The New Property Disclosure – Why It’s Here and What It Means

/ / News & Insights

Recently, The Louisiana Real Estate Commission (LREC) has drafted a new Residential Property Disclosure which is required to be filled out by sellers in residential real estate transactions. This new disclosure is available for use now (view it here), even though its use will not be a mandatory requirement until March 2018.

The most drastic change to the form is the deletion of the option “NO” as a possible answer to the questions on the form. Where a seller would previously have responded “YES,” “NO,” or “NOT KNOWN,” now the seller must choose between “YES” and “NOT KNOWN.” While the deletion of the NO option has caused some backlash from agents (who say that the disclosure is rendered less effective without the NO option) a look at recent jurisprudence, specifically the Louisiana Supreme Court’s decision in Valobra v. Nelson 136 So.3d 793, makes it easy to understand the reasoning for the change.

In Valobra, the Supreme Court held that a buyer may be able to sue a seller for defects discovered after the sale based on the buyer’s reliance on the seller’s “NO” responses on the property disclosure. The buyer in the case had waived their right to inspect the property and agreed to purchase the property from the seller “AS IS,” waiving the warranties for redhibition provided by Louisiana law. The Court held that, although a buyer would ordinarily need to prove that the seller had actual knowledge of defects to overcome the waiver of warranties, when a seller chooses “NO” on the property disclosure, the buyer may be able to recover even without proof that the seller knew of the defects.

The language used by the Supreme Court in Valobra is an indicator that the Court strongly disfavors “NO” responses on the Property Disclosure and, more seriously, that the Court is willing to impose liability on a seller should a buyer rely on those responses. The logical result of this is that sellers should be dissuaded from stating that defects do not exist unless they are 100% certain that there is no circumstance under which the defect could possibly exist. By extension, agents may not be protecting their clients best interests if they allow their sellers to select “NO.”

The new form published by the LREC helps agents to avoid potential liability by removing the temptation for sellers to overstate their opinion that a certain defect does not exist. It may be true that the revised Property Disclosure provides less information than before the “NO” option was removed, but perhaps it will create a scenario where buyers will be more likely to be diligent with their own inspections and less likely to merely rely on the Property Disclosure. If that turns out to be the case, the change will probably be good for the industry as a whole.

Should you have any questions in regards to the new form or any other real estate concerns, contact me directly at abeckman@titlestream.com  or at my office: 985-727-2700.