By Giacomo Bossa, Esq. and Elizabeth M. Arritola
With the demand for homes continuously rising, seller disclosure forms have become increasingly prevalent in South Florida. Seller disclosure forms allow the seller to disclose in writing all the known defects that are not readily observable but could materially affect the property’s value, in an organized, structured fashion. Even without a seller disclosure form, a seller is still obligated to disclose those defects. But an unsophisticated seller may not be sure about what is considered a latent defect that should be disclosed to a buyer. By providing a list of the typical issues that may come up, and that are difficult to inspect, the seller disclosure form provides guidance to well-intended sellers in what they should be disclosing to avoid risk. The form also allows buyers to evaluate whether they should purchase the property by providing them a list of potential defects.
Some of the defects covered in 2020 Florida Realtors Seller’s Property Disclosure form are structural, such as roof damage; some are environmental hazards, such as mold or asbestos; others include the presence of sinkholes and whether there is damage due to termite infestations.
The mechanics involved in getting a seller disclosure filled out are a little complicated. Normally, the contract is sent as an offer by the buyer, which the seller can accept, modify or reject. The buyer cannot forward a pre-filled seller’s disclosure, because the disclosure obligations are the seller’s. Accordingly, it is best practice to indicate in the buyer’s offer that the seller disclosure form is attached and that the offer is contingent on the seller filling out the seller disclosure within X days from the effective date. This way, if the seller is refusing to fill out the disclosure, the buyer can know upfront and plan based on that information early on.
The Current Law on Seller Disclosure Forms
Although Florida law does not require sellers to include a seller disclosure form, many states do. For example, California law requires sellers to complete disclosure forms. However, in Florida sellers are nonetheless required to disclose all material defects that they had knowledge of and that are not apparent to the buyer. Although in Florida the buyers are responsible for having the property inspected, the seller may be liable if they did not disclose material defects that are not apparent to the buyer.
Florida’s disclosure requirements do not require the seller to disclose defects in writing. Sellers could choose to verbally disclose their defects, but this would make it hard to prove in the future. This is one of the reasons why many sellers in Florida still decide to include seller disclosure forms even though they are not required to do so.
Common Misunderstandings
However, many sellers feel that, because they are not obligated to use seller’s disclosures, they are better off not disclosing anything and having the buyer inspect. This position seems based on a misunderstanding of the law—only an actual disclosure of a latent defect cures the risk of a lawsuit by a buyer. Accordingly, a seller may be subject to the risk of a lawsuit for many years after they closed on the property, based on the idea that there was a latent defect that the seller did not disclose. On the contrary, full disclosure would provide peace of mind. And, if full disclosure would have caused the deal not to go through, there is a high likelihood that the seller would be sued for the failure to disclose anyway.
Another misunderstanding is based on the effect of a wrong answer on a seller disclosure. Let’s use an example to understand this better: say that a buyer purchases a property and finds issues with a leak that was not uncovered through inspection. The buyer decides to sue the seller. Would the lawsuit be different if the seller had answered “no” to the question on the disclosure form: “has past or present water intrusion or flood affected the Unit?” v. if the seller had provided no disclosures? The reality is that the seller would deny knowledge of the leak anyway, and in both cases the lawsuit would center around whether the seller knew or did not know. The law does not seem to be placing a premium on a failure to disclose v. an erroneous disclosure.
Necessary Improvements
There are, however, some issues in the seller disclosure form that would require an update to the form. The approved 2020 Florida Realtors Seller’s Property Disclosure correctly notes that “This disclosure is not a guaranty or warranty of any kind” and that “the following information is based only upon Seller’s actual knowledge of the Property’s condition. Sellers can disclose only what they actually know.” Yet, the language of the disclosures is ambiguous—for one of the disclosures the form seems to imply a “to your knowledge” qualifier (see 1(f) “To your knowledge, are heating and cooling systems in working condition, i.e., operating in a manner in which the item was designed to operate?”) while most questions do not contain the qualifier (for example, 1(g).
“Are existing major appliances and mechanical and electrical systems in working condition, i.e. operating in a manner in which the item was designed to operate?”). Given that the disclosure already clarifies that it is based solely on the Seller’s knowledge and sellers can only disclose what they know, the interpreter is left to wonder why 1(f) is qualified by “to your knowledge,” while the remainders are not. This difference in language can create an issue for the seller who has responded “no” to a question, which did not contain the qualifier “to your knowledge” based on seller’s knowledge that the correct answer was no. If it is later determined that the correct answer was “yes” but that the seller indeed did not know about the issue, one is left to wonder if the fact that the question was not qualified by “to your knowledge” should nonetheless render the seller liable. In the opinion of the author, that’s an absurd result, but the form would better serve realtors and sellers across the state by removing the qualifier “to your knowledge” from 1(f) and clarify that all questions are subject to the “to your knowledge” qualifier.
Some Best Practices of Using a Seller Disclosure Form in a Real Estate Transaction
It is beneficial for a seller to include a seller’s disclosure form early in the process. This reduces the risk of a buyer backing out of the offer after they later find out about the defect. Most importantly, honesty is ideal to best mitigate the risk of having any liability issues in the future. It is essential for sellers to carefully and diligently review the seller disclosure form to make sure they check off all known defects that are not apparent to the buyer. Whenever sellers are unsure of whether a defect should be disclosed, it is better to be safe than sorry and disclose it to avoid any potential issues.’
If the seller finds defects in the property after the initial seller disclosure form has already been filled out, the form should be updated as needed. For example, if mold begins to grow in the kitchen cabinet after the initial seller disclosure form is filled out, the disclosure form should be updated to reflect this new defect.
Finally, the seller does not have a duty to investigate the property to determine if there are defects. The defects that must be disclosed in the seller disclosure form are only material defects that are known to the seller.
Giacomo Bossa is a partner in the Coral Gables office of Barakat + Bossa (B2B). Board Certified by The Florida Bar in both rea estate and business litigation, He represents international and domestic clients in real estate and business disputes, and complex and cross-border commercial litigation. He may be reached at gbossa@b2b.legal. Elizabeth M. Arritola (Class of 2025, University of Miami School of Law) is a law clerk in B2B’s Incubator program. This program offers law students an immersive experience encompassing a comprehensive range of activities including observation, deposition proceedings, case development, mediations, evidentiary hearings, and the art of both direct and cross-examination.
Giacomo Bossa, Partner left, and Elizabeth M. Arritola, Law Clerk, right
Reprinted with permission from the September 9, 2024 edition of Daily Business Review © 2024 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com
