Should you sign a Property Condition Disclosure?

BY EMILY PICKRELL | Special to Newsday

September 7, 2007

Article tools

E-mail

Share
- Digg
- Del.icio.us
- Facebook
- Fark
- Google
- Newsvine
- Reddit
- Yahoo

To pay or not to pay? That is the question facing many home sellers trying to understand whether paying $500 will let them off the hook from having to fill out a Property Condition Disclosure Statement, which informs buyers about the condition of a property.

The form is the result of the 2001 Property Condition Disclosure Act, a state law requiring sellers of residential property to answer specific questions about known problems. The form is then supplied to the buyer prior to the sale. The act further stipulates that sellers who do not give the buyer the form will be required to pay $500 to the buyer. There is disagreement among real estate attorneys, however, about the protection the fee provides to the seller.

Whom does it protect?

Many interpret the law to say that the payment protects the seller from any problems the buyer later may have with the property. Others say the law is unclear, and that the payment does not protect the seller from the duty to inform the buyer of known problems.

"Is the $500 an opt-out?" asks real estate attorney Marshall Tracht, a Hofstra University professor and dean who is a visiting professor at New York Law School for a year. "The statute is completely unclear on that critical notion."

Sellers such as Catherine McGrath, 83, have taken their attorney's advice and paid the $500 to protect themselves against any possible problems.

McGrath, a retired Grumman data manager who lived in herLevittown house for 50 years, says she decided to sell because of the cost and work in keeping it up. She says she was relieved when she learned she could pay $500 to avoid filling out the form, especially since the new buyers were planning to tear down the 1951 expanded ranch, which eventually sold within the past year for $260,000.

"I was concerned, and they said, 'If you make a $500 deposit, then you don't have to worry about it,'" says McGrath. "If I had had to meet a certain standard by the buyer, I never would have been able to sell it. I wanted to be able to sell it 'as is.'"

Stacy Zigman, an agent for ReMax West Realty inWest Hempstead, estimates that eight out of 10 of her sellers do not complete the form.

"With the price of homes today, it's just not worth the headache if they accidentally misrepresent any problems," says Zigman, adding that she always recommends that sellers consult an attorney. "There's a lot of things on the disclosure form that are things that a seller wouldn't even see or know about, so it's very hard for them to honestly answer it, and that itself creates a problem."

According to the Property Condition Disclosure Act, the intent of the disclosure statement is to provide New York home buyers with a way of learning about known problems with a house that an inspector might not necessarily find, such as a leaking septic tank.

The statement includes 48 questions about the condition of the property, such as water damage, termite infestations and known defects in plumbing systems, air conditioners and foundations. Sellers are instructed to fill out the document to the best of their ability, answering yes, no, unknown or not applicable to each question.

In the five years since the legislation was passed, several cases have been brought to state court, with buyers trying to hold sellers accountable for information provided in the forms. The rulings have indicated that, when a form is involved, a buyer must prove being intentionally misled by the seller to collect damages.

It's expensive to sue

But some buyers have found it costly to enforce their rights and do not feel that the statement has improved their ability to receive accurate information about problems with a house.

Karl Holtzschue, a Manhattan lawyer and author of several books on real property, has tracked cases that have gone to court and says far more buyers have lost their lawsuits than have won.

"The courts have a very harsh rule against buyers, that they must inspect and that they must ask questions about things that they see," he says. "Even if the seller lies, if the buyer had the means available to detect the lie, the buyer loses. If you didn't inspect, you didn't do what you were supposed to do. Courts insist on buyers' having an inspection and paying attention."

In one of the few cases where a buyer has prevailed, North Woodmere resident Michael Fleischer sued the seller after the house he had purchased in 2002 leaked during a storm the following week, even though the disclosure form indicated no prior problems with leaks. "We had water leaking into the roof, and down from the roof into the living room, and there was water coming into the basement in several places," says Fleischer.

Even though Fleischer had hired an inspector, the inspector had not been able to identify issues with the roof. And, he says, "we were never able to see the property on an inclementday."

Despite language in the original legislation that describes the disclosure statement as being a way for buyers to have better information, the courts have ruled in recent cases that sellers who pay the $500 do not have an additional obligation to sign the disclosure form or pay further penalties. "Recent cases made it clear that it is an opt-out," says Ben Weinstock, a Uniondale-based partner at Ruskin, Moscou & Faltischek. "The only penalty that you face is $500."