REAL ESTATE

Bad Neighbors, and Other Nightmares You Might Need to Disclose to Buyers

meth-lab-next-door

meth-lab-next-door

If you've ever bought or sold a home, you probably know that the seller has to disclose any major problems before the sale can go through.

A crack in the foundation, a basement prone to flooding -- it's this kind of terror-inducing structural news that can signal a bad investment, so naturally, you need to tell any prospective buyers. And, if you don't disclose it, you could face a huge lawsuit to cover repairs years down the line.

But disclosure laws are very state-specific. What a seller has to disclose in one state isn't necessarily something that needs to be disclosed in another -- much to the chagrin of buyers.

So what falls into that fun-filled gray area? Let's take a look.

Meth labs

Rick Davis is a real estate attorney who practices in Kansas City, MO and KS. This means he gets to regularly see how disclosure laws vary widely between two states, even if they share a city.

One of the biggest differences between the two states (although, thankfully, it doesn't come up often) is that Kansas doesn't require a seller to disclose if the home was previously the site of an illegal meth lab, while Missouri does.

"I have had a client who purchased a home in Missouri that was a former lab," he says. "The person they bought the home from did not disclose the history of the home, and they discovered it after doing some research related to a class the husband was taking in law school.

"They were getting ready to sell the home and were worried about the depreciation of value because they would now have to disclose the history as they now knew about it. We discussed the possibility of suing the seller, but for various reasons they decided not to follow through with litigation."

The thing about disclosure is that you aren't required to disclose what you don't know, so sometimes looking too deep into the history of your home can be a bad thing. In this case, if the couple hadn't done the research into their home, they wouldn't have had to tell potential buyers anything about the home's "Breaking Bad" roots.

Death … and how the previous owner died

Many states have laws on the books that require sellers to disclose facts about whether the property is "psychologically affected."

This typically means disclosing if someone has died in the property within the past few years. In California, the period of time to disclose deaths in the home is three years. But sometimes you need to go into detail about how they died, too.

"I had a case where the estate was selling a property," says Aaron Feldman, a real estate attorney practicing in Walnut Creek, CA. "The owner died in the house and that was disclosed. What was not disclosed was the fact that he was violently murdered. There was some vague language for the potential buyer to ask for more info."

That ended up being a costly mistake for the seller. Feldman's client filed a lawsuit and eventually received a $15,000 settlement plus another $15,000 in attorney's fees.

Horrible neighbors

We've all dealt with terrible neighbors: People who constantly have ear-splitting parties, don't pick up after themselves, or let their pets run wild. So how much of this does a seller need to disclose?

It's debatable. No state has a specific law on the books requiring you to spill the beans about your appalling neighbors. Because it's all subjective, right? You might barely notice that your neighbor's terrier barks at all hours of the day and night, but it could drive the person who buys your home legally insane.

But some states, such as California, require sellers to disclose any major nuisances in their neighborhood. So if your neighbor is known for throwing Donald Trump rallies every Saturday night and you don't disclose it, you could potentially be held liable for that.

Problems that aren't the fault of the property

A sewer backup is something that you're almost certainly going to have to disclose, but sometimes buyers need to dig into what that disclosure really means.

For example, Georgia law requires a seller to disclose issues inside the home, but not issues in the home that are caused by problems that are off-site. That complicated one case for Bruce Ailion, a Realtor and licensed attorney in Atlanta.

"The buyer purchased a home where the basement had been recently finished," he recalls. "The disclosure stated sewer backup was the cause. The buyer assumed the sewer line was fixed. A week after the home was purchased the basement flooded with sewage again. It turns out the problem was not with the sewer line from the street to the house, but with the county itself making mistakes, flooding all the houses on the street."

In that case, there wasn't anything the buyer could do to sue the seller for damages resulting from nondisclosure. It was kind of a shady move for the seller to not disclose the full problem, but he was in the right legally.

Still, most Realtors and attorneys say it's better to come clean with any problems than to sweep them under the carpet (or into the sewer).

"Most home buyers understand that over time issues are going to arise," Davis says. "If you had an issue and it was repaired, there is really no reason you shouldn't disclose it to the buyer."

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