Moving into a new home is an exciting time. That is, until you discover a problem the seller never informed you about. State and federal law requires sellers to disclose certain information about the property to buyers.
When you don’t receive the whole story about the property, you’re opportunity to negotiate a fair price and make a fully-informed purchase is taken away. When this happens to you, speak with a lawyer. You may have a legal claim for the seller’s failure to disclose the issue.
Robinson & Henry, P.C. has a team of real estate attorneys and civil litigators who may be able to recover damages or provide the restitution you deserve for the seller’s failure to disclose a defect.
Robinson & Henry, P.C. | Schedule your free initial consultation online or call (303) 688-0944.
Failure to Disclose Defects
One of the first things most homebuyers do when they’re interested in a property is to go look at it in person. You may see remnants of obvious problems, such as a water leak stain on the ceiling or damaged gutters outside.
A home inspection can reveal problems you can’t see, but sometimes even a seasoned home inspector cannot uncover every defect, including major ones. To some degree you have to count on the seller to follow disclosure laws and regulations to uncover the home’s history.
Facts & Defects Disclosures
In Colorado, sellers have a duty to disclose information the buyer would find of significant importance about the property. This information is a material fact.
Sellers are also supposed to reveal issues that could negatively affect the property’s value. This is an adverse material fact.
By state law, brokers are required to disclose known adverse material facts. This includes, but is not limited to, information pertaining to:
- the title
- the property’s physical condition
- defects in the property
- environmental hazards that affect the property
Types of Defects
Holes in the wall, a smell of mold, and large water stains are examples of patent defects. These are easily-found problems.
Conversely, latent defects are issues the buyer won’t see just by walking around the property. The seller has a legal responsibility to disclose latent defect if they know, or should have known, about them.
Latent Defect Examples:
|Asbestos||Corroded Pipes||Septic Problems||Poorly-Fixed Leaks|
|Toxic Mold||Foundation Issues||Fire Damage||Expansive Soils|
If the seller does not know about the latent defect, it is up to the buyer to fix the problem. However, there are occasions when it is reasonable to believe the seller should have known about a latent defect.
Disclosures Required by Colorado Law
Special Taxing District
A disclosure to buyers that the property is within the geographical boundaries of a special taxing district. The local government can tax these districts to pay for local services and improvements. C.R.S.A. § 38-35.7-101
Common Interest Community
This notifies the buyer that the property is part of a Homeowners’ Association (HOA). C.R.S.A § 38-35.7-102
Potable Water Source
The seller must reveal the source of the property’s drinkable water, whether that’s a well or a service provider. C.R.S.A. § 38-35.7-104
Sellers must disclose any existing or proposed transportation projects that affect the property. C.R.S.A. § 38-35.7-105
Surface and Mineral Rights & Oil and Gas Activity
This disclosure informs the buyer that third parties could own or lease oil, gas, or mineral interests below the surface of their property, and that the surface estate may not include the transfer of the mineral estate. It also lets the buyer know that oil and gas activities, such as drilling, may occur on or next to the property. C.R.S.A. § 38-35.7-108
If a seller does not disclose, either before or at the time of sale, that methamphetamine was produced on the property, they are liable for the buyer’s:
- cost to repair the property according to state health board standards
- expenses incurred due to health-related injuries that happened after the property sale
- attorney fees
A seller does not have to disclose a meth lab that was on the property if they have it decontaminated and obtain state remediation certificates. C.R.S.A. § 38-35.7-103
Disclosures Required by Federal Law
Homes built before 1978 may contain lead paint, which is known to be toxic to humans. Failure to comply with Federal Lead-Based Paint Disclosure Laws include treble damages (three times the damages), attorneys fees, costs, and a base penalty up to $11,000 that is adjusted for inflation. The current penalty is up to $16,000 for each violation.
The seller must acknowledge whether there is any lead-based paint or hazards in the home. They must also provide any records and reports pertaining to lead-based paint and hazards in the house.
Colorado Seller’s Property Disclosure Form
The Colorado Real Estate Commission provides a Seller’s Property Disclosure form for residential and commercial property sales.
The form gives the buyer an overview of the property’s condition, as well as other relevant information. For instance, the seller should list any known problems to the roof, such as leaks or gutter issues.
The disclosure form cautions the seller to disclose all known adverse material facts that affect the property, “whether there is a specific item on this disclosure or not.”
In Colorado, the residential Seller’s Property Disclosure provides information about the property’s:
|Structural Conditions||Ventilation, Heat, Air||Improvements||General Disclosures|
|Roof||Water||Access & Parking||Use, Zoning & Legal Issues|
|Appliances||Sewer||Electrical & Telecom||Water Source & Supply|
|Mechanical||Flooding & Drainage||Retention & Drainage Ponds||Environmental Conditions|
Stigmatized Properties & Nondisclosure Rules
Homes can become stigmatized when an event, real or perceived, takes place at the residence. These actual or alleged incidents can stigmatize a property and make it difficult to sell. The house can even lose value.
To protect sellers, Colorado lawmakers passed legislation that releases sellers and real estate agents from having to disclose certain stigmatizing material facts.
What are Stigmatized Material Facts?
In Colorado, sellers are not obligated to disclose circumstances about a property that could stigmatize it or psychologically impact it.
For instance, a seller does not have to disclose if someone was murdered on the property or took their own life in the home. Sellers also do not have to disclose:
“That an occupant of real property is, or was at any time suspected to be, infected or has been infected with human immunodeficiency virus (HIV) or diagnosed with acquired immune deficiency syndrome (AIDS), or any other disease which has been determined by medical evidence to be highly unlikely to be transmitted through the occupancy of a dwelling place.” C.R.S.A. § 38-35.5-101
Lawmakers left room, however, for stigmatizing situations not covered in the statute’s language.
“Such facts or suspicions include, but are not limited to.”
What about so-called haunted houses?
Colorado real estate disclosure laws do not address so-called paranormal activity. However, this particular problem, if you will, would fall under the stigmatized property statute, C.R.S.A. § 38-35.5-101.
So, if you buy a home that you believe has a resident ghost, you may not have a case to pursue legal action against the seller or real estate broker for not telling you about it.
Colorado Failure to Disclose Case: Nondisclosed Expansive Soils
In re Estate of Gattis, the buyer sued the sellers for economic losses suffered from damage to the residence caused by expansive soils. The sellers did not tell the buyers that expansive soils existed under the home, a latent defect the sellers knew about.
Expansive soils can cause extensive foundation problems due to expanding and contracting soil. When moisture enters the soil it swells. When the soil dries out it shrinks. Ongoing swelling and shrinking can lead to severe foundation cracks, structural settlement, and other damage.
Colorado’s Seller’s Property Disclosure form specifically asks about expansive soils that can severely damage a property’s integrity.
“To Seller’s current knowledge, do any of the following conditions now exist or have they ever existed: sliding, settling, upheaval, movement or instability of earth or expansive soils on the Property?”
In the Gattis case, the sellers did not indicate whether there were any issues. Instead, they wrote:
“Seller has no personal knowledge of property / Seller has never lived at property.”
The sellers duplicated that answer on a question about structural problems, as well. Except, the sellers noted there were some structural issues repaired by Advanced Structural Repair.
The buyers were unaware the sellers also owned Advanced Structural Repair and that they possessed detailed reports about damage caused by expansive soils.
The buyers won at the local trial court, but the sellers appealed. Let’s take a look at what ultimately happened in this case.
Appeals Court: Sellers Have a Duty to Disclose Defects
The Colorado Court of Appeals, Division IV held that the sellers had a duty to disclose known latent defects in the property from expansive soils. The appeals court said the soil disclosure should have been made in addition to the Seller’s Property Disclosure.
“First, apart from any contractual obligation, home sellers owe home buyers an independent duty to disclose latent defects of which they are aware.”
– Colorado Court of Appeals Judge John R. Webb
In its opinion, the Court of Appeals pointed out that the trial court held the sellers liable for nondisclosure of material facts:
“Defendants falsely represented in the [Seller’s Property Disclosure] that they had no personal knowledge of the property, when in fact they were thoroughly familiar with it.
The sellers also failed to disclose they were the principals of Advance Structural Repair.
Finally, and most importantly, there was a failure to disclose that expansive soil underlies the Residence and had already caused serious structural damage to the Residence.
Indeed, the [Seller’s Property Disclosure] actively concealed the existence of the expansive soil because it stated … that to Seller’s current actual knowledge, expansive soil had never existed, and did not now exist, on the property.”
– Trial Court
The buyers in this case prevailed. The appellate court affirmed the trial court’s decision. In addition to recovering economic losses, the buyers were also awarded attorneys fees.
Robinson & Henry Wins Failure to Disclose Claim
A seller did not inform our client, the buyer, about a prior leak and wood rot on the property. The mold damage was extensive, and the affected areas had to either be replaced or treated. The process to resolve the mold problem was comprehensive and costly.
The Client was Awarded: Damages for the cost of repairs and future damages.
We argued that due to the nature of the cleanup, which included workers in hazmat suits among other memorable impressions on neighbors, our client would suffer future damages due to stigma. The jury agreed and awarded the client future damages.
What Legal Claims Arise from Failure to Disclose?
Breach of Contract
The seller could be in breach of contract if they use the buy-sell contract provided by the Colorado Division of Real Estate and fail to disclose known defects. The contract states that “seller must disclose any adverse material facts actually known by seller.”
Breach of Contract Elements:
- A contract exists
- Buyer fulfills contractual duties
- Seller fails on contractual duties
- Buyer suffers damages as a result
You may have a case for a nondisclosure claim if the seller fails to divulge known latent defects. As we saw in re Estate of Gattis, the seller knew about a previous issue but elected not to reveal the information to the buyer. As a result, the buyer suffered economic losses after they purchase the home.
Misrepresentation is different from nondisclosure in that the seller knowingly makes a false claim about the property to the buyer, rather than leaving out information. For instance, misrepresenting the extent of water damage. The buyer relies on the false state, purchases the property, then suffers losses as result of the false claim.
Damages for Failure to Disclose
You could be awarded economic damages, loss of profits (on a rental property), potential future losses, and attorney fees. In some cases, a buyer may be entitled to treble damages, or may cancel the transaction all together.
Contact Robinson & Henry about the Seller’s Failure to Disclose
You deserve the property you thought you were getting. If the seller did not disclose a defect about the home you purchased, give us a call. Our real estate litigation attorneys may be able to recover your economic losses.
Schedule your free initial consultation about the failure to disclose online or call (303) 688-0944.
*Past results do not guarantee future performance.