November 1, 2005Sales Meeting Legal Update – Pending & Closing Procedures
Disclosing Stigma Legal Presentation – November 2005
Non-physical Defects • Agents have the duty to disclose known defects. • Usually, defects are physical flaws in property. • However, there can also be non-physical or emotional “defects” in property – “stigmatized” property.
NAR Definition • A property is “stigmatized” when it has been psychologically impacted by an event, which occurred or was suspected to have occurred on the property, such event being one that has no physical impact of any kind.
Examples • In California, a court allowed a buyer to rescind the contract upon learning that a woman and her 4 children were murdered in the house. • In New York, a court allowed a buyer to rescind the contract after the buyer learned that the house was widely reputed to be possessed by poltergeists.
Seller’s Disclosure • The Seller’s Disclosure does not technically require disclosure of stigmatization. • The Seller’s Disclosure form focuses on the physical condition of the property. Stigmatization does not affect the physical condition of the property.
Smart move - Put the stigmatizing factor on the Seller’s Disclosure Notice - even though its not technically required. • Why? - Because of the potential for liability under the DTPA.
Liability under the DTPA • Under the DTPA, an agent can be sued for failing to disclose known information concerning a property if such failure to disclose was intended to induce the buyer into a purchase into which the consumer would not have entered had the information been disclosed. • Under the DTPA, an agent can be sued for taking advantage of the lack of knowledge, ability, experience or capacity of a buyer to a grossly unfair degree. • Sanchez v. Guerrero