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KASS: Latent vs. patent: When to disclose

DEAR BENNY: I am a new real estate agent, and curious if you can provide me some legal advice. Recently, I obtained my first listing, on a single-family house which was built in the 1930s. We held a couple of open houses, and there appears to be some interest from a couple of potential buyers.

Recently, however, I learned that my client added a new room to the house but did not get a permit. Additionally, it appears he painted the basement and may have covered up a large crack.

Do I have any obligation to disclose these items to potential buyers – whether or not they ask? – Tommy

DEAR TOMMY: I cannot provide legal advice in this column. You should definitely talk with your office manager, and the attorney that your real estate company uses.

But here’s a general response.

You should familiarize yourself with the National Association of Realtors Code of Ethics and Standards of Practice. In fact, to my knowledge, real estate agents and brokers throughout the country are required to periodically take a course on ethics.

Standard of Practice 1-9 is applicable. Without quoting the entire section, agents and brokers “shall not knowingly, during or following the termination of professional relationships with their clients reveal confidential information of clients.”  Added at the end of this Standard is: “information concerning latent material defects is not considered confidential information under this Code of Ethics.”

What is a “latent defect”? The dictionary defines it as a hidden or concealed defect, “one which could not be discovered by inspection, using reasonable care.” Compare this to a “patent defect” which is “plainly visible or could be discovered with the exercise of reasonable care.”

Let’s look at an example: Some electrical outlets are wired backwards – this is called reverse polarity. This can – and should – be discovered when the house is inspected by a professional, and thus is a patent defect.

I have mixed reactions about the lack of a permit for the new addition. It is true that searching the records in the permit office will reveal this omission – and in many jurisdictions you can search online. But since it is something that typically is not done, I am comfortable calling this a latent defect.

Clearly, painting over a crack in the basement is not only a latent defect but can be considered misrepresentation by the seller. Again, I would disclose this to the buyer, even if not asked.

We all know we are a very litigious country, and there are many lawsuits filed by buyers claiming the seller – and the real estate agent – did not disclose these hidden (latent) defects.

My advice to sellers and agents: Transparency is paramount. Disclose defects even if you lose a sale or the price is lowered. In the long run, it is a lot cheaper than being sued and dragged into court.

A READER’S RESPONSE: I read your recent response to the homeowners who learned their house was not technically a member of the HOA despite years of dues payments by the previous owners and them. You noted it may be too late to file a claim against the owners’ title insurance policy. Why would that be if they just learned of the title issue?  Isn’t that why you purchase a policy to cover yourself and not just the lender – to protect your investment against errors or other issues with the title that may appear later?  I expect I am not the only reader who may have the same question, so perhaps a follow-up in your column may educate many of us readers on the issue of title insurance.

Your column is always interesting and informative. – Dawn

DEAR DAWN: Thanks for writing. Typically, you have to file a title claim within a short period of time, say 30 or 60 days, after you discover the alleged title problem. So you are correct; they had the right to file their claim only after discovering the problem. However, from the facts, the couple learned about the problem but did not immediately notify the title insurance company. As you recall from the facts, they attempted to get their community association to correct the problem. In fact, they did not even know about claiming against their title policy until I raised it in my column. So, as I wrote, they should at least file a claim; nothing ventured, nothing gained.

 

Benny Kass is a practicing attorney in Washington, D.C. and in Maryland. He is not providing specific legal or financial advice to any reader. He wants readers to e-mail him, but cannot guarantee a personal response. He can be reached at: mailbag@kmklawyers.com.

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