Oregon Seller’s Property Disclosure Conundrum

“The way for a person to develop a style is (a) to know exactly what he wants to say, and (b) to be sure he is saying exactly that. The reader, we must remember, does not start by knowing what we mean. If our words are ambiguous, our meaning will escape him. I sometimes think that writing is like driving sheep down a road. If there is any gate open to the left or the right the reader will most certainly go into it.” C.S Lewis, on writing. 1963

Although this question does not come up a lot, I do see it from time to time: Do those purchasing residential property in Oregon have a 5-business day right of revocation when the seller falls into an exemption (e.g. new construction, court appointed receivers, REO banks, etc.)?

It certainly is important when a buyer is purchasing REO property from a bank. As most brokers know, when an offer comes in on an REO property, the lender or servicer insists upon the buyer signing certain addenda to the standard OREF Sale Agreement which emasculates all of the standard buyer protections found in that document.

What can make things even more difficult and tenuous for such buyers is when the REO seller insists upon using an out-of-state escrow provider. Once the earnest money is sent out of state, the buyer’s control over the funds are limited, should a dispute arise in the transaction.  And worse, some of these escrow providers are nothing more than shills for the lenders and servicers – they don’t view themselves as having dual obligations to both parties, as the law requires.

Yes, it’s technically illegal, as Oregon law provides that all closing escrows must occur in this state if the property is located here. But to most banks and servicers, that type of impediment is of little import – “If you want to buy this property, you’ll send your earnest money to our out-of-state escrow, otherwise, we’ll sell to the buyer behind you. Next!” Besides, what jurisdiction does the Oregon Real Estate Agency have over a company located in another state providing illegal escrow services there? Effectively none.

So, back to the question: Do buyers have a right of revocation under seller property disclosure when their REO seller is exempted from the property disclosure requirement under Oregon law?

In my opinion, the question is an unqualified…. “Maybe”. It depends on who one asks. From my perspective, under certain circumstances, there is a right of revocation for buyers purchasing an REO property from an exempt seller. Others may disagree. The rub is that nowhere in the seller property disclosure statutes (ORS 105.462 to 105.490) is there any clear distinction between a buyer’s right of revocation when purchasing residential property from exempt and non-exempt sellers. Instead, the authors of this incredibly poor piece of legislation conflate both sets of buyers. Let’s do a deep dive….

 The Preamble. First, ORS 105.464, entitled “Form of seller’s property disclosure statement”, describes the contents of the form itself. It is notable that the title of the document is Seller’s Property Disclosure Statement”.  It is divided into two sections. But first, it says the following, which I will call the “Preamble”:

Please complete the following form. Do not leave any spaces blank. Please refer to the line number(s) of the question(s) when you provide your explanation(s). If you are not claiming an exclusion or refusing to provide the form under ORS 105.475(4)[1], you should date and sign each page of this disclosure statement and each attachment.

Each seller of residential property described in ORS 105.465[2] must deliver this form to each buyer who makes a written offer to purchase. Under ORS 105.475, refusal to provide this form gives the buyer the right to revoke their offer at any time prior to closing the transaction. Use only the section(s) of the form that apply to the transaction for which the form is used. If you are claiming an exclusion under ORS 105.470[3] , fill out only Section 1. (Emphasis added.)

An exclusion may be claimed only if the seller qualifies for the exclusion under the law. If not excluded, the seller must disclose the condition of the property or the buyer may revoke their offer to purchase anytime prior to closing the transaction. Questions regarding the legal consequences of the seller’s choice should be directed to a qualified attorney. (Emphasis added.)

Notably, the text of the above-quoted Preamble treats the seller’s property disclosure statement as an integrated, or single “form”.  Specifically, it says: Each seller of residential property described in ORS 105.465 must deliver this form to each buyer who makes a written offer to purchase. Under ORS 105.475(4), a refusal to provide this form gives the buyer the right to revoke their offer at any time prior to closing the transaction.  (Emphasis added.)

 Accordingly, based solely upon a reading of the Preamble, references to the “form” without any limiting descriptions, must be read to apply to the entire form, and a failure or refusal to provide the “form” to a buyer, gives that buyer a right of revocation all the way to closing – without regard to whether the seller is exempt or not.

Section 1. This section is entitled “Exclusions from ORS 105.462 to 105.490”[4] and provides that buyers “…may claim an exclusion” only if they “…qualify under the statute. If you are not claiming an exclusion, you must fill out Section 2 of this form completely.” Nothing further is said about a right of revocation in Section 1.

And, consistent in the ambiguity, we really don’t know who is excluded from what.  Is an REO seller excluded from delivering the form to buyers, or just excluded from completing the property disclosure material in Section 2?  Logically, it must be the latter, since the drafters presumably intended that the signed certification of exclusion under Section 1 would, in fact, be delivered to a buyer making an offer.

Section 2. Next, Section 2 is entitled “Sellers Property Disclosure Statement”, which is the same name as the title of the form itself. It provides:

…DISCLOSURES CONTAINED IN THIS FORM ARE PROVIDED BY THE SELLER ON THE BASIS OF SELLER’S ACTUAL KNOWLEDGE OF THE PROPERTY AT THE TIME OF DISCLOSURE. BUYER HAS FIVE DAYS FROM THE SELLER’S DELIVERY OF THIS SELLER’S DISCLOSURE STATEMENT TO REVOKE BUYER’S OFFER BY DELIVERING BUYER’S SEPARATE SIGNED WRITTEN STATEMENT OF REVOCATION TO THE SELLER DISAPPROVING THE SELLER’S DISCLOSURE STATEMENT, UNLESS BUYER WAIVES THIS RIGHT AT OR PRIOR TO ENTERING INTO A SALE AGREEMENT. (Emphasis added.)

Does the reference to “this Seller’s Disclosure Statement” refer to the title of the form, or to the title of Section 2? I submit it refers to the title of the entire document, i.e. the “form” as explained in the Preamble. If not, then there would be no reason to separate the form into two sections; just have two statutory forms, one for exempted sellers (and say they need not do anything further) and the other for non-exempt sellers (who have to complete Section 2, initial each page, sign the Acknowledgment, and deliver the form to their buyers).

Thus, consistent with the language of the Preamble, it appears there is a right of revocation to all buyers who do not receive the “form”, regardless of whether Section 1 or Section 2 are completed. Nowhere in the form does it say that the right of revocation is expressly limited to non-exempt sellers under Section 2.

However, after all of the assorted property questions in Section 2, there is a Buyer Acknowledgment section that provides:

IF THE SELLER HAS FILLED OUT SECTION 2 OF THIS FORM, YOU, THE BUYER, HAVE FIVE DAYS FROM THE SELLER’S DELIVERY OF THIS DISCLOSURE STATEMENT TO REVOKE YOUR OFFER BY DELIVERING YOUR SEPARATE SIGNED WRITTEN STATEMENT OF REVOCATION TO THE SELLER DISAPPROVING THE SELLER’S DISCLOSURE UNLESS YOU WAIVE THIS RIGHT AT OR PRIOR TO ENTERING INTO A SALE AGREEMENT. (Emphasis added.)

This language is no longer talking about a right of revocation due to a failure or refusal to deliver the “form”; it now says that if Section 2 is filled out by seller, the buyer has the right of revocation.

This is what I am referring to when I say that the drafters of the property disclosure statutes “conflate” the two types of sellers, i.e. those who are exempt from property disclosure (through Section 1) and those who are not (through Section 2), but the distinction is not so clear regarding exercise of the right of revocation.

So, here is how I summarize the blended/confused/conflated mish-mash of terminology:

• The Preamble to Sections 1 and 2 refers to itself as a “form” and says unequivocally, that “…the refusal to provide this form gives the buyer the right to revoke their offer at any time prior to closing the transaction.” No distinction is made between exempt and non-exempt sellers.
• Section 1 for exempt sellers does not repeat the same warning about what happens if the form is not delivered to the buyers – but one would not expect it to be necessary, as it is addressed in the immediately preceding Preamble.
• Section 2 clearly states that a buyer has a right of revocation “…if seller has filled out Section 2 of this form….” But what this is really referring to is buyer’s right to revoke based upon the information in the form that has been delivered. It would have helped to clarify somewhere that nevertheless, buyers from exempt sellers also have a right of revocation under Section 1.
• And under the Buyer’s Acknowledgment at the end of Section 2 of the form, appearing immediately before the buyer’s signature, the right of revocation is again addressed, “…if seller has filled out Section 2 of this form….” Oh! Oh! This implies that the right of revocation only applies if the seller delivered a completed Section 2 to the buyer. But actually, we know that isn’t completely correct. For example, if a non-exempt seller never delivered the form to a buyer, they would also have a right to revoke under ORS 105.475(4). (Equally obvious – hopefully – is the fact that a buyer could not sign to acknowledge an undelivered form.) So, there really is nothing unusual about a buyer signing the Acknowledgment of their right to revoke if the form is delivered to them when the Section 2 questions have been completed. But this statement should not be construed to mean that a buyer from an exempt seller does not also have a right of revocation in the case of an undelivered form – but the drafters should have made this clear.

So, does a buyer have a right to revoke their purchase from a person or institution that is exempt under ORS 105.470,[5] i.e. those identified at Section 1 of the form? Read on. This is not the end of the conundrum.

ORS 105.475[6] is the statute governing buyer’s rights of revocation. It is captioned “Buyer’s statement of revocation of offer” and lists the various conditions under which a buyer may terminate the transaction:

• ORS 105.475(1) provides, in relevant part, that “…if a seller issues a seller’s property disclosure statement” and the buyer has not waived the right of revocation, they “…shall have five business days after delivery of the seller’s property disclosure statement, i.e. the form itself, to revoke the buyer’s offer by delivering to the seller a separate signed written statement of revocation disapproving the seller’s disclosure.
• Subsection (4) provides that if: “If the seller fails or refuses to provide a “seller’s property disclosure statement” as required under this section, the buyer shall have a right of revocation until [closing of the transaction.]”

As a rule of interpretation, one should try to read statutes as intended to be internally consistent, not intended to be inconsistent. Subsections (1) and (4) can be read consistently:

• The words “seller’s property disclosure statement” in Subsection (1) and (4) both refer to the form itself;
  • That is, the reference in Section (1) about the buyer revoking because they are “disapproving the seller’s disclosure” can mean they disapprove of either (a) the fact that seller disclosed they are exempt, and the buyer doesn’t want to purchase a property from a seller who has no duty to answer the property disclosure questions; or (b) the seller’s property disclosure answers; and
• The reference in Section (2) only refers to the failure to deliver the entire form (regardless of whether seller is exempt) – which is an interpretation consistent with the text discussed above in the Preamble.

In other words, one can give meaning to both Sections (1) and (2) without concluding they are internally inconsistent – they are referring to different events, i.e. disclosing that the seller is exempt and the failure to deliver the form itself.

Conclusion. As an example for how not to write legislation, we see that the drafters have, at various times, said that the right of revocation is given to buyers whose sellers fail to deliver “the form”, the “seller’s property disclosure statement”, and the “sellers disclosure statement”. Not exactly a model of clarity.

Nevertheless, clearing away the cobwebs of confusion, based upon ORS 105.475(1) and (4) it appears that a buyer’s right of revocation is really based upon three separate sets of circumstances:

1. A buyer’s 5-business day right in “disapproving the seller’s disclosure” (which only applies to non-exempt sellers who complete the Section 2 questions).
2. A buyer’s 5-business day right in disapproving the Seller’s property disclosure statement” or “form” because buyer doesn’t want to purchase from a seller exempt under Section (2), because they want answers, not exemptions.
3. A seller’s failure or refusal to deliver the entire form to a buyer (regardless of whether the seller is exempt or not).

These conclusions make sense, but not everyone in the industry may agree, especially with No. 2. However, is there any difference between an exempt seller delivering the form without disclosing which exemption they are relying upon, and an exempt seller who simply doesn’t deliver the form?

And why shouldn’t a buyer have a right to revoke an offer to an exempt seller who has no duty of answering any of the 55+ questions in Section 2 of the form?

Certainly we can agree – hopefully – that interpreting the property disclosure legislation to mean that exempt sellers are not subject to any right of revocation for failing or refusing to fill out Section 1 and deliver the form to their buyers, there would be no disincentive for noncompliance. In other words, the banks, receivers, and sellers of new homes, etc., could simply decline to sign Section 1 attesting to their claimed exclusion.

I think we can also agree that giving the buyer a 5-business day right of revocation upon an exempt seller’s refusal to complete Section 1 and delivering it to the buyer is a pretty powerful disincentive that should, in theory, ensure compliance.

In a bit of irony, those responsible for this confused and convoluted piece of legislation, also passed the buck to real estate licensees in ORS 696.870, by charging them with a “duty to inform” each represented seller and buyer, respectively, of their duties under the property disclosure law. Good luck with that!

If the broker’s duty goes no further than requiring agents to give each seller and buyer a copy of the statutorily-mandated form and letting them fend for themselves, one has to wonder whether it can possibly lead to any clarity. But imposing upon them a duty to explain the unexplainable is an impossible task. In other words, if reasonable minds can differ on the meaning of statutory language, then it is the drafters’ fault – not the users of the form or their brokers.

Here’s a thought: If the purpose of the law is to discern “legislative intent” of poorly drafted statutes such as these, it also should require that the responsible legislators append their cell phone numbers to it, to take calls from confused sellers and buyers.

~ PCQ

________________________________

[1]  ORS 105.475 (Buyer’s statement of revocation of offer) (4) If the seller fails or refuses to provide a seller’s property disclosure statement as required under this section, the buyer shall have a right of revocation until the right is terminated [upon closing of the transaction].

[2] Application of ORS 105.462 to 105.490, 696.301 and 696.870.

[3] Exclusions from ORS 105.462 to 105.490, 696.301 and 696.870.

[4] But ORS 105.462 to 105.490, comprises the entire seller property disclosure act. However, exempt sellers are clearly not excluded from the entire act – just from completing Section 2 dealing with the condition of the property. For example, ORS 105.465 (Application) provides: “Except as provided in ORS 105.475 (4) (Buyer’s statement of revocation of offer), a seller shall complete, sign and deliver a seller’s property disclosure statement as set forth in ORS 105.464 (Form of seller’s property disclosure statement) to each buyer who makes a written offer to purchase real property in this state.

[5]  105.470 Exclusions from ORS 105.462 to 105.490, 696.301 and 696.870. ORS 105.462 to 105.490, 696.301 and 696.870 do not apply to:

(1) The first sale of a dwelling never occupied, provided that the seller provides the buyer with the following statement on or before the date the buyer is legally obligated to purchase the subject real property: “THIS HOME WAS CONSTRUCTED OR INSTALLED UNDER BUILDING OR INSTALLATION PERMIT(S) #___, ISSUED BY_____.”

(2) Sales by financial institutions that acquired the property as custodian, agent or trustee, or by foreclosure or deed in lieu of foreclosure.

(3) The following sellers, if appointed by a court:

(a) Receivers;

(b) Personal representatives;

(c) Trustees;

(d) Conservators; or

(e) Guardians.

(4) Sales or transfers by governmental agencies.

[6] 105.475 Buyer’s statement of revocation of offer

• If a seller issues a seller’s property disclosure statement and a buyer has not then delivered to the seller a written statement waiving the buyer’s right to revoke the buyer’s offer, the buyer shall have five business days after delivery of the seller’s property disclosure statement to revoke the buyer’s offer by delivering to the seller a separate signed written statement of revocation disapproving the seller’s disclosure.
• If a buyer fails to timely deliver to a seller a written statement revoking the buyer’s offer, the buyer’s right to revoke the buyer’s offer expires.
• If a buyer closes the transaction, the buyer’s right to revoke based on ORS 462 (Definitions for ORS 105.462 to 105.490)to 105.490 (Effect of ORS 105.462 to 105.490, 696.301 and 696.870 on rights and remedies), 696.301 (Grounds for discipline) and 696.870 (Duties of real estate licensee under ORS 105.462 to 105.490, 696.301 and 696.870) is terminated.
• If the seller fails or refuses to provide a seller’s property disclosure statement as required under this section, the buyer shall have a right of revocation until the right is terminated pursuant to subsection (3) of this section.
• If the buyer revokes the offer pursuant to this section, notwithstanding ORS 581 (Written escrow instructions or agreement required), the buyer is entitled to immediate return of all deposits and other considerations delivered to any party or escrow agent with respect to the buyer’s offer, and the buyer’s offer is void.
• When the deposits and other considerations have been returned to the buyer, upon the buyer’s signed, written release and indemnification of the holders of the deposits and other considerations, the holders are released from all liability for the deposits and other considerations.
• Any seller’s property disclosure statement issued by the seller is part of and incorporated into the offer and the acceptance. [1993 c.547 §§2,3; 2003 c.328 §6]