Change in New York Real Estate Law Switches Burden for
                           Disclosure of Defects to Seller

It was an article of faith for centuries that the burden to discover defects in the condition of residential real estate was on the buyer.  Hence the age-old legalism, Caveat Emptor, “Let the Buyer Beware.”    Well, as in so many other areas of the law, “Things Change.”

Buyers of residential real estate, if they were well counseled, would make sure there were provisions in a real estate purchase contract to permit time for a termite inspection, and where warranted, even a professional engineer’s inspection of the entire house, to include the roof, heating systems, appliances, plumbing and electrical systems.  Only after these inspections were complete and reports satisfactory to the buyer in his hands would the contract become an unconditional obligation on the buyer.  If defects were disclosed, the contract could be canceled or the costs for repairs factored into the purchase price.  That was then.

This is now: A new law was signed last year that changes the rules of the road.  Effective with contracts signed on March 1, 2002 every seller is required to deliver to a purchaser of residential real estate, prior to or simultaneously with the execution of the contract of sale, a disclosure statement covering setting forth the the nature and extent of a seller’s actual knowledge of the property’s condition.  Completing the form is sometimes a daunting task, especially with older property where the Seller is not familiar with the whole history of the property.

Remedies for failure to comply with the law.   The new law provides for two remedies in the event the Seller fails to comply.  First, a seller who fails to deliver a disclosure statement on time must give a $500 credit against the purchase price to the buyer at the transfer of title.  Second, a seller who provides a disclosure statement is liable for actual damages only for a willful failure to perform as required by the law.  That means, the seller is obligated to provide a disclosure statement that is true and complete.  

The dilemma.  The damages remedy specifically applies to a seller who provides a disclosure statement, not one who fails to do so.  So, on its face, the only statutory remedy for failure to deliver the disclosure statement on time is the $500 credit.  Can a seller simply “opt-out” of the statutory requirements?  The answer is not as straight forward as it seems.  Furthermore,  there are other and serious consequences in the law for misleading or intentionally hiding material facts in the sale of real property.

So, what should a buyer do if a disclosure statement is not delivered on time?  What should a seller do if all information is not known to him?  Unfortunately, a one-size-fits-all answer is not available here.  Each situation will require the buyer and the seller facing these questions to discuss the matter fully with his or her attorney.  The point is that even the apparently simple transaction involving the buying and selling of a home has gotten much more complicated and good, experienced counsel is now that much more important.         .

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Last modified: December 27, 2007

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