Court Says Property Disclosures Must Be Truthful

In a recent court decision, the Kansas Court of Appeals ruled that sellers have a duty to be honest in their property disclosure statements, and can be held liable if they are not.

This ruling is in contradiction to prior court decisions that prevented buyers from seeking recourse against sellers for omissions in the seller's property disclosure statement. 

In this decision, the court ruled that sellers are not shielded from claims of fraud by the buyers' agreement to waivers in the property disclosure statement.   

In previous cases, Kansas courts have held that the language of the buyer's acknowledgement and agreement in the disclosure statement prevent them from suing the seller for omissions in the seller's property disclosure statement.  This decision contradicted those prior decisions and did not allow the seller to avoid liability for the non-disclosure of known material defects through the buyer's acknowledgement language. 

In this case, the seller of a residential property had set forth in the seller's property disclosure statement that they were not aware of any shifting or movement in the basement or foundation walls, any cracks or flaws in the basement or foundation walls and any water leakage or dampness in the basement.  After the buyers purchased the property, they experienced water leakage in the basement of the home that caused significant damage to the basement walls and carpet.   

However, a prior owner had disclosed to the seller that there were significant structural problems in the basement of the property, an inspection had revealed cracks in the foundation walls and a prior contract had been cancelled due to an unfavorable inspection report.  The buyer and buyer's agent claimed that the seller and seller's agent did not disclose these facts during the transaction process.

In this opinion, the court concluded that the seller of real property has a duty to be honest in the property disclosure statement.  When a seller is untruthful about material facts in the disclosure statement, the material fact is not discoverable in a reasonable inspection, and the seller does not correct the untruth before closing, the buyer's signature does not constitute a waiver of the seller's untruthfulness.

As a result, even though the buyer signs the agreement stating that they are not relying on any representations made in the seller's property disclosure statement, this opinion would hold that the seller is still liable for a failure to disclose known defects in the disclosure statement.  Accordingly, the real estate licensee may also be punished under the Brokerage Relationships in Real Estate Act (BRRETA) for a failure to disclose all known adverse material facts.