Unsure about Disclosure?


 Debbi Conrad  |    February 07, 2013
DisclosureLRG.jpg

This is a very common situation: the listing agent asks the seller to complete the Real Estate Condition Report (RECR), explaining that she wants to have it on hand for prospects who visit the planned open house or showings. When the seller asks the agent how to respond to some of the RECR statements, the agent offers a general explanation of the RECR and advises the seller to contact his attorney with specific questions. The explicit guidance the seller ultimately wants and needs amounts to legal advice and strategy.

This common and appropriate response by the agent may not be popular with sellers who are reluctant to call their lawyers. The back-to-basics explanation of the RECR, provided at the bottom of this webpage, offers practical guidance that agents may wish to pass along to clients. 

Consequences in the courts

What happens if the seller does not do a fair and honest job in completing the RECR? Some recent case law paints a revealing picture of what happens if the seller does not reveal enough or knowingly makes false representations.

RECR disclosures fail to reveal extent of water intrusions

Kosek v. Hanauska (No. 2009AP1633, Ct. App. 2010) (www.wisbar.org/res/capp/2010/2009ap001633.htm), summarized on Pages 4-5 of the August 2010 Legal Update, ‚ÄúCase Law Update 2010,‚ÄĚ at www.wra.org/LU1008.

The Koseks purchased the Hanauskas‚Äô home, which had a leaky basement. The Hanauskas completed a RECR, indicating ‚ÄúYes‚ÄĚ to the statement, ‚ÄúI am aware of defects in the basement or foundation (including cracks, seepage and bulges).‚ÄĚ The RECR also included the explanation, ‚ÄúPrevious owner had basement work done w/beams + baseboard dewatering system. Buyer may see dampness in NW corner.‚Ķ Since house was put on market, the water heater has sprung a leak. We will replace before closing. Since house was put on market, we had an engineer inspect basement walls. It was determined that we reinforce east and west walls. This work was done by Zablocki on 3-2-05.‚Ä̬†

The following spring, water leaked into the basement at multiple areas. At one time, there was standing water in the entire basement. The leaks continued during every spring thaw and after heavy rainstorms until the Koseks spent $22,000 to excavate the basement foundation, replace block, and install a new drain tile system and sump crock. The Koseks sued the Hanauskas alleging they made a false representation on the RECR by not disclosing the full extent and seriousness of the water intrusion and damage. 

Lesson learned: Although the sellers provided what appeared to be a detailed explanation, the buyers sued because it was an insufficient description of the real problems.

Proof of seller’s notice or knowledge required to win RECR misrepresentation case

Sikorski v. Wasserburger (Ct. App. 2012, No. 2011AP1316) (www.wisbar.org/res/capp/2012/2011ap001316.htm), summarized on Pages 3-4 of the October 2012 Legal Update, ‚ÄúCase Law Update 2012: Residential Transactions and Issues,‚ÄĚ at www.wra.org/LU1210.

Sikorski purchased the Wasserburgers‚Äô home and sued two years later for damages from a leaky basement. The Wasserburgers left the response for item C.10 on the RECR unanswered. Item C.10 stated, ‚ÄúI am aware of defects in the basement or foundation (including cracks, seepage and bulges). [Basement Defects include, without limitation, moisture or dampness; defective drain systems; bulging or walls not plumb.]‚ÄĚ They claimed they didn‚Äôt know how to respond because they knew of a foundation repair before they bought the property, but during their ownership they were unaware of moisture, dampness, leaking, bulging, out-of-plumb walls or any other basement defects.¬†

When Sikorski hired a contractor for repairs after persistent leakage, the contractor confirmed that he saw physical evidence that water had regularly leaked into the basement for several years prior. Nonetheless, Sikorski had to prove to the court that the Wasserburgers had notice or actual knowledge that the basement leaked and there was no such proof in the record. 

Lesson learned: Buyers must prove the seller’s notice or knowledge of an undisclosed defect to win a lawsuit for misrepresentation, despite circumstantial evidence.

Personal liability for corporate owners knowingly making false representation on RECR

Ferris v. Location 3 Corporation, 2011 WI App 134 (www.wisbar.org/res/capp/2011/2010ap002203.htm), summarized on pages 16-17 of the November 2011 Legal Update, ‚ÄúCase Law Update 2011,‚ÄĚ at www.wra.org/LU1111.

The Ferris‚Äô purchased property from Location 3 Corporation. Sauer, Lechner and Mason are all members of Location 3. After closing, the Ferris‚Äô learned that the adjacent landfill was a Superfund site: a site where toxic wastes were dumped and the Environmental Protection Agency has designated them to be cleaned up. The Ferris‚Äô filed a complaint alleging that the sellers knew about the Superfund site but failed to disclose it in the RECR. The sellers responded ‚ÄúNo‚ÄĚ on the RECR to the question, ‚Äú[a]re you aware of any other conditions or occurrences which would significantly increase the costs of development or reduce the value of the Property to a reasonable person with knowledge of the nature and scope of the condition or occurrence.‚ÄĚ The Ferris‚Äô claimed Lechner acted ‚Äúin concert‚ÄĚ with the other two when signing an RECR falsely stating that he knew of no such conditions that would adversely impact the value of property, even though all three knew the adjacent property‚Äôs landfill was a Superfund site. The court held that if a fact finder found that the three engaged in tortious conduct, then they could be held personally liable regardless of whether they acted on behalf of Location 3 when doing so.

Lesson learned: Acting as a representative of an entity does not always protect against personal liability for false representations.

Seller-friendly RECR handout

This FAQ page is intended to help explain the § 709.03 residential RECR. This discussion is not a substitute for the assistance of an attorney with respect to specific property concerns or strategies. 

 RECR-SellerFriendlySheet-thumb.jpg
Click to download the RECR handout
Copyright 1998 - 2020 Wisconsin REALTORS¬ģ Association. All rights reserved.

Privacy Policy   |   Terms of Use   |   Accessibility   |   Real Estate Continuing Education