from Local Attorney, Michael H. Wasserman

Saturday, April 5, 2008

Illinois Property Disclosures Rules Sumarized: DIS-CLOSE! PERIOD!

Sometimes I long for the good old days of caveat emptor in Real Estate transactions. Ya pays your money, ya takes yer chances. That sort of thing. Still applies here in Illinois of course, but we have all sorts of disclosure laws now that have subsumed that ancient legal doctrine. We must disclose known problems with lead paint, mold, possibilities of radon, heating costs, and certain specified "major" material defects. It has reached the point that the number of pages of disclosure forms exceed the number of pages in the standard Chicago Association of Realtors form contracts!

Kinda takes all the fun out of real estate deals, but for the fact that sellers often play cute and fail to make necessary disclosures - and then get sued when their Buyers find out. Fun for my colleagues, the litigators I suppose. Troublesome for the rest of us.

So what happens, lets say, when a seller discloses a problem to his buyer, the buyer never experiences anything to suggest that the problem exists while he owns the property and then fails to disclose that problem to his buyer?

Well, thanks to colleague and Illinois Institute of Continuing Legal Education columnist Steve Bashaw, I have yet another reason to lie awake worrying about my clients and their real estate contracts. Steve reports the answer to that very question in the recently reported Illinois Appellate Court decision, Fox v. Heimann, 375 Ill.App.3d 35, 872 N.E.2d 126, 313 Ill.Dec. 366 (1st Dist. 2007).

The original Property Disclosure Report disclosed material defects in the basement or foundation, walls and floors, and settling of the building. The buyers did not investigate the statements in the disclosure report or have the property inspected prior to purchase. After the purchase, they renovated the kitchens, resurfaced the roof, and decorated, but did no structural work. When the property was sold a year and a half later they did not disclose any foundation problems or settling of the building and stated they were unaware of any such issues. Four and a half months after the closing, the building suffered damage from significant settling. After a trial on the merits, the court entered judgment in favor of the "buyers' buyer" and awarded $151,050 in damages, based on negligent misrepresentation.

"the Defendants were contractually obligated to disclose material defects in the property…[and]…breached their contractual obligation by failing to inform the plaintiff of known material defects that were disclosed to them when they purchased the building from [the original owner]."

Does this mean that we have to ask our seller-clients to pull out all the disclosure forms from their original purchases to make sure they "pick up" all previous disclosures?

Will we have to ask our Buyer-client's sellers if they received disclosures of defects that they did not disclose directly to us?

I'm uncertain, what do you think?