Disclosure

QUESTION:   Broker questions whether or not a Trustee who is selling a home for a trust falls under any exemption of the property disclosure statute.

RESPONSE:   Generally speaking, Trustees are considered fiduciaries and would be exempt from property disclosures under Idaho Code 55-2505 which states as follows:
(7)  A transfer by a fiduciary in the course of the administration of a decedent’s estate, a guardianship, a conservatorship, or a trust
Ultimately it is not up to the Brokerage to provide clients with legal advice as to whether they are or are not exempt from property disclosures. Brokerage can provide client a copy of the statute and have client make its own determination as to whether or not the disclosures are legally required and refer client to competent legal counsel.

QUESTION:  Broker questions the distinction between several of the exemptions afforded under Idaho Code § 55-2501 et. seq. (Idaho’s Property Condition Disclosure Act).

RESPONSE: The exemptions referred to by the Broker can be found in the Idaho REALTORS® Forms RE-25 and RE-25A; however, the exemptions are a creature of statute and are found in Idaho Code § 55-2505.  Because the language is codified under Idaho law it cannot be changed in the form.  Several of the exemptions can be confusing because they overlap and several exemptions relating to transfers through inheritance or probate are repeated in numerous exemptions.  The exemptions questioned by Brokerage were as follows:
¨ A transfer pursuant to court order including, but not limited to a transfer ordered by a probate court during the administration of the decedent’s estate, a transfer pursuant to a writ of execution, a transfer by a trustee in bankruptcy, a transfer as a result of the exercise of the power of eminent domain, and a transfer that results from a decree for a specific performance of a contract or other agreement between persons

The exemptions listed in this section of the Code are all essentially transfers according to some sort of court order.  The Court may have entered the order in a probate action, a bankruptcy action or similar action.

¨  A transfer by a fiduciary in the course of the administration of a decedent’s estate, a guardianship, a conservatorship or a trust

The first part of this exemption is where we see the first overlap in that it makes a reference to transfers out of a decedent’s estate; however, the transfers exempted under this section of the Code relate to a general transfer by some sort of fiduciary.  The fiduciary can be a personal representative in a probate action, a guardian in a guardianship action, a conservator in a conservatorship action or a trustee of a trust.  This exemption focuses on a transaction by a fiduciary rather than a court order which is what distinguishes it from the previous section.     

¨ A transfer from a transferor who has both not occupied the property as a personal residence within one (1) year immediately prior to the transfer and has acquired the property through inheritance or devise

This exemption is very specific and provides for an exemption from an individual who obtained the property through inheritance and has not lived in the property within one (1) year prior to selling it.  While it relates to a probate transfer, it is more specific than the other exemptions.

¨ A transfer from a decedent‘s estate

This exemption is a general exemption applying to the transfer of property directly by a personal representative out of a decedent’s estate.  This exemption is distinguished from the prior exemption in that the property is not being sold by an heir but rather being sold by the personal representative directly out of the estate.

It is important to remember that although a Seller may be exempt from the statutory obligations of the act, they are not exempt from truthfully answering questions posed by a Buyer. Additionally, nothing in the exemptions relieves a real estate licensee from their obligation to disclose adverse material facts.

QUESTION:  Broker called the Hotline questioning some of the particulars of the proper use of the RE-25 Form and the property disclosures in general.  Specifically, Broker questioned how the practice of a seller providing a RE-25 to a buyer in advance could affect sellers’ and buyers’ rights.

RESPONSE:  The RE-25 is a property disclosure form that is used to address the mandatory disclosures found in Idaho Code Title 55 Chapter 25, known as the Property Condition Disclosure Act (hereinafter “the Act”).  Most of the legal rights pertaining to sellers and buyers are contained with the Act. The specific language affording a buyer the legal right to rescind an otherwise valid purchase and sale agreement is contained in Idaho Code § 55-2515:

Subject to section 55-2504, Idaho Code, if a transferee of residential real property receives a property disclosure form or an amendment of that form as described in section 55-2508, Idaho Code, after the transferee has entered into a transfer agreement with respect to the property, the transferee, after his receipt of the form or amendment may rescind the transfer agreement in a written, signed and dated document that is delivered to the transferor or his agents in accordance with section 55-2510, Idaho Code. Transferee’s rescission must be based on a specific objection to a disclosure in the disclosure statement. The notice of rescission shall specifically identify the disclosure objected to by the transferee. Transferee incurs no legal liability to the transferor because of the rescission including, but not limited to, a civil action for specific performance of the transfer agreement. Upon the rescission of the transfer agreement the transferee is entitled to the return of, and the transferor shall return, any deposits made by the transferee in connection with the proposed transfer of the residential real property.

Subject to the provisions of section 55-2505, Idaho Code, a rescission of a transfer agreement may only occur if the transferee’s written, signed and dated document of rescission is delivered to the transferor or his agent or subagent within three (3) business days following the date on which the transferee or his agent receives the property disclosure form prescribed under section 55-2508, Idaho Code. If no signed notice of rescission is received by the transferor within the three (3) day period, transferee’s right to rescind is waived.

The Legal Hotline acknowledges an industry practice where sellers are completing a RE-25 along with their listing documents, and the completed RE-25 is posted on the MLS prior to ever receiving an offer on a property.  While the intent of this practice was likely to provide future buyers with advanced knowledge relating to the property, it is important to note that this practice may have an effect on both sellers’ and buyers’ rights provided under the Act.  The Act provides that the seller must deliver the completed form “within ten (10) days of transferor’s acceptance of transferee’s offer.” (Idaho Code § 55-2509).  In the event where an argument arises pertaining to seller’s delivery, it is unknown whether a court will consider a form delivered prior to acceptance of an offer in compliance with the law.  Further, buyer’s rights under the Act state that a notice of rescission is to be “delivered to the transferor or his agent or subagent within three (3) business days following the date in which the transferee or his agent receives the property disclosure form…” (Idaho Code § 55-2515).  Again, the practice of providing a RE-25 in advance could create confusion with a buyer’s deadline to rescind a contract, in that buyer’s timeline is triggered by receipt of the disclosure form from the seller.  The date a buyer “receives” the RE-25 needs to be clear and unambiguous.

In addition, the Hotline is aware of some circumstances where a seller has attempted to limit buyer’s right to rescission because a buyer knew at the time of making buyer’s offer all the information that was contained in the RE-25, having received an advanced copy.  Seller’s argument in this theory is that buyer was aware of the defects contained in the RE-25 and still chose to make an offer thus waiving buyer’s right to rescind based on said defects.

Given that the property disclosure is an important part of any transaction, and further given that Idaho Code is very specific on certain dates and does not provide for delivery of the disclosure prior to entering into a Purchase and Sale Agreement, it is best practice that a RE-25, or an updated version of it, be delivered to buyer after buyer and seller have gone under contract.

Like Brokers, the Legal Hotline does not provide legal advice to Buyers or Sellers, nor is it intended to be used as a resolution for disputes between Buyers and Sellers.  Brokerage should advise its clients and customers to seek legal counsel if they have questions concerning their rights or contract interpretation.

QUESTION:  Broker represents Seller.  Broker questions whether the fact that Seller and neighbor do not get along needs to be disclosed.

RESPONSE:   Under Idaho law, licensees are required to disclose any “adverse material facts.”  Idaho Code § 54-2083(1) defines an adverse material fact as:
“Adverse material fact” means a fact that would significantly affect the desirability or value of the property to a reasonable person or which establishes a reasonable belief that a party to the transaction is not able to or does not intend to complete that party’s obligations under a real estate contract.

QUESTION:   Broker represents Seller and had a transaction cancel due to a Buyer inspection which included a potability test of the well on the property.  Buyer provided Seller with the written findings of the laboratory that conducted the well test.  Seller allowed Buyer to cancel the contract but does not believe the results of the test.  Broker questions whether the information related to the well has to be disclosed to any new buyers. 

RESPONSE:   Seller is required to make certain disclosures about the conditions of the property most of which are found in Idaho Code 55-2508. Idaho Code 55-2508 does specifically require a Seller to “Specify problems with the…well.” However, whether or not a fact requires disclosure can turn on whether or not the fact is true, justified and/or legitimate.  This is a determination that must be made by the Seller, not the Broker.  There may be circumstances where an inspection report leaves no question about the condition of a feature of a property but there may also be circumstances where those conclusions are not based on all the known facts or perhaps the inspector making the statement lacked the needed qualifications. 

Similarly, the Brokerage is obligated to disclose any known adverse material facts, which are defined in Idaho Code § 54-2083 as:

“Adverse material fact” means a fact that would significantly affect the desirability or value of the property to a reasonable person or which establishes a reasonable belief that a party to the transaction is not able to or does not intend to complete that party’s obligations under a real estate contract. (Emphasis added).  

If the Broker believes that it is required to disclose a fact then Broker should discuss that with Seller and if a disagreement arises it may be in both parties’ best interests for Seller to obtain a different Brokerage.  “A Seller cannot order a Brokerage not to make a disclosure required by law.”

Whether or not any particular circumstance constitutes, and adverse material fact is something that must be determined on a case-by-case basis.  The Hotline does not advise on whether or not something constitutes an adverse material fact.

QUESTION:   Broker’s Seller has discovered a circumstance that may require an amendment to the property disclosures provided at the outset of the transaction.  Broker questions whether there is a specific timeline in the statute that pertains to amendments.

RESPONSE:  The only timeline in the statute refers to closing.  The statute states:
55-2513. AMENDMENT TO FORM. Any disclosure of an item of information in the property disclosure form described in section 55-2508, Idaho Code, may be amended in writing by the transferor of the residential real property at any time following the delivery of the form in accordance with section 55-2510, Idaho Code. Transferor shall amend the disclosure statement prior to closing if transferor discovers any of the (the) information on the original statement has changed. In the event of amendments to the statement, transferee’s right to rescind is strictly limited to the amendments to the disclosure statement. The amendment shall be subject to the provisions of this chapter.

However, all parties to a contract have the obligation to deal with each other fairly and in good faith so the Seller should take care to amend in a manner that does not cause the Buyer harm. 

QUESTION:    Broker is aware that certain builders in Broker’s area are offering incentives for selling agents who bring buyers to buy builders’ home.  The bonus would be above and beyond the typical cooperating commission offered in the local MLS. Brokerage questions whether any particular disclosures are required in this circumstance.

RESPONSE:   Yes, Broker is required to disclose the builder bonus to Broker’s buyer client. Under the facts and circumstances presented to the Hotline, Broker will be compensated by the Buyer as well as receiving a bonus from the builder (Seller). Idaho law requires full disclosure in these types of circumstances. Idaho Code § 54-2054(7) states:

COMPENSATION FROM MORE THAN ONE PARTY. No licensed real estate broker or salesperson shall charge or accept compensation from more than one party in any one transaction, without first making full disclosure in writing of the broker’s intent to do so, to all parties involved in the transaction.

Because Brokerage will be representing Buyer as a client and receiving compensation from Buyer, the above cited statute requires a written disclosure to all parties.

QUESTION:   Broker represents Seller.  Broker questions whether the fact that the home suffered burn damage in 2010, prior to Seller owning the home, needs to be disclosed.

RESPONSE:   Under Idaho law, real estate licensees are required to disclose any “adverse material facts.”  Idaho Code § 54-2083(1) defines an adverse material fact as:

“Adverse material fact” means a fact that would significantly affect the desirability or value of the property to a reasonable person or which establishes a reasonable belief that a party to the transaction is not able to or does not intend to complete that party’s obligations under a real estate contract.

The Hotline cannot determine what an adverse material fact is because it has to be done on a case by case basis based on all the factors of a particular transaction. Brokers and agents are required to decide for themselves whether or not any particular fact would rise to the level of an “adverse material fact” as defined by Idaho Code.  If this particular situation rises to the level of an adverse material fact, it needs to be disclosed to any potential buyers.  There are several ways to make the disclosure and in most circumstances disclosure should be made to Buyers or prospective Buyers’ agents. Brokers should work with Seller to discuss the required disclosure and the proper time and method for doing so.

QUESTION:   Broker questions if an alleged murder on the property needs to be disclosed to potential Buyers. 

RESPONSE:   A homicide in the home would fall under Idaho’s “psychologically impacted” property statutes.  Idaho Code Title 55 Chapter 28 governs “psychologically impacted” property.  Idaho Code § 55-2801 states in relevant part:

As used in this chapter, “psychologically impacted” means the effect of certain circumstances surrounding real property which include, but are not limited to, the fact or suspicion that real property might be or is impacted as a result of facts or suspicions including, but not limited to the following:
…
(2)  That the real property was at any time suspected of being the site of suicide, homicide or the commission of a felony which had no effect on the physical condition of the property or its environment or the structures located thereon…

Further, Idaho Code § 55-2802 States:
NO CAUSE OF ACTION. No cause of action shall arise against an owner of real property or a representative of the owner for a failure to disclose to the transferee of the real property or a representative of the transferee that the real property was psychologically impacted.

Given the above stated language, knowledge of a homicide on the property would not have to be pro-actively disclosed to Buyers.

However, the above pertains to pro-active disclosure. Idaho Code differentiates what steps to take if a potential Buyer specifically asks Seller and/or agent if they have knowledge of specific acts:

In the event that a purchaser who is in the process of making a bona fide offer advises the owner’s representative in writing that knowledge of whether the property may be psychologically impacted is an important factor in the purchaser’s decision to purchase the property, the owner’s representative shall make inquiry of the owner and, with the consent of the owner and subject to and consistent with the applicable laws of privacy, shall report any findings to the purchaser. If the owner refuses disclosure, the owner’s representative shall advise the purchaser or the purchaser’s representative that the information will not be disclosed.
Idaho Code § 55-2803.
If the seller believes this statute applies to them Broker should advise Seller to seek legal counsel.

QUESTION:   Does Seller have to amend Seller’s Property Condition Disclosures (RE-25) when there is a change in circumstance discovered during the course of the transaction?  Broker also questions a Buyer’s recourse if Seller refuses to amend the disclosures.

RESPONSE:  Yes, Idaho law requires a Seller to amend any previous disclosures if new information is discovered.  Idaho Code § 55-2513 states:

AMENDMENT TO FORM. Any disclosure of an item of information in the property disclosure form described in section 55-2508, Idaho Code, may be amended in writing by the transferor of the residential real property at any time following the delivery of the form in accordance with section 55-2510, Idaho Code. Transferor shall amend the disclosure statement prior to closing if transferor discovers any of the (the) information on the original statement has changed. In the event of amendments to the statement, transferee’s right to rescind is strictly limited to the amendments to the disclosure statement. The amendment shall be subject to the provisions of this chapter.
I.C. § 55-2513.

In response to Broker’s question regarding what happens if a Seller does not amend the RE-25 disclosures, Idaho Code § 55-2517 states:

FAILURE TO COMPLY. No transfer, subject to this chapter, shall be invalidated solely because of the failure of any person to comply with any provision of this chapter. However, any person who willfully or negligently violates or fails to perform any duties prescribed by any provision of this chapter shall be liable in the amount of actual damages suffered by the transferee.

A Seller is required by law to make certain property condition disclosures and is further obligated to amend said disclosures if new information regarding the property is discovered.  Broker should advise client to retain legal counsel to advise client of his or her rights if Seller is refusing to amend disclosures.