The Problem of Disclosure Part 1

In earlier articles we alluded to the problems that can arise when the buyer of real property learns that there are things about the property that he didn’t know before he closed the deal. Sometimes the problems are so bad they result in litigation, and as we all know litigation can often be a disaster for everyone, with the possible exception of the lawyers.

Not too many years ago, unknown defects were a problem only for the buyer. The law used to provide that it is the buyer’s responsibility to investigate sufficiently to be sure he knows what he is buying. The lawyers call that principle "caveat emptor" or "buyer beware." Today the rule is different, about 180 degrees different. Today you might say the rule is caveat vendor and you wouldn’t be far wrong.

In fact the legal rules today are not entirely clear. The consequence of that is that there is a lot of litigation that has been spawned in recent years over who loses when the buyer is unhappy with what he bought. Some cases are fairly easy to call. Some are not.

If the seller knew of a serious problem (as for instance that the house is in imminent danger of collapse because of major termite damage) and either lied about it or actively concealed it from the buyer in order to close the sale, and if the misrepresentation or concealment are clearly shown on the record, he is probably going to be in trouble when the deception is discovered. Conversely, if the seller informed the buyer of the problem, and the buyer expressly agreed to assume the costs associated with it, then the buyer has no rights against the seller. One very rarely sees a case that is as clear as these two hypotheticals. Sometimes problems are discovered after closing that neither buyer nor seller had any inkling about beforehand, and the parties sometimes spend enormous amounts of money trying to establish who is at fault.

It stands to reason, then, that both seller and buyer are better off if there are no rude surprises in store for the buyer when the sale closes.

There are ways to avoid the risk of litigation, and we will devote the next couple of articles to exploring those ways.

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