MAR Legal Hotline

July 2014 Notes from the MAR Legal Hotline

The July Legal Hotline Q&A highlights common seller agent dilemmas: You learn that work was done on your listed without the proper permits… Does it matter? (hint, yes it does) Are you ever left wondering what to say to future buyers when a previous deal fell through because of inspection issues? Have you been asked to share an inspection report from past buyers with a new prospective buyers? Do you know what you should do when you have two conflicting reports… old report says title V fails, new report says passed?  Please check out the answers from MAR staff attorneys:

Q:    My seller-client is unsure if proper permits were obtained for finishing his basement. What should I advise my seller, and what are my disclosure requirements?

A.  The State Building Code requires a building permit for “construction, reconstruction, alteration, repair, demolition, removal or change in use or occupancy of buildings and structures.” Local bylaws or ordinances may also include more specific requirements for when a permit is required. If proper permits were not pulled, those improvements might be deemed illegal.

If your seller is unsure if proper permits were obtained, he should work with the town to resolve any outstanding issues before you list the property. If your seller determines that the improvements did not have a valid permit, and you become aware of this fact, you have a duty to disclose under Chapter 93A, the Massachusetts Consumer Protection Act. It is also important to remember that as an agent, you must exercise caution when making verbal or written representations about a property, and use reasonable care when providing information in order to avoid liability if the information is found to be inaccurate.

If your seller chooses to ignore the fact that there is possibly unpermitted work, he should be aware that the unpermitted work may be discovered prior to the sale. First, Massachusetts law requires that the Fire Department inspect each home to be sure it is equipped with an approved smoke detector. That law also requires the Fire Department to report to the local building authority “any condition which he believes to be a violation of any provision of the state building code.” This will not only put the local building authority on notice, but it also could hold up the sale, as the Fire Department may not sign off on the inspection until the permitting issues are resolved. It is also possible that a prudent buyer will perform his or her own investigations regarding permitting. If the buyer discovers that the improvements were illegal, the buyer will likely seek price concessions or even back out of the deal. Again, this may also put the local building authority on notice of the unpermitted work. Finally, many banks require that the appraiser verify permitting during the appraisal process. For the foregoing reasons, it is wise that the seller resolve permitting issues prior to listing the property.

Q:  I represent the seller in a deal that fell through due to an unfavorable home inspection report. Must I disclose to future prospective purchasers the reasons why the original buyers backed out? 

A.  Most likely, yes. Attorney General regulations explaining Chapter 93A provide that it is a violation when an agent, “fails to disclose to a buyer or prospective buyer any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.”  Disclosure is limited to facts actually known by an agent, not suspicions or rumors; Chapter 93A requires that a real estate agent volunteer these facts, even if not asked. It is recommended that these disclosures be made in writing, so it is clear as to when and to whom the disclosures were made.

Q:  Should I share the inspection report from the original buyer to other prospective buyers?  

A.  No, not without the original buyer’s permission. There is a distinction between the factual information in the report and the report itself.  If you know about problem conditions in the property, those conditions must be disclosed to other buyers.  The paper copy of the report itself is the property of the first buyer, since that buyer paid for it.  You should not give property of the first buyer to another buyer without permission.  It is recommended that you ask the first buyer for permission to provide a copy of the report.  Doing so reduces your risk that a buyer will claim that any facts were omitted. 

Q:    The sellers had a Title 5 inspection that failed.  Three months later a different Title 5 inspector passed the system.  May I provide only the passing report?

A.  Probably not. Unless repair work was performed and the operating condition of the system has been guaranteed, you are at risk if you fail to disclose both reports.  Generally, a Title 5 report is not a guarantee of the operating condition of a system but a snapshot that signs of failure were not observed on the day of the report.  Unless both reports are provided, a buyer may allege that the sellers conspired with the second Title 5 inspector and the real estate agent to mislead the buyers about the condition of the system.  If repairs were performed following the failed inspection, it is wise to provide buyers with information about the repairs so they can be satisfied with the adequacy of the work.

Courtesy of Michael McDonagh, MAR General Counsel, Ashley Stolba, MAR Associate Counsel , Justin Davidson, MAR Staff Attorney