Rules of Disclosure With Inspection Issues
As you may know, I’m a licensed real estate managing broker in the State of Illinois as well as a licensed attorney. The most recent issue of Illinois Realtors magazine had a very timely article about rules of disclosure in cases where a home inspection triggers a sale to fall apart, and what the Seller’s obligations are to disclose the items going forward.
I’ve dealt with these issues quite a bit throughout the years. My philosophy is to disclose, disclose, disclose. No one wants to be accused of hiding things from potential buyers, and certainly no one wants to face a lawsuit because a party feels something was not properly disclosed.
First, in the way of disclosure, each Seller is required to complete a form pursuant to the Illinois Residential Real Property Disclosure Act. There are 23 questions about a wide variety of issues concerning the property. Sellers will complete this form at the time of listing, and be required to update the form as time goes on if anything with the status of the property may change. This disclosure requires the Seller to disclose anything they have “actual knowledge” of concerning the condition of the property.
Sometimes, however, things come up on an inspection report that the Seller may not have been aware of. Then you get into a gray area of what is “material” and “immaterial” to the condition of the property. Or perhaps your Seller argues that the home inspector incorrectly identified an issue. Then a discussion ensues about the requirements of disclosing this issue to a new buyer should the Seller now have “actual knowledge” via an old buyer’s inspection report.
The current Multi-Board 7.0 Contract that most real estate agents use (and frankly, the form I prefer) allows a Seller to avoid being put on notice about any issues regarding the property by prohibiting the buyer or buyer’s attorney from sharing the contents of the inspection report with the attorney review letter and inspection requests, unless the Seller specifically requests to see it.. This puts the parties in a quandary, however; because the issue has presumably still been raised via the Attorney Review/Inspection letter, and in order for the Seller to determine what exactly the issue is, and whether they can fix it, many times they do need to see the actual report. My business practice, and many other real estate lawyers’ practices, is to request only the pertinent pages of the report, i.e. only the pages that pertain to actual repairs being asked for by the buyer. That way, the Seller can see the actual issue (most of the time with photos) and see a detailed description of the problem, without opening themselves up to seeing the entire report.
The Sellers then have an opportunity to remedy the situation, thus avoiding the need to disclose, rather than avoiding the issue, and pretending it doesn’t exist. It also behooves a Seller to remedy any issues that they are aware of, because they will more than likely come up on another buyer’s inspection report as well. At the minimum, Sellers will have the opportunity to make a decision on whether they want to fix the item, or simply disclose it with a reduction of the price to accommodate a repair of whatever the item is should they choose not to fix it themselves.
This is much better than the alternative of trying to explain to a judge why the Seller ignored or denied the issue and just hoped no one would notice.
As always, for any disclosure issues, please seek legal counsel. This blog is not meant to give specific legal counsel to any individual for their circumstances.
