IS IT TIME TO CLEAN UP OREGON’S PROPERTY DISCLOSURE LAW?
In 1993 the Oregon Legislature adopted its first property disclosure law. At the time, Oregon was one of several states doing this, as litigation had been bubbling up for years regarding disclosure issues. And when litigation occurs between sellers and buyers, Realtors® invariably get drawn in. Simultaneously, the old and outmoded defense of caveat emptor (“buyer beware”) was going the way of the dinosaur. Today, the vast majority of states have, in one form or another, shifted the responsibility upon sellers to make full disclosure of all known material defects at the inception of the residential sale – this is in spite of language frequently found in sale documents saying that the purchaser is acquiring the property in its AS-IS condition.
Over the years, the Oregon Legislature has tampered with this disclosure law – doing what most legislators do – adding provisions at the request of special interests – but never looking back at their original product to see if it still works or can be improved upon. The result has been that every time the legislature convenes, Oregon’s statutory disclosure form gets tweaked, but unfortunately the original product of 17 years ago has not – on the whole, improved with age. In fact, a case could be made with some justification, that Oregon’s seller disclosure laws need a complete overhaul for a variety of reasons. Here is a sampling of reasons, but there are many, many more:
1.The Form Suffers From Sloppy And Inconsistent Drafting.
While the disclosure statute gives buyers a five business day right of revocation, the text of the statutory form1 only gives a five day right of revocation. To the layperson and generally in the eyes of the law (with perhaps a few exceptions), a “business day” generally does not include weekends or other state or federal holidays; but a “day” means any calendar day. This oversight has existed for years despite repeated requests for correction.
The last question found at the end of the form asks: “Are there any other material defects affecting this property or its value that a prospective buyer should know about? (Emphasis added.) Curiously, the concept of “value” is absent from every other question in the form. Since the question is not limited to the property itself, it could arguably refer to off-site conditions that might affect “value,” such as the impending opening of a nearby rock quarry operation. Yet, ninety-nine percent of the time, sellers answer “No” to this question. The result is that the open- ended nature of the question, coupled with the new issue of “value,” invites serious legal exposure to sellers, since it can mean different things to different people.
Furthermore, the form is inconsistent in its use of the present and past tense. For example, one question asks: “Has the roof leaked?” (Emphasis added.) To some (especially buyers) this can be read to mean “Has the roof ever leaked”? To others (especially sellers), it can be read to mean “Does the roof leak today?” When Realtors® are asked by their seller clients how to respond, some reply that if it previously leaked, but was fixed and never leaked again, it need not be disclosed, since it is now moot. However, strictly speaking, such a response would be technically inaccurate – which is why Realtors® are constantly warned against giving advice to sellers about completing the form.
In other portions of the disclosure form the questions are phrased in the present tense, e.g. “Are there any defective insulated doors or windows?” (Emphasis added.) Ignoring the fact that the word “defective” is subject to differing interpretations, if last year’s window leak was repaired months ago without reoccurrence, some might argue that it does not require disclosure today.
Here are some other questions posed in the present tense, thus inviting sellers to avoid revealing past problems: “Are there problems with settling, soil, standing water or drainage on the property or in the immediate area?” *** “Are there any moisture problems, areas of water penetration, mildew odors or other moisture conditions (especially in the basement)?” (Emphasis added.) Asking these questions in the present tense completely ignores the real issue, which is whether the seller has knowledge of these materially adverse conditions ever occuring. The better approach would be to simply make it clear at the beginning of the form – and remain consistent throughout – that all questions are intended to determine if the seller has any knowledge of these adverse conditions existing on the property at any time – regardless of whether the seller believes the condition may have been subsequently remedied.
However, rather than striving for clarity and consistency in grammar, context and meaning, the drafters of the form abdicated by essentially asking the seller in their last question: “Is there anything else we forgot to ask?” In other words, “Please do our job for us.”
2.The Form Suffers From Too Much Legalese.
Specifically, there are questions asked that even lawyers cannot agree upon. For example, in a follow-up question “Are there any additions, conversions or remodeling?” the seller is asked “…was a building permit required?” (Emphasis added.) A conversation with three different building officials could yield three different answers. If the conversation was with three different attorneys, one might also get three different answers plus three different exceptions to the answers.
Here are some other examples of questions that assume the seller is either a lawyer or property expert:
While it is true that the seller can always check the box “Unknown,” it is clear that if the questions were asked in “plain English,” the seller might actually be able to answer them honestly to begin with. There is always a risk that an answer of “No” to a confusing question may open the door to an inquiry as to what exactly the seller did know. So if any doubt ever exists in the seller’s mind about the meaning of a question, “Unknown” becomes the answer of choice – thus telling the buyer nothing at all.
There is little question but that condominium ownership is a unique and poorly understood property concept by the layperson (and many Realtors® who may have limited experience with it). Yet the property disclosure form gives scant attention to this form of ownership. In perhaps one of the more glaring deficiencies in the disclosure form – and one that has resulted in past litigation – is the fact that the questions fail to distinguish between adverse conditions inside the physical boundaries of the seller’s unit versus those existing in the common and limited elements elsewhere in the complex.2 Thus, Question 5.A. asking “Has the roof leaked?” permits a wily seller to answer “No” even though he or she is fully aware of roof leaks over a portion of the common area down the hall or roof leaks over other owners’ units.
4.Miscellaneous Anomalies in the Form.
A few years ago the following language was inexplicably added to the end of the form: “Agent receiving disclosure statement on buyer’s behalf to sign and date: ________________Real
Estate Licensee _______________Real Estate Firm. Date received by agent ________” So
with virtually no industry-wide discussion involving the licensees most affected by this ill- conceived addition, every buyer’s broker in the state immediately became subject to the legal responsibility of “receipting for” the disclosure form on behalf of their client. Yet curiously, nowhere in the text of Oregon’s Seller’s Property Disclosure Law is this duty imposed on licensees – only in the form itself. In fact, the text of the law property disclosure statutes continues to provide: “Each seller of residential property described in ORS 105.465 must deliver this form to each buyer who makes a written offer to purchase.” (Underscore added.) The unintended consequence of this change has been to trigger the buyer’s 5-business day right of revocation not when delivered directly to the buyer (who may reside across the country or the other side of the world) but when delivered to their local agent. In many cases, buyers do not appreciate this distinction and count the 5-business days from their actual receipt – not their agent’s. On the other hand, sellers and their agents may count the 5-business days from the date of delivery to the buyer’s agent, with no regard for when that agent actually passed it along to their buyer-client. As a result, the opportunity for disputes regarding the date of “delivery” (which triggers the buyer’s right of revocation) is great.
Perhaps one of the major deficiencies in the disclosure form is the complete failure to define the word “delivery.” In this age of technology and high speed Internet, even facsimiles are becoming a thing of the past. So here are some examples of “delivery” in our modern world that seem to have escaped the drafters of the Seller’s Property Disclosure form, even though they have had eight Legislative Sessions (not even counting the Interim or Special Sessions) from the disclosure law’s first enactment, to modernize and update the form:
If any attorneys had a hand in drafting the language of this form, they might be ashamed to admit it today. If it was reviewed by Legislative Counsel, he or she was obviously unaware of how the real estate industry works in the real world. Unfortunately it is the consumer and indirectly the Realtor® industry who have become the victims of this poor draftsmanship, since they are left trying to second guess the meaning of words and terms they never selected, but must now assume legal liability if incorrectly interpreted.
One last thought to ponder: Now that a significant percentage of homes are sold by banks out of their REO departments, why should they be excluded from having to complete a disclosure form that at least reveals what they do know about the property? You can be sure that before placing it on the market, the property has been evaluated for a broker price opinion, inspected for signs of damage, cleaned up, and checked for obvious evidence of moisture or other problems that can arise when a property has been left unattended. Yet a review of the banks’ mandatory addenda to sale agreements seek to exclude them from all defects in the property regardless of whether the bank knew of it or not. While a strong argument can be made that an AS-IS sale of bank repossessed property does not insulate it from disclosing what they actually know about the home, it is high time that consumers be informed by the lenders of any material defects in the repossessed property that have come to their attention during the foreclosure and resale process.
To continue using the current property disclosure statutes with little or no evaluation of their significant deficiencies is inexcusable. Buyers and sellers of residential property deserve more – and any further changes should not be piecemeal. The entire seller property disclosure statutes – including the form itself – are in need of re-examination and revision.
© 2010 QUERIN LAW, LLC
1It is important to note that this is a statutory form – it was not created by the statewide Realtor® forms provider Oregon Real Estate Forms LLC (“OREF”). Secondly, the law requires that the disclosure form substantially follow the language of the statutory form. Notwithstanding this, and in an effort to avoid the 5-day vs. 5-business day problem, OREF did change its form years ago to permit what the statute intended, i.e. giving the buyer a 5-business day right of revocation.
2General common elements, such as the entire roof and all of the building’s external siding, are owned prorata, by each unit owner. Thus a known defective condition in the common areas existing outside the unit itself should be addressed in the disclosure form – or perhaps a separate condominium disclosure form should be developed. The same holds true for limited common elements, except their right of use is limited exclusively to the unit owner. But combining both forms of ownership (condos and non-condos) into one disclosure form merely invites disputes and litigation regarding the breadth of the questions and answers.