Major Changes to the Seller’s Disclosures in DC

There have been major changes to the Seller’s Disclosures in DC, this article from Sunday’s Washington Post details those changes and clarifies some of the confusion that is out there regarding the new disclosures.

New Requirements Govern Seller's Disclosure in the District

By Benny L. Kass
Saturday, March 24, 2007; F07

Q: I am a real estate broker in the District. I understand that effective Feb. 9, we have been required to provide potential home buyers with a new Seller's Disclosure Statement, and that 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 problem: On Jan. 20, I obtained a listing agreement from a seller and was fortunate to get a full-price contract on Feb. 4. The contract purchaser was provided with the Seller Disclosure Statement then in existence.

The buyer has not gone 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.

A On Feb. 9, the D.C. Department of Consumer and Regulatory Affairs published a revised Seller's Disclosure Statement in the D.C. Register, which means that the requirement to provide the new form became effective that day.

First, I have to correct one of your statements. According to the regulations promulgated by the 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. The purchaser must express an interest, in writing, in residing in the property in question. This requirement will normally be met in the sales contract itself.

The disclosure requirement does not apply in the following situations:

Court-ordered transfer.

Foreclosure sale.

Transfer by a fiduciary (such as a personal representative, guardian or conservator) if the person conveying the property was not personally occupying it.

Transfer between parents and children, or from one spouse to another.

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 than the previous one and is more logical. 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 is the same.

What rights does a potential buyer have under the law?

When the buyer is given the disclosure statement, he 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 applies 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.

The person with a lease with an option to purchase begins to occupy the property.

The seller of a condominium unit, cooperative apartment or a house in a homeowners association is obligated to disclose information as to the unit or house only, not the common elements or areas outside of the property being sold.

Can a buyer rely on the disclosures provided by the seller? That's a legal question that the courts in the District have not yet addressed. The form specifically states, "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. Thus, while all buyers should obtain an independent home inspection 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 whether the new disclosure form should be provided to contract purchasers, even though they have already received the old form. Connie Maffin, who heads the D.C. Real Estate Board, told 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 receives a second form has another chance to terminate the contract? That is another legal issue that has no definitive answer. Because the new disclosure statement is substantially similar in content to the old form, and because the potential buyer already had the opportunity to cancel when he received the older form, a strong argument could be made that the court will not permit the termination. Sellers and buyers should consult their own counsel for more specific legal advice.

Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address or contact him through his Web site, http://www.kmklawyers.com