When a Home Seller Lies on the Disclosure

What happens if/when a home seller lies on the seller’s disclosure? That’s a question no one wants to ask but on occasion, one that has to be explored. Georgia is a “buyer beware” state; home buyers are expected to complete all research during the due diligence period. That is the "option period" for the buyer, the time to do whatever research they deem important. Home sellers are legally obligated to disclose all known hidden defects. This is required even if buyers waive due diligence and inspections. Sellers are still obligated to be truthful.

There are more issues related to the seller's disclosure than any other part of the home selling process. It's not always drama; sometimes/many times it's simply the need for clarity. Something is/isn't checked that requires additional explanation. Homes are not perfect, the purpose of the disclosure is to help the buyer understand as much as possible about the history of the home and get a fully picture on what transfers at the time of closing. Simple mission, routinely bungled (inadvertently and sometimes purposely).

Here’s a snip from the 2021 Georgia Association of Realtors Seller’s Disclosure, it sums up the expectations of both parties. These contracts change; this is the current version and may not be exactly the same as the one in effect at the time this is read.

What a Seller Must Disclose

The law in Georgia requires a home seller to disclose material facts that:

• They are or should be aware of
• Would not be discovered by the buyer during due diligence
• The buyer is unaware of and would be critical when the buyer is deciding if to buy and/or the price to be paid

The expectation here is full transparency by the home seller and thorough investigation and due diligence by the buyer. Typically, overt and obvious issues that the buyer would see while at the property are assumed known; the buyer is expected to note them during due diligence. There are a number of examples of things that might not be immediately obvious but known by the seller, just a few examples:

• Flood zones
• Easements, encroachments, etc
• Trash pits, sink holes, hazardous issues
• Septic, well issues
• Area uses, pending zoning/land use changes
• Mold and or moisture issues
• Unpermitted work
• Mechanical systems, structural issues

The list can go on almost endlessly and there are situations that come up which even agents with decades of experience haven’t seen. We had buyers looking for a home on acreage, the list was narrowed and home selected for inspection. As always, we map each property and look for concerns in the area; we saw a robust chicken farm about a mile away from a home our buyers loved. Out at the site the owners chuckled when asked if it could be smelled; “never” was the response. We visited the area several times over the next week and spoke with several area residents…the wind was right and we had our answer. Had we not come out a few times under different conditions, it might not have been caught. It wasn’t disclosed.

Oh - unless directly asked, sellers in GA are NOT required to disclose if a homicide, felony, suicide, or any other death occurred there (Georgia Official Code Annotated §44-1-16(a)(1)). Additionally, a seller in Georgia is not required to let a buyer know if a registered sex offender lives in the area (Georgia Official Code Annotated §44-1-16 (b)). The seller must answer any direct question a buyer asks about these things honestly (Georgia Official Code Annotated §44-1-16(a)(1)). Curious buyers should ask the seller directly about these things as they are compelled to answer honestly. But again BUYER BEWARE, do the research, ask the questions.

Prove the Seller Lied

Buyers are typically the party that brings forth claims of fraud against home sellers and/or real estate brokers. The two types of fraud recognized in Georgia are passive fraud and active fraud. There are five elements of active fraud which a buyer must prove:

• That the other party lied or willfully concealed a defect by taking active steps to prevent the buyer from discovering it
• That the other party intended to lie or reckless as to the truth of the matter
• That the lie was told to induce the claimant to act or not act
• The claimant could not have protected themselves against the fraud through the exercise of due diligence
• That the lie was the proximate cause of the claimant being damaged

These five hurdles must be cleared. The buyer must show they completed thorough due diligence and that the issue in question could not have been discovered. If the issue could have been discovered or signs of the problem been noted, and the seller did not prevent or impede the inspection(s), a successful claim of fraud is unlikely.

Call the Lawyers

Bringing a fraud claim to court involves a lot more than threatening to “call my lawyer”. In addition to the five hurdles above, the proper type of attorney must be used. Real estate attorneys that conduct closings are rarely eager to engage in this type of work. Their field is closing deals; prepare the packages, work with lenders and getting everything legally recorded. There is nothing to be gained by getting combative with the real estate firms that are the source of their business. This is a job for litigators.  

Real estate litigation is a stubby pencil business, the devil is in the details and digging through a case requires time. Considering the review process, interviews, reviewing case law and the hours of time needed for things that come up, the costs to pursue a claim can quickly skyrocket. Given the high bar for success, it’s very likely that many hours may be spent only to learn that the case has no legs. Or consider, how many times does someone “win” and never get paid?

The Real World

Ideally, everyone would be transparent and abide by the golden rule, that’s not the real world. If/when a home seller lies on the disclosure, the buyer and agent need to quickly evaluate options. There isn’t one answer; options usually boil down to:

• Terminate (breach of contract) retain all earnest money, move on
• Seek to renegotiate something acceptable
• Continue on and close
• Terminate and consider legal action

Add to all the above that the Georgia Association of Realtors contracts are explicit in outlining the responsibilities of the home buyer, the home seller and every involved agent. It’s no secret that the vast majority of people do not read or understand the forms they sign. It’s also no secret that about 75% of agents have little to no idea of what these contracts and exhibits mean; ask an agent to explain them. Add to the mix “limited service” companies and unrepresented people, the opportunity for disaster grows.  

The general public loves to embrace the belief that real estate is “simple” and that the process is far more complicated than it needs to be. This is the litigious, combative, self-absorbed world of 2021, nothing is simple. Buying and selling real estate involves legal binding contracts, large sums of money, and piles of stress…and that’s assuming everything goes well.

Now for the disclaimers: No one at the Hank Miller Team is an attorney, this is not and should not be construed as legal advice. Every situation is different and the only opinions that matter come from the involved brokers for any/each situation. The above is an overview only, sources include the GAR contracts and The Red Book on Real Estate Contracts in GA. Any agent worth a blank should have that on their desk or IPad.

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