DO I HAVE TO TELL THE PROSPECTIVE BUYER OF MY HOUSE THAT THE NEIGHBOR OCCASIONALLY ACTS DERANGED?

Back in April 0f 2004, I told you about the “Buyer’s Advisory” brochure published by the Arizona Department of Real Estate. That brochure has been replaced on the Department’s web site at https://www.re.state.az.us/INFO_FOR/CONSUMERS.html by two informational pages: “topics to research when purchasing real estate” and “check lists for purchasing homes or land” which you will find in the list of links on the left side of the page.

One of the items under “topics to research” is the Seller’s Property Disclosure Statement (“SPDS”), a form that is commonly used in sales of existing residences in Arizona.  I discussed that form in my Update in January, 2002.  A couple of recent news items made me think that maybe it’s time to revisit that form and ask the question: what, exactly, is a condition that you must disclose when you are selling your house?

In 2002 the Arizona Association of Realtors® produced a new, longer version of the SPDS. If you have bought or sold a residence in the last several years, you have either prepared or been presented either the old version or the new version of this form. The new version is considerably longer than the old one (six pages instead of two, although the added length may be partially due to the use of larger type), and asks specific questions about various types of conditions that might be present on the property.

The Arizona Administrative Code says that any licensed real estate broker or salesperson participating in a real estate transaction must disclose the following, in writing, to all other parties to the transaction:

any information the [broker or salesperson] possesses that materially or adversely affects the consideration to be paid by any party to the transaction, including:

1. Any information that the seller or lessor is or may be unable to perform;

2. Any information that the buyer or lessee is, or may be, unable to perform;

3. Any material defect existing in the property being transferred; and

4. The existence of a lien or encumbrance on the property being transferred.

Those regulations technically apply only to a real estate broker or salesperson, but the seller must also disclose any known material latent defect.

So what qualifies as a “material defect existing in the property” that “materially or adversely affects the consideration [i.e. the price] to be paid?”

Take, for example, a situation in which, according to an account in the April 1, 2008, Arizona Republic, a home seller had been “pelted with potatoes [a] neighbor was throwing at unseen intruders in the oleander bushes between [her yard and the seller’s]?”  The seller also was reportedly aware that the neighbor “screams and yells at people that are passing by.” The newspaper account goes on to detail all sorts of bizarre events connected in one way or another with the neighbor. Are those “defects existing in the property?”  And even if they are, the seller and his agent can’t be responsible for not telling the buyer about them unless there is some indication that the seller knew about them.

Then there’s the old “haunted house” scenario, but with a twist:  what if the seller had an exorcism performed in the house and didn’t tell the buyer?  That’s what apparently happened in the sale of a house in Spoleto, Italy in 2005, according to an account on Ananova.com. Or what if the seller had previously publicized the house as being haunted, but then sold it and didn’t tell the buyer?  That’s what happened in a 1991 case in New York, Stambovsky v. Ackley.

Under Arizona law, there are certain conditions that a seller of real property and the seller’s agent cannot be sued for failing to disclose.

1.  The site of a natural death, suicide or homicide or any other crime classified as a felony.

2.  Owned or occupied by a person exposed to the human immunodeficiency virus or diagnosed as having the acquired immune deficiency syndrome or any other disease that is not known to be transmitted through common occupancy of real estate.

3.  Located in the vicinity of a sex offender.

That probably takes the seller off the hook in the “haunted house” scenario. Isn’t an exorcism something you do to get rid of a ghost that is haunting the property, and don’t ghosts always return to haunt the place where they died?  In Arizona, at least, you don’t have to disclose that someone died on the property, nor do you have to disclose that a prior owner had a disease as long as it is “not known to be transmitted through common occupancy of real estate,” whatever that might be.

The Arizona law doesn’t definitely answer the question of whether or not you have to disclose the neighbor’s bizarre behavior, but I suppose it’s always safest to do so, although you might scare away any faint-hearted potential buyers.  You could, however, take the view that it’s not a “defect existing in the property.”  I’m also not sure where you would put it on the SPDS form.  Under “Other Conditions and Factors,” I guess.

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