- The Washington Times - Wednesday, April 12, 2006

Maryland home sellers are studying the definition of “latent defect” to be certain they are in compliance with new property disclosure laws that went into effect Oct. 1, 2005.

Previously, sellers in Maryland had the option of selling their home “as is” or completing a multiple-page list of items such as heating systems, plumbing systems and the age of the roof to assert their knowledge of the condition of their property.

The new law requires sellers to disclose any known latent defects in the property — even if they choose to sign a property disclaimer statement, which means they are selling the property without acknowledging any information about the condition of the home.

“Essentially, the law describes latent defects as material defects in real property that the purchaser couldn’t see or be expected to see during a visual inspection of the home,” says Elizabeth Trimble, counsel to the Maryland Real Estate Commission. “The second part of the definition is that this defect would pose a distinct threat to the health or safety of the buyers, tenants or visitors to the property.”

In the District, sellers are required by law to provide a standard property condition disclosure prior to or at the time of ratification of the sales contract, according to the standard contracts provided by the Greater Capital Area Association of Realtors (GCAAR). GCAAR’s form points out that even without a disclosure form, sellers are obligated by law to disclose known material defects to buyers.

Valerie Rivers, customer services and professional standards manager for GCAAR, says the association has proposed several changes to the standard District sales contract, which are in the process of being reviewed by the District Board of Real Estate. Changes may come later this year.

In Virginia, sellers may sign either a property disclosure statement listing the condition of a checklist of items such as water and sewer systems, insulation, plumbing systems, and more, or a property disclaimer statement, which means that the purchaser is buying the property “as is,” except for any specific items that may be mentioned in the real estate purchase contract by the buyer.

The change in Maryland law, Ms. Trimble says, came about because of concern by a state senator about a constituent who purchased a home that later turned out to be infested with bees that had built nests inside the walls.

The seller did not disclose this to the purchasers. The Maryland General Assembly chose to enact the latent defect disclosure to protect home buyers from potential health threats.

Real estate agents are responsible for having the sellers sign the latent defect disclosure form and for making sure buyers are also aware of the form and have read it.

“Before this new law, sellers could say they didn’t know anything about anything,” says Rory Coakley, broker/owner of Rory S. Coakley Realty Inc. in Rockville. “But now sellers need to think about their homes a little more. For instance, if a seller had a leak he tried to fix but wasn’t sure if it was really taken care of, he might decide to disclose it.”

So far, Mr. Coakley hasn’t found many sellers revealing knowledge of latent defects, but he believes this is because few sellers understand what constitutes a property defect that could threaten the health of a future owner.

Jim Savitz, a real estate attorney with Village Settlements in Gaithersburg, does not view the new disclosure law as a dramatic departure from the previous law.

“The new law simply draws attention to the fact that they have always had an obligation to disclose latent material defects,” Mr. Savitz says. “Even if the seller used the disclaimer form and refused to provide further information about the property, they have always been obligated to disclose latent defects. The interesting thing about this legislation is that it specifically says the defect must be related to the health or safety of occupants, which could seem to actually reduce the necessity of revealing other defects.”

Mr. Savitz says, however, that finding any latent material defect that would not affect the health and safety of occupants would be difficult.

“Now that everyone is so concerned about mold, a leaky basement or a toilet that had to be fixed could be considered a latent defect, and sellers would be obligated to reveal that they fixed the toilet,” Mr. Savitz says.

Kevin Cyrus, assistant branch manager of Long & Foster Real Estate in Mitchellville, says, “We expected a firestorm when the new law went into effect, but sellers are not mentioning it much. In our office, we’re making sure that everyone signs the appropriate form. But when we try to narrow our definition of what constitutes a latent defect, there’s always some disagreement as to whether something causes a health or safety threat. There’s a ton of legalese in the discussion, and if you ask a group of lawyers, each will have a different answer.”

Mr. Cyrus says sellers rarely mention any awareness of latent defects.

“Some people are inclined to disclose what they know about a property, but the majority will use the disclaimer form,” Mr. Cyrus says. “If you live in a house, you should disclose the things you know. But some sellers really don’t have any knowledge of the property, especially if it’s an estate home they have inherited or a house they bought recently to flip and sell.”

Some sellers may be confused about the implications of disclosing their knowledge of a defect in their property, believing they must repair any problem they reveal.

“If you disclose a problem, the buyer may want to investigate the problem further, but the seller has no liability after the investigation,” Mr. Savitz says. “It bodes well for anyone to expose anything they know about their home. In order to avoid fraud, you need to do this.”

Buyers can choose either to purchase the home as-is or investigate the problem and negotiate whether the seller will fix it. Sellers can agree to fix the problem or choose to compromise with the buyer.

“Disclosing a problem with the property results in a dollars-and-cents negotiation between the buyer and the seller,” Mr. Savitz says. “Sellers are better off being upfront about things to avoid later accusations of fraud.”

Whether sellers choose to complete the property disclosure form or property disclaimer form in Maryland, buyers are still wise to hire a home inspector to determine the condition of the property they wish to buy.

Home inspectors are more likely to discover a material defect in the property than the purchaser and can make sure the buyer understands how the systems in the home work and when they potentially need to be replaced.

“The legislation defines a latent defect as something the purchaser wouldn’t be able to ascertain or observe, not a home inspector,” Ms. Trimble says. “So if a home inspector found a defect in the home that would not necessarily mean the seller knew about it.”

Mr. Coakley says the new latent defect disclosure form hasn’t changed the job of home inspectors at all.

“They’re just doing what they always do, trying things that the buyer needs to know about,” Mr. Coakley says.

Mr. Coakley believes the new form is good for everyone.

“A seller is better off admitting what they know about the house, because if a buyer wants the house badly enough they will buy it anyway,” Mr. Coakley says.

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