Selling a home can be a lengthy and difficult process. Sellers must find a real estate agent, make repairs, updates, and stage their home, and more. However, one of the most important duties of a seller is their required disclosures, because failing to disclose a defect on the property can lead to a lengthy legal battle years down the road.
What is the Residential Property Disclosure Act?
North Carolina General Statute Chapter 47E, also known as the Residential Property Disclosure Act, governs the process of disclosing defects to a property before sale. Included in the act are provisions for the types of defects that must be disclosed, transfers that are exempt from required disclosures, time for disclosure, cancellation of contract, owner liability, change in circumstances, and more.
The Residential Property Disclosure Act also requires sellers to fill out the Residential Property and Owner’s Association Disclosure Statement (“Disclosure Statement”). This form was designed to simplify the disclosure process and to prevent the buyer from running into surprise defects after they purchased the home.
Do you have to fill out the Disclosure Statement?
Generally, sellers must complete the Disclosure Statement. However, the Residential Property Disclosure Act provides for a few exceptions where transferees do not have to complete the required disclosures. For example, transfers from co-owners or between spouses in a divorce are exempt from the requirement. Transfers pursuant to a court order, or through a foreclosure sale, bankruptcy, or eminent domain are also exempt from the requirement.
How do you fill out the Disclosure Statement?
On the form, beside each listed defect, are check boxes for “Yes,” “No,” or “NR.” If you have actual knowledge of the listed defect, you must select “Yes.” If you are sure that the property is not affected by a listed defect, you should select “No.” “NR” stands for No Representation. It means that you have no knowledge related to that defect. It does not mean that the defect does not exist, but simply that you are not making an affirmative or negative statement.
What types of defects must be disclosed?
When completing the required disclosure form, you must answer to each defect listed. The form groups the defects into eight sections:
A. Structure/Floors/Walls/Ceiling/Window/Roof
B. HVAC/Electrical
C. Plumbing/Water Supply/Sewer/Septic
D. Fixtures/Appliances
E. Land/Zoning
F. Environmental/Flooding
G. Miscellaneous
H. Owners’ Association Disclosure
Beyond these defects, the Common Law also provides insight as to what a seller must disclose to their buyer. Buyers must disclose all material defects that the seller knows the buyer is unaware of, and that are not discoverable with the “buyer’s diligent attention and observation.” Carver v. Roberts, 78 N.C. App. 511, 512-13, 337 S.E.2d 126, 128 (1985) (citing Brooks v. Ervin Constr. Co., 253 N.C. 214, 217, 116 S.E. 2d 454, 457 (1960)).
What should you do if a material defect arises after the required disclosure form is sent?
Pursuant to N.C. Gen. Stat. § 47E-7, if a seller discovers an inaccuracy in a disclosure statement or if an event or circumstance renders the disclosure statement inaccurate, the seller must promptly deliver a corrected disclosure statement to the buyer. For example, if the HVAC system fails after the disclosure statement is sent, the seller must then deliver a new disclosure statement that reflects the damage.
What are the legal consequences for failing to disclose a defect?
In most legal matters involving a defect in a property, the buyers find a major defect after they purchased and closed on the home, so they file suit against the sellers (and typically the seller’s agent), claiming fraud and/or negligent misrepresentation.
To prove fraud, a plaintiff must establish “(1) False representation or concealment of a material fact, (2) reasonably calculated to deceive, (3) made with intent to deceive, (4) which does in fact deceive, (5) resulting in damage to the injured party.” Ragsdale v. Kennedy, 286 N.C. 130, 138, 209 S.E.2d 494, 500 (1974). Additionally, in cases where a seller failed to make a required disclosure, the failure to disclose the truth supports a fraud claim equally as an affirmative false representation. Carver, at 512, 337 S.E.2d at 128.
Negligent misrepresentation occurs when a party (buyer) justifiably relies, to their detriment, on information that was given without reasonable care by someone (seller) who owed the relying party (buyer) a duty of care. Cummings v. Carroll, 379 N.C. 347, 366, 866 S.E.2d 675, 690 (2021) (quoting Dallaire v. Bank of Am., N.A., 367 N.C. 363, 369, 760 S.E.2d 265 (2014)). To prove justifiable reliance, the buyer must demonstrate that they made a “reasonable inquiry regarding the alleged statement.” Id.
While the Residential Property Disclosure Act and the case law provide insight as to what sellers must disclose, the fact of each individual case makes a significant impact as to whether those same defects must be disclosed. A latent defect in one case may be easily discoverable in another. For that reason, it is important to contact an attorney if you are sued for fraud or negligent misrepresentation regarding the sale of a home. On the other hand, if you discover an undisclosed defect after purchasing a home, you should contact an attorney.
Whether you are a buyer or seller, King Law may be able to help. Contact King Law at 888-748-KING for a consultation. We have offices located across western North Carolina, upstate South Carolina, and Eastern Tennessee. We are here to serve you and to guide you.