Diving into Disclosures, The Necessary Evil

Real Estate DisclosuresPart of buying and selling properties is that you are going to have to deal with a variety of disclosures. These are intended to both protect the seller and the buyer to ensure that all the necessary information is discussed and that there aren’t any major (and potentially dangerous) surprises when the buyer completes their purchase.

Laws and types of disclosures can vary from state to state, so it’s best to get all the information you need from your local attorney or title company to ensure you’re covering all the disclosure bases.

The title company will cover any necessary financing disclosures. Make sure that they include all necessary disclosures such as Truth in Lending and all RESPA documents. Currently, these documents are not absolutely necessary when selling a property with seller financing, but they’re always a good idea.

The Truth in Lending disclosure was created in 1968 to ensure consumers in credit are protected by requiring concise, key terms of the lending agreement, including all associated costs.

RESPA, the Real Estate Settlement Procedures Act, ensures buyers are provided with accurate information about the costs of the mortgage settlement. This protects buyers from unnecessarily high charges due to abusive practices.

An important disclosure is the lead paint disclosure. Called “Protect Your Family from Lead in Your Home” is a federal disclosure that any seller is required to provide to any buyer or tenant in a house built before 1978. Many homes that were built before this time contain lead based paint. Lead dust or lead chips can be potentially hazardous to anybody, but particularly young children. Children can have elevated lead levels, even if they appear perfectly healthy, so a routine blood screening is done on infants and young children to test lead levels if they live in an older home.<.a<

Lead effects can include damage to the nervous system and kidneys, poor muscle coordination, learning disabilities, difficulty with speech, hearing damage and decreased muscle and bone growth.

Buyers are made aware of homes with potential lead issues to ensure that they are aware of the dangers that are associated with lead poisoning, which remains a leading environmental hazard in the United States.

In my guide, I provide the full copy of “Protect Your Family from Lead in Your Home” as well as a Lead Paint and Mold Disclosure Addendum. The lead portion states, “The seller of any interest in residential real property is required to provide the Purchaser with any information on lead – based paint hazards from risk assessments or inspections in the seller’s possession and notify the Purchaser of any known lead – based paint hazards. A risk assessment or inspection for possible lead – based paint hazards is recommended prior to purchase.”

In the addendum, there is also a section for mold, which can be another potential environmental hazard. This reads in part: “Mold contaminants may exist in the Property of which the Seller is unaware. These contaminants generally grow in places where there is or may have been excessive moisture, such as where leakage may have occurred in roofs, pipes, walls, plant pots, or where there has been flooding; these conditions may be identified with a typical home inspection. Seller recommends Purchaser obtain a home inspection to better determine the condition of the property. Neither the Seller nor Broker, if any, are experts in the field of mold contaminants.”

As you can see, this makes sure that the buyer is aware that potential problems may exist, but not that you are necessarily stating that they are in the home you are selling.

Another important disclosure is the Seller’s Disclosure Statement. This advises the buyer that the property is being sold to them “as is, where is” and that you have never lived in the property yourself. A full copy of the statement is included in my guide, but a portion of it states, “This is a disclosure of Seller’s knowledge of the condition of the property as of the date signed by Seller and is not a substitute for any inspections or warranties that Buyer may wish to obtain. It is not a warranty of any kind by Seller or a warranty or representation by anyone involved in the sale of this property.”

The “Residential Property Disclosure Statement” was created to acknowledge any areas of repair that you may know about. This covers many aspects of the structure including foundation, roof, heating system, plumbing and water seepage. It also covers environmental hazards such as lead paint, radon gas, methane gas and asbestos as well as other nuisances such as noises, odors or smoke that may affect the property. Since you are turning this house around quickly and reselling it shortly after you buy it, I highly suggest that you check the box which states: “No representation” for each item.

Another important form is the Attorney/Insurance preference. Some states allow the buyer to determine where they get their homeowner’s insurance through and which attorney/title company they use. This form reads in part: ” I, the undersigned hereby acknowledges that I have been informed by (you, the seller) that, although I may be required by the seller or the Lender to purchase insurance to cover the property that is being used as security for the loan, I may purchase that insurance from the insurance company or agent of my choice and cannot be required by the seller or lender, as a consideration of the sale or loan, to purchase or renew any policy of insurance covering the property through any particular insurance company, agent, solicitor or broker.

I also understand and have been advised that I may use the attorney of my choice to represent me and handle the closing.

Again, as you’re going through the process of selling your property, keep these disclosures in mind and make sure these – and any other disclosures required by your state – are provided to the buyer. Don’t forget these forms are already included in my guide and are designed to help you protect your investments.