The Importance of Non-Disclosures in Real Estate

Speaking to Steven Tal Young, he reveals the importance of non-disclosures in real estate and how the sellers have an obligation to state issues and defects with the property prior to a transaction being finalized.

Why has there been a sudden upsurge in non-disclosures in real estate?

The 2008 economic downturn in the United States had a major impact on the housing market. While new construction in many states all but “flatlined”, the secondary market experienced a significant downturn as well. Unfortunately, pre 2008 mortgagees found themselves “house poor” and underwater with respect to loan to equity post 2008.

While the market has improved nationwide, this dilemma resulted in low loan to equity ratios. Many prospective sellers were prompted to postpone marketing efforts in an attempt to capture losses occasioned by the downturn. Moreover, the general unpredictability in the market has resulted in a more aggressive marketing strategy. Virtually all states have experienced the effects of this downturn and have struggled to recoup losses. This, coupled with historically delayed economic growth, makes New Mexico a breeding ground for nefarious real estate marketing.

Why is disclosure of material issues in connection with marketing efforts of real property important?

Most states require sellers of real estate to disclose known defects and issues with real property when marketing real estate for sale and prior to engaging in a transaction for sale of the real estate. The key is that the buyer should be placed on equal footing with the seller. This is typically conveyed by way of a uniform seller’s disclosure statement. In New Mexico, the seller is required to accurately and completely convey this information to prospective purchasers pursuant to a New Mexico Uniform Residential Disclosure Statement.

Non-disclosure of such issues can trigger a major conflict about who is liable for damages related to the undisclosed issues.

Key points:

• When must the disclosure occur? Under state law, the disclosure should be given to the buyer before the execution of a purchase contract.
• What must be included in the disclosure? The disclosure is intended to convey to the prospective purchaser the condition of the property as known. In addition to requiring standard assurances about material aspects and potential defects in the property’s condition, New Mexico requires that home sellers obtain property tax information from the county assessor and give that information to the buyer. This is typically done through the use of a real estate listing broker.
• What types of information do not give rise to a nondisclosure claim? State law specifically relieves sellers of any responsibility to tell purchasers that a crime had been committed in the home. Likewise, no liability exists if an owner does not notify a prospective buyer that a resident was infected with HIV.

How does a claim of non-disclosure typically arise?

Key information is often either intentionally omitted or negligently overlooked by sellers when marketing real estate for sale. Oftentimes, listing brokers to the transaction will either intentionally fail to disclose issues they are aware of to facilitate the sale or negligently fail to uphold a professional standard when investigating information provided by the seller or available to them in conjunction with marketing the real estate for sale. Non-disclosure of such issues can trigger a major conflict about who is liable for damages related to the undisclosed issues.

Is disclosure legally required?

It is not necessary to prove dishonesty of purpose nor intend to deceive to maintain a cause of action for misrepresentation.

Generally speaking, if one party to a contract has superior knowledge, or knowledge which is not within the fair and reasonable reach of the other party and which they could not discover by the exercise of reasonable diligence, or means of knowledge which are not open to both parties alike, they are under a legal obligation to speak. Everett v. Gilliland, 47 N.M. 269, 141 P.2d 326 (1943). The Restatement of Torts (Second) Section 552 provides that a person who, in the course of his business, profession, or employment, or in any other transaction in which they had a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance on the information if they fail to exercise reasonable care or competence in obtaining or communicating the information. In Everett, supra, our Supreme Court opined as follows:

“Generally speaking, however, in the conduct of various transactions between persons involving business dealings, commercial negotiations, or other relationships relating to property, contracts, and miscellaneous rights, there are times and occasions when the law imposes upon a party a duty to speak rather than to remain silent in respect to certain facts within his knowledge and thus to disclose information, in order that the party with whom he is dealing may be placed on an equal footing with him.”

It is not necessary to prove dishonesty of purpose nor intend to deceive to maintain a cause of action for misrepresentation. Barber’s Super Markets, Inc. v. Stryker, 84 N.M. 181, 500 P.2d 1304 (Ct. App. 1972).  Thus, knowing misrepresentations, albeit innocent, can nonetheless be actionable in tort.

Realtors are held to a higher standard of care and are deemed to have knowledge beyond the grasp of the average purchaser. See, Real Estate Brokers and Salesmen Act, § 61-29-1, et seq., N.M.S.A.1978. The purposes of these statutes are to regulate and, thus, protect the public against abuses which can occur within the real estate business. Amato v. Rathbun Realty, Inc., 98 N.M. 231 (1982).

Typically, a broker’s failure to disclose defects of which it had actual knowledge is a breach of its duty as a fiduciary. Neff v. Bud Lewis Co., 89 N.M. 145, 548 P.2d 107 (Ct.App.1976). As indicated above, as a general rule, Section 552 of the Restatement of Torts imposes liability for providing false information in the guidance of others in the event such information is justifiably relied on in the event the purveyor of such information fails to exercise reasonable care or competence in obtaining or communicating the information.  The Court, in Amato, supra, held that §522 applied to real estate transactions.

Under common law, a seller’s agent has a responsibility to prospective purchasers with respect to known or discoverable defects on the premise that they know, or should know, that their description will be relied upon both by other brokers and by prospective buyers.  Gouveia v. Citicorp Person-to-Person Financial Center, Inc., 101 N.M 572 (1984). They assume a duty to all those who subsequently rely on the characterizations. Id. at 576.

Steven Tal Young

Managing Principal

8650 Alameda Blvd. NE
Suite 206E

Albuquerque, New Mexico 87122

Phone: 505-247-0007

www.talyoung.com

Mr Young, the principal and owner of Tal Young, P. C., has been a farmer, a cattle rancher, an oil field roughneck drilling for oil in Texas and New Mexico, a general oilfield worker and has worked for an electric cooperative. He frequently travels worldwide and has extensive knowledge of cultures and customs around the globe. He is a published international mountaineering photographer, an avid rodeo team roping competitor, a backcountry skier and landscape painter.

Mr Young is licensed to practice law in all state and federal courts in New Mexico and Colorado including the Court of Appeals, the Supreme Court and the 10th Circuit Court of Appeals. He has represented clients nationwide, having participated in federal and state cases in multiple jurisdictions, engaged in bankruptcy cases on behalf of creditors and debtors in United States Bankruptcy Court nationwide and has led oral arguments in the Supreme Court. He has extensive experience representing individuals, limited liability companies, corporations and financial institutions in cases in jurisdictions across the country, including New Mexico, Texas, Arizona, Virginia, New York and California, and has been appointed counsel on behalf of the Official Unsecured Creditor Committee in multiple Chapter 11 bankruptcy cases. He received notoriety by confirming the first “Small Business” Chapter 11 bankruptcy in the history of New Mexico. He has engaged in litigation and workout efforts worldwide.