Defending Sellers in Disclosure Disputes (Things Brokers Should Know)

By Mark J. Bainbridge

If a buyer of real estate believes that material information about the property was concealed or otherwise not disclosed, they could sue. Sellers of real estate often face the most exposure when a real estate deal goes bad. Sure, brokers can find themselves dragged into the middle of real estate disclosure disputes, but if it goes to litigation most brokers will be covered by their E&O insurance. Others involved in a real estate transaction, such as home inspectors, appraisers and other professionals will also likely be covered by E&O insurance in the event of a lawsuit. But sellers are almost always on their own. Generally, there will be no insurance policy that will pay for their defense or any adverse judgment. In this economy, even the cost of defense can be too much for a seller to bear.

For this reason, sellers should take completion of the Seller Property Disclosure Statement (SPDS) seriously. It is not a form to be filled out while watching TV. Brokers should also emphasize the importance of full disclosure to their clients. If a Realtor sees a disclosure statement that seems too good to be true, it probably is. The SPDS form tries to mix up the responses so that the seller can't check all the "No" answers in a row without creating some real discrepancies. Regardless, brokers and sellers should understand that the first thing the buyer's attorney will look at is the disclosure form. The importance of its accuracy cannot be overstated.

Another reason brokers should pay attention to disclosure issues is that the seller will often have no choice but to blame their broker when they are sued for nondisclosure. The seller will often claim that they were not sophisticated in real estate disclosure issues and that they relied on their broker to advise them of items that needed to be disclosed and the extent of that disclosure. In essence, buyers will usually try to pass the blame through to the real estate agent that represented them in the transaction. Sometimes, the broker will try to pass the blame to the home inspector or back to the seller. In any event, brokers should assume that a circular firing squad could develop if a buyer sues.

This is not to say that sellers and their brokers will necessarily be adverse in litigation. In fact, sellers and their brokers who present a united front in litigation can sometimes find such a relationship very beneficial. One saving grace for sellers involved in real estate disclosure lawsuits is that the prevailing party will likely be entitled to recover their attorneys' fees and costs. While the amount is usually within the judge's discretion, the threat of an attorneys' fees award can sometimes be the best leverage a seller has. Our firm is experienced in defending sellers of real estate in disclosure disputes, including mediation and litigation.  Mark J. Bainbridge is the founder of The Bainbridge Law Firm, L.L.C., a real estate and business litigation firm in Phoenix. 602-274-6369.