notice that the seller was not inspecting the property, and advises the buyer that he was taking the property with all obvious and patent defects. On the other hand, the provision does not insulate the seller from liability for intentional or negligent misrepresentation or for failing to reveal concealed defects not apparent from an inspection.
In conclusion, an "as is" clause does not relieve a seller from the duty to disclose all known material facts to the buyer of real property. However, an "as is" clause does signal to a buyer that the seller will not be responsible for the cost of repairing any defects.
Thus, whether the contract contains an "as is" clause or the property is sold with certain warranties, real estate licensees should continue to encourage sellers to disclose any known defects in the property.
We understand how much work is involved in a short sale transaction, but it is also important to remember that agents need to educate their clients as to the importance of property disclosure regardless of whether or not you are dealing with a short sale or standard sale.
For further review of this issue, don’t forget California Association of Realtors does an amazing job of keeping up with current hot topics and legal issues. They have a great website at www.car.org and members have the ability to review Legal Hot Topics and a library of Legal Q and A articles.
Remember, Knowledge is Power, especially in a market like this.
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