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Property Disclosure: The Real Estate Professionals Guide To Reducing Risk Marcia L. Russell, DREI.

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Presentation on theme: "Property Disclosure: The Real Estate Professionals Guide To Reducing Risk Marcia L. Russell, DREI."— Presentation transcript:


2 Property Disclosure: The Real Estate Professionals Guide To Reducing Risk Marcia L. Russell, DREI

3 Introduction To Property Disclosure

4 Why Property Condition Disclosure Is Important NAR statistics regarding lawsuits E & O statistics regarding lawsuits Elimination of Caveat Emptor in most states New focus on environmental problems

5 Remedies For Failure To Disclose Defects Actual damages Punitive damages Rescission of the transaction License suspension or revocation Board of R EALTORS ® disciplinary action

6 Misrepresentation Definition What is a material fact? Opinion versus material fact

7 Theories of Legal Liability Active fraud Cooper & Co. v. Lester Passive fraud Naghad v. Century 21 Page One Realty Negligent misrepresentation Hamtil v. J.C. Nichols Real Estate

8 Theories of Legal Liability Negligent non-disclosure Amato v. Rathbun Realty Gouveia v. Citicorp Easton v. Strassburger Tri-Professional Realty, Inc. v. Hillenburg Negligent advice Gerard v. Peterson

9 Reliance on Statements Made by Sellers When brokers may be liable for incorrect statements made by sellers Hoffman v. Connell

10 Other Bases of Misrepresentation Liability Code of Ethics of National Association of R EALTORS ® Licensing Act Liability Consumer Protection Laws Carter v. Gugliuzzi

11 Duty to Disclose Analysis of who represents whom in a real estate transaction Parahoo v. Mancini

12 Seller Disclosure Use of property condition disclosure forms Benefits of using disclosure forms Trend toward mandatory disclosure

13 Property Disclosure Benefits The seller The purchaser The real estate professional

14 Case Summary on Property Condition Disclosure Forms Amyot v. Luchini Englehart v. Kramer

15 Limiting Liability for Misrepresentation Claims Implement procedures designed to reduce liability Effective use of property condition disclosure forms Involving third-party experts

16 Limiting Liability for Misrepresentation Claims Conduct an inspection and watch for red flags Document, document, document Dont predict the future Answer questions carefully

17 The Role of Home Inspectors Value of obtaining a professional evaluation of the property Pre-listing home inspection Wisdom of buyers conducting their own inspections

18 Stigmatized Property, Megans Law & Neighborhood Safety

19 Stigmatized Property Property psychologically impacted Event occurred or suspected to have occurred on property No physical impact

20 Stigmatized Property Most states have laws that declare stigmas are not material facts. Stigmas include Murder Natural death Suicide Assault Sexual assault Felony crimes AIDS and HIV

21 AIDS Disclosure AIDS is a fatal disease AIDS can be transmitted through Sexual contact Inoculation with HIV infected blood Pregnancy

22 AIDS Disclosure Fair housing concerns HUD position National Association of R EALTORS ® position

23 Disclosing Other Stigmas Determine whether the information is fact or fiction Check state laws Determine materiality Discuss disclosure with the sellers

24 Disclosing Other Stigmas Benefits of disclosing other stigmas New York Court reviews parties duties to disclose house was haunted Stambovsky v. Ackley

25 Megans Law Background Federal law mandates community notification of location of sex offenders

26 Megans Law The role of the real estate professional Exemption for licensees in some states Check state laws and licensing standards for guidelines on disclosure of sex offenders.

27 Constitutionality Concerns Opponents argue sex offenders are being punished over and over by publishing their names and location. Megans Laws declared unconstitutional in Hawaii and Connecticut.

28 Constitutionality Concerns 2003 U.S. Supreme Court Ruling Connecticuts Megans Law declared constitutional

29 Neighborhood Safety Responding to questions regarding neighborhood safety Property Management- crimes and dangerous conditions Elizondo v. Brightwood Townhomes

30 Lead-Based Paint Disclosure

31 Purpose of The Lead-Based Paint Hazard Reduction Act Involves housing built prior to 1978 HUD and EPA have issued joint regulations requiring the disclosure of known information on lead-based paint/hazards in target housing.

32 Regulations The Regulations do not require testing or removal of lead-based paint. If the lead paint is in good condition, it typically does not pose a problem

33 Lead Poisoning and Its Effects on Children and Others Major sources of lead exposure Children between the ages of 18 months & 6 years are at greatest risk Testing for lead poisoning

34 Lead Poisoning and Its Effects on Children and Others Lead-based paint is the most common cause of lead poisoning in children. Health problems include: Damage to the brain and nervous system Behavior and learning problems Slowed growth Hearing problems Headaches Coma, convulsions and death

35 Lead Poisoning and Its Effects on Children and Others The best way to determine if a child has high levels of lead in the blood is to do a blood test Toxic signs

36 Lead Poisoning in Adults Lead in drinking water Pregnant women Symptoms in adults

37 Brief History of Lead The many uses of lead Efforts to restrict the uses of lead

38 Summary of Housing Not Covered Housing built after 1977 Zero bedroom units Housing for the elderly or persons with disabilities Leases for less than 100 days Foreclosure sales Rental housing certified as lead-free

39 Definitions Agent Housing for the elderly Lead-based paint Lead-based paint hazard Risk assessment Target housing Zero bedroom units

40 Essential Requirements of Sellers/Lessors Prior to ratification of a contract Sellers & lessors must disclose known lead- based paint and/or hazards & provide available reports to buyers & renters. Buyers & renters must be given the pamphlet Protect Your Family From Lead in Your Home. Buyers must be given a 10-day opportunity to conduct an inspection or risk assessment Lead warning statements

41 Essential Requirements of Sellers/Lessors Prior to ratification of a contract Records must be maintained for three years Sample contract contingency Sellers, lessors and real estate agents share responsibility for compliance

42 Essential Requirements of Sellers/Lessors Buyers must acknowledge receipt of the Pamphlet, the required disclosures, and the 10-day opportunity to conduct a risk assessment or inspection for the presence of lead-based paint

43 Enforcement HUD penalties up to $11,000 for each violation EPACivil penalties up to $11,000 per violation; Criminal penalties up to $11,000 per violation Private action with treble damages available

44 Testing Paint inspection Risk assessment Testing methods

45 New Regulations for Federally Assisted Housing HUD-issued rules require notification, evaluation and reduction of lead-based paint hazards in housing that receives federal assistance Covered properties

46 Lead-Based Paint Pre-Renovation Rules What is covered Who is covered What is required When to give notice

47 Case Law EPA imposes first civil penalties totaling $439,725. EPA sites building owners for 46 violations of Lead-Based Paint Rules

48 Large Settlements in Property Management Padilla v. Jois Realty Hiraldo v. Kahn

49 Mold: A Growing Concern

50 Mold and How It Affects Real Estate Latest environmental scare Response by the real estate profession Response by the insurance industry Debate on health effects of mold

51 What Is Mold? Type of fungi Common indoor molds CDC position on heath concerns

52 What Is Mold? Type of fungi Common indoor molds CDC position on heath concerns

53 CDC: Making Your Home Less Mold Friendly Maintain indoor humidity below 50% Use air conditioners and dehumidifiers during humid months Maintain adequate ventilation Add mold inhibitors to paint

54 How Molds Reproduce Food source Source of moisture Optimal temperature

55 Building Materials and Construction Tight building construction Moisture control New building materials

56 Common Sources of Indoor Moisture Overflow from sinks and sewers Wet and damp areas Moisture from cooking and bathing Humidifiers Flooding Plumbing leaks and broken pipes Condensation on improperly insulated pipes Leaking roofs Clothes dryer not properly vented Firewood stored indoors Over watering plants Older doors that lack good seals Cracks or holes in the building

57 Toxic MoldStachybotrys Chartarum Thrives on materials high in cellulose Can create mycotoxins Adverse reactions to toxic mold People affected more than others

58 Health Effects of Mold Allergies Infections Irritations

59 Health Effects of Mold Common health effects Serious health effects

60 EPA: A Brief Guide to Mold, Moisture and Your Home Guidelines for cleaning up mold problems Guidelines for preventing mold growth

61 EPA: A Brief Guide to Mold, Moisture and Your Home Key to mold control is moisture control Moisture and mold control prevention tips from the Guide

62 Removing Mold Proper equipment Shut down systems Minimize spreading of spores Remove visible mold Disinfect surface

63 Mold in My Home: What Do I Do? How can I tell if I have mold? Should I test for mold? General clean-up procedures What should I save or toss?

64 Mold Issues and the Real Estate Professional The real estate agent duties State law requirements regarding disclosure of latent defects California Code

65 Mold Issues and the Real Estate Professional Risk Reduction Tips Education Visual inspection by concerned party Seller disclosure

66 Crisis in the Insurance Industry Multi-million dollar judgments Debate as to proven health effects CDC position Texas Medical Association

67 TexasMolds Ground Zero 70% of claims in 2001 were in Texas Mold claims skyrocketed from 1,050 in Q1 of 2000 to 14,706 in Q4 of 2001. Mold tax

68 Source: Texas Department of Insurance * 2001 (estimate based on Jan. - Mar. data) Texas: Paid Losses for Water Damage Claims Sharp increase in water losses were obviously part of the problem.

69 The Response from the Insurance Industry Homeowners insurance becoming unavailable and unaffordable Exclusionary endorsements Other options

70 The Lawsuits California homeowner awarded $18.5 million Tenants awarded $1 million in Delaware Ed McMahon sued for $20 million Multi-million dollar Texas mold verdict reduced

71 Other Environmental Concerns

72 Hazardous Materials Effect on property values Testing requirements by lenders Health concerns

73 The Real Estate Professionals Role Become familiar with common hazards in market Recognize potential hazards Avoid making representations about environmental condition of property

74 The Real Estate Professionals Role Environmental contingency clause Seller property condition forms Home inspectors

75 CERCLA and SARA Creates liability for cleanup Innocent landowners defense Potentially responsible parties Liability of the real estate agent

76 Environmental Due Diligence The process of taking all appropriate and reasonable steps to ascertain there is no contamination at the site.

77 Evaluating Environmental Hazards Preliminary Site Assessment Phase 1 Environmental Assessment Phase 2 Environmental Assessment Phase 3 Environmental Assessment

78 De Minimis Settlement The EPA will consider a de minimus settlement with innocent landowners that would limit the amount that must be contributed for the clean- up. Factors considered by EPA to establish de minimus settlement.

79 Asbestos Naturally occurring silicate mineral Link to cancer Use in construction materials When asbestos is dangerous Litigation update

80 Common Places Where Asbestos Is Found Vinyl flooring material Patching compounds & textured paint Ceiling tiles & sprayed ceilings Stove & furnace insulation Door gaskets Pipe insulation & wall/ceiling insulation In some appliances, roof shingles, & siding

81 Removal of Asbestos Damaged asbestos should be repaired, enclosed or removed by a trained professional. EPA publication Asbestos in the Home: A Homeowners Guide

82 Radon Radon is a naturally occurring odorless, tasteless radioactive gas Radon is the second leading cause of lung cancer after cigarette smoking EPA estimates that 1 out of 15 homes has radon levels in excess of its guidelines

83 Radon Testing for radon Easy and affordable Costs Charcoal canister and alpha tract detector Factors to consider when testing Real estate transactions and radon

84 Radon Radon reduction methods Increase natural ventilation Seal cracks and openings Seal floors in basements Naturally ventilate the crawl space Filter the water through a bed of granular activated carbon

85 Radon The EPA Guidelines If buying or selling a home, have it tested. If buying a new home, ask if radon- resistant construction features were used and if the home has been tested. Fix the home if the radon level is 4 Pico Curies per liter or higher. Radon levels of less that 4 pCi/L still pose a risk and in many cases may be reduced.

86 Underground Storage Tanks Definition EPA regulation under RCRA EPA updated regulations Exempt tanks

87 Underground Storage Tanks The role of the real estate professional Red flags Leaking underground storage tanks

88 Waste Disposal Sites Golf courses and office buildings are being constructed on landfill sites. Impact on the real estate industry

89 Noise Noises that are known should be disclosed to purchasers Noise is a major source of stress Alexander v. McKnight

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