To pay or not to pay? That is the question facing many home sellers trying to understand whether paying $500 will let them off the hook from having to fill out a Property Condition Disclosure Statement, which informs buyers about the condition of a property.
The form is the result of the 2001 Property Condition Disclosure Act, a state law requiring sellers of residential property to answer specific questions about known problems. The form is then supplied to the buyer prior to the sale. The act further stipulates that sellers who do not give the buyer the form will be required to pay $500 to the buyer. There is disagreement among real estate attorneys, however, about the protection the fee provides to the seller.
Whom does it protect?
Many interpret the law to say that the payment protects the seller from any problems the buyer later may have with the property. Others say the law is unclear, and that the payment does not protect the seller from the duty to inform the buyer of known problems.
‘Is the $500 an opt-out?’ asks real estate attorney Marshall Tracht, a Hofstra University professor and dean who is a visiting professor at New York Law School for a year. ‘The statute is completely unclear on that critical notion.’
Sellers such as Catherine McGrath, 83, have taken their attorney’s advice and paid the $500 to protect themselves against any possible problems.
McGrath, a retired Grumman data manager who lived in her Levittown house for 50 years, says she decided to sell because of the cost and work in keeping it up. She says she was relieved when she learned she could pay $500 to avoid filling out the form, especially since the new buyers were planning to tear down the 1951 expanded ranch, which eventually sold within the past year for $260,000.
‘I was concerned, and they said, ‘If you make a $500 deposit, then you don’t have to worry about it,” says McGrath. ‘If I had had to meet a certain standard by the buyer, I never would have been able to sell it. I wanted to be able to sell it ‘as is.”
Stacy Zigman, an agent for ReMax West Realty in West Hempstead, estimates that eight out of 10 of her sellers do not complete the form.
‘With the price of homes today, it’s just not worth the headache if they accidentally misrepresent any problems,’ says Zigman, adding that she always recommends that sellers consult an attorney. ‘There’s a lot of things on the disclosure form that are things that a seller wouldn’t even see or know about, so it’s very hard for them to honestly answer it, and that itself creates a problem.’
According to the Property Condition Disclosure Act, the intent of the disclosure statement is to provide New York home buyers with a way of learning about known problems with a house that an inspector might not necessarily find, such as a leaking septic tank.
The statement includes 48 questions about the condition of the property, such as water damage, termite infestations and known defects in plumbing systems, air conditioners and foundations. Sellers are instructed to fill out the document to the best of their ability, answering yes, no, unknown or not applicable to each question.
In the five years since the legislation was passed, several cases have been brought to state court, with buyers trying to hold sellers accountable for information provided in the forms. The rulings have indicated that, when a form is involved, a buyer must prove being intentionally misled by the seller to collect damages.
It’s expensive to sue
But some buyers have found it costly to enforce their rights and do not feel that the statement has improved their ability to receive accurate information about problems with a house.
Karl Holtzschue, a Manhattan lawyer and author of several books on real property, has tracked cases that have gone to court and says far more buyers have lost their lawsuits than have won.
‘The courts have a very harsh rule against buyers, that they must inspect and that they must ask questions about things that they see,’ he says. ‘Even if the seller lies, if the buyer had the means available to detect the lie, the buyer loses. If you didn’t inspect, you didn’t do what you were supposed to do. Courts insist on buyers’ having an inspection and paying attention.’
In one of the few cases where a buyer has prevailed, North Woodmere resident Michael Fleischer sued the seller after the house he had purchased in 2002 leaked during a storm the following week, even though the disclosure form indicated no prior problems with leaks. ‘We had water leaking into the roof, and down from the roof into the living room, and there was water coming into the basement in several places,’ says Fleischer.
Even though Fleischer had hired an inspector, the inspector had not been able to identify issues with the roof. And, he says, ‘we were never able to see the property on an inclementday.’
Despite language in the original legislation that describes the disclosure statement as being a way for buyers to have better information, the courts have ruled in recent cases that sellers who pay the $500 do not have an additional obligation to sign the disclosure form or pay further penalties. ‘Recent cases made it clear that it is an opt-out,’ says Ben Weinstock, a Uniondale-based partner at Ruskin, Moscou & Faltischek. ‘The only penalty that you face is $500.’
Advice: to opt out
So some lawyers advise their clients to opt out of completing the form by paying the money.
‘Whenever you make a representation, you expose yourself to a possible claim of misrepresentation,’ says Weinstock. ‘If you make an innocent mistake and the buyer is aggrieved by that mistake, the buyer is going to turn around and bring a lawsuit. The $500 you would have paid to avoid that litigation is the cheapest price you will ever pay.’
Abraham Krieger, a real estate attorney with Meyer, Suozzi, English & Klein in Garden City, disagrees that this is a correct interpretation of the legislation, arguing that it specifically states that the $500 should not be considered a remedy to buyers for not having been sufficiently notified of defects in the property.
‘Attorneys have argued mistakenly, by not completing a form, simply providing the $500, a seller is free of any burden,’ says Krieger, asserting that such an interpretation undermines the stated purpose of the legislation. ‘For $500, you get a get-out-of-jail-free card? It doesn’t make sense.’
Diane Persaud, 34, a bank manager from Stewart Manor, says she wishes the seller had filled out the disclosure statement when she and her husband, Jeeto Singh, bought their 1950 Colonial-style house in May 2006 for $440,000. ‘Although I knew that I was walking into a home where many things needed repair, it would have been nice to have known the specifics,’ says Persaud, 34.
‘I have many questions in regards to the home, asbestos presence, lead presence,’ says Persaud, who is pregnant and thinking about possible environmental hazards. ‘Five hundred dollars doesn’t really do anything for me at this point in comparison to the information that could be worth a lot more,’ says Persaud, who did not hire an inspector.
Long Island is more cautious
The tendency of attorneys to advise clients to accept or reject the $500 as a replacement for the disclosure form differs around the state. There are different interpretations of whether the law’s wording means that the form is actually required to be filled out if the $500 is paid.
Upstate, sellers typically are advised by their attorneys to fill out the form, says Weinstock. In the rest of the state, including Long Island, sellers are steered toward paying the $500, rather than filling out the form, as a means of limiting their exposure. This is because lower courts have ruled that the $500 payment is sufficient to release the seller from the obligation of providing the form, according to Holtzschue.
Those who advocate paying the money say they feel the form is too burdensome for sellers. Holtzschue argues that the form’s questions – especially the environmental questions – are impossibly difficult to answer accurately for homeowners. The needed level of expertise and knowledge is beyond most sellers’ ability, says Holtzschue, such as whether the property is included in a designated floodplain or wetland and the condition of any underground storage tanks.
Michael Schmitt, 45, a computer consultant who recently sold his small ranch-style cottage in West Hempstead, says that he felt he was buying protection against frivolous lawsuits by paying the $500 instead of filling out the form.
‘I know that the house was in great condition, but my lawyer told me, ‘You never know,” says Schmitt, adding that he had had extensive work done on the house prior to sale. ‘You get these whack jobs that decide to go to court over everything, so you just never know.’
Those who advocate requiring the form point out that the law only requires sellers to provide ‘actual’ knowledge of property problems – that is, defects that they are aware of. It is also permitted to answer ‘unknown,’ in which case the buyer must prove the seller did know in case of a legal dispute.
Although the legislation may not be achieving its stated aim to ‘provide sellers and buyers with a better basis for negotiating a purchase and sales agreement,’ what it does seem to do is limit the responsibility of real estate agents, who previously worried about being sued over property conditions.
As for Fleischer, while he successfully argued that the seller had knowledge of the damage, he says he still does not feel that the form protected him adequately because of the considerable time and expense involved in enforcing his rights, for which he was not reimbursed. The case was decided in the Suffolk Country District Court in 2006, almost four years after it was filed.
Fleischer recovered $11,000 through the suit, the cost of making repairs to the roof and putting in a basement drainage system. But he says the water damage was so bad that a new roof needed to be put on, and he was never able to recover the full cost of replacing the roof. The court also ruled that Fleischer should have been aware of a non-functioning alarm system, and that the seller was not required to reimburse Fleischer for the $1,402 in repairs.
‘It is such a vague law,’ says Fleischer. ‘Even though we ‘won,’ it wasn’t much of a win because of the cost involved. It really was a disheartening process.’
Some of the questions in the property condition disclosure statement, above, which sellers fill out or pay $500 to waive:
Is there asbestos in the structure?
Was the property ever the site of a landfill?
Are there or have there ever been fuel storage tanks above or below the ground of the property?
Has a radon test ever been done?
Is lead plumbing present?
Is there rot or water damage?
Does the basement have seepage that results in standing water?