When seller property disclosure laws were first enacted by the Oregon Legislature, circa 2003, the form came in two flavors: Disclosure or Disclaimer. Disclosure consisted of answering “Yes” or “No” to a series of questions about the seller’s property. With only a few changes, the form was not totally dissimilar to what we have today.
The other form was called “Disclaimer.” It permitted the seller to disclaim any responsibility in disclosing anything about the property. It emphasized that the property was being sold “AS-IS.” Sellers could elect to use either form. Of course, lawyers strongly advised their seller clients to use the Disclaimer form – except when their clients were buyers, in which case, they insisted that the seller deliver a Disclosure form.
What this approach told me was several things.
- It said that ethics is “situational” and that what is best depends not on some higher overarching principle, but on whether you are a seller or a buyer.
- It told me that those who drafted the legislative forms had never tried a case over property condition. If they had, they would have known that it’s not the seller who discloses what he or she knows about the property that gets tagged in court; rather, it’s the silent seller who knows things, but isn’t telling.
- And perhaps the most obvious failure in this approach of permitting sellers to opt out of full disclosure was that it created a misimpression that using the Disclaimer form permitted them to conceal from a buyer known material defects about the property. The law in Oregon has always held that the omission of material information is just as wrong as intentionally giving false information. One constitutes fraud by concealment, and the other is fraud by misrepresentation.
It wasn’t long before the legislative brainiacs behind this dual approach began to realize that disclaimer didn’t insulate buyers from claims – if anything it exacerbated them, since silence in the face of known material defects still created liability. Sellers thought that disclaimer gave them complete immunity, but instead, it painted a bull’s-eye on their backs.
So today, Oregon law requires that unless exempted, sellers of residential dwellings are expected to provide a Seller’s Property Disclosure form to their buyers. However, some legislators are constitutionally incapable of not tampering with the law, and if some lobbying group asks them to make changes, they dutifully do so [apparently adopting the Nancy Pelosi approach to legislation, i.e. not necessarily reading their own legislation, but passing it to see what’s inside.]
And so it is with the Seller Property Disclosure law. Almost every session, the law gets the proverbial “nip and tuck.” During a recent session, the form was changed to permit sellers to refrain from answering “Yes” or “No” and to check the box marked “Unknown.”
While I acknowledge there are some questions that I would not be surprised to see answered “Unknown,” I suggest that buyer brokers take this answer with a grain of salt. Why? Because if the question is an important one, answering “Unknown” does not end the inquiry. That is not to say a seller is necessarily lying; but it demands that the buyer and buyer’s broker investigate further. In other words, the answer “Unknown” should be treated as a negative answer.
Here is a simple example: Assume the question about whether there has been any “additions, conversions or remodeling;” the answer is “Yes,” but, to the follow-up question as to whether the work had been approved, the answer is “Unknown.” While it is entirely possible that the seller didn’t do the remodeling – it was his or her predecessor – today, we know that unpermitted construction work is a No-No. Someone needs to go to the city and get further information. And it may not be enough to simply check Portland Maps or some other county or municipal website. They have been known to be inaccurate.
My favorite law, Murphy’s Law, holds that if something can possibly go wrong – it will. So when a seller answers “Unknown” to a question that begs to be answered “Yes” or “No,” it is up to the buyer, and his or her broker, to investigate further.
 I say “expected,” because “required” is technically incorrect. There is just a huge disincentive for sellers who fail to deliver the disclosure form to their buyer; i.e. the buyer has the right to terminate the transaction all the way to closing.
 For example, to the following question: “Are there any zoning violations or nonconforming uses?” Of course, if the question was: “Have you ever received notice of any zoning violations or nonconforming uses?” I would not expect the answer to be “Unknown.”