Dishin' Dirt with Gary Pickren

Dishin' Dirt on answering "No Representation" on the SC Property Disclosure with Gary Pickren

November 19, 2020 Gary Pickren Season 1 Episode 7
Dishin' Dirt with Gary Pickren
Dishin' Dirt on answering "No Representation" on the SC Property Disclosure with Gary Pickren
Chapters
Dishin' Dirt with Gary Pickren
Dishin' Dirt on answering "No Representation" on the SC Property Disclosure with Gary Pickren
Nov 19, 2020 Season 1 Episode 7
Gary Pickren

The South Carolina  Residential Property Disclosure Form offers three responses for the seller: yes, no and no representation. But does answering the questions about the condition of the property with "no representation" comply with the law and is its use ever proper?  Does it increase or reduce a seller's liability. Plus, does the seller need to disclose items that have been repaired.  We will take an in-depth look at this confusing issue.  Also learn about "crooks and swindlers" in this installment of Corona Crazy Closing. Also, Gary's Good News Only! discusses some important news on the fight against the Corona virus. 

Show Notes Transcript

The South Carolina  Residential Property Disclosure Form offers three responses for the seller: yes, no and no representation. But does answering the questions about the condition of the property with "no representation" comply with the law and is its use ever proper?  Does it increase or reduce a seller's liability. Plus, does the seller need to disclose items that have been repaired.  We will take an in-depth look at this confusing issue.  Also learn about "crooks and swindlers" in this installment of Corona Crazy Closing. Also, Gary's Good News Only! discusses some important news on the fight against the Corona virus. 

Unknown:

Hey guys, welcome back to yet another episode of dition. Dirt with Gary picker. This is the only podcast in South Carolina that is designed for you the real estate agent. Now on this week's episode, I'm going to examine the no representation answer on the seller disclosure form. Should it ever be used as the question we're really going to spend some time on. Also, do you have to disclose when an item has been repaired. And of course, I'll have another exciting installment of Corona crazy closings and Gary's good news only. And we got a lot of good news to talk about today. But first, I want to thank all of you for your support of this podcast. It amazes me each week, when I look at the numbers of people who have downloaded and listened to our podcast, I really want to keep this podcast going across the state of South Carolina. So I really need your help. If you could please forward this podcast to any real estate agent in South Carolina, or for that matter anywhere in the country is fine by me. But I also would like you to please like, rate and of course five stars would be the appropriate and correct number of stars to rate. And don't forget to hit that like button as well. So let's go ahead and get started with seller disclosure and talking about the no representation answer. So in our podcast about two weeks ago, we discussed seller disclosure exemptions, and what I spent a lot of time discussing was not only the seller who was exempt from the seller disclosure form, but those parties that were mistakenly believed to be exempt. For example, landlords, there's no exemption because somebody is a landlord that they don't have to complete a disclosure. The second step now and looking at self disclosure, is trying to determine what the no representation box really means, and when is it if ever appropriate to use. Now as I've mentioned in my previous podcast, I was fortunate enough to serve on the task force that helped write the current seller disclosure form. And together with Hamlin Kelley, who used to be on the disclosure, he used to be on the real estate commission and Jonathan Stackhouse, who still is and a slew of other real estate agents and some other commissioners who are in and out, we decided that when we completed the disclosure that it needed a cover sheet for more information, we wanted to make sure that the seller fully understood the importance and necessity of completing the document, but how to complete it properly. I believe that the seller disclosure cover sheet is a very important form for the real estate agent as well, because a real estate agent should know what is and is not in the disclosure or should not be as well as to be able to explain the disclosure to your consumer and the cover sheet. It addresses the no representation answer. And if you would look at paragraph four the cover sheet, you will see that it states that if a seller selects no representation, that the seller may still have a duty to disclose information, which is known or should have been known to the seller. So that should be our first clue to look at to understand that no representation might not be a proper answer. But let's dig a little deeper. What answers are allowed by the disclosure form? Well, once again, we would look at state law. And what we understand is it's the seller disclosure form must give the seller the option to indicate that the seller has actual knowledge. Remember actual knowledge not could know or should have known but actual knowledge of the specified characteristic or condition of the property. Or that the seller is making no representations as to the characteristics or condition. So in other words, the seller may answer yes, no or no representation. So now we're extremely confused. Because in our cover sheet, we said that a seller may still have an obligation if they select no representation. But yet our statute allows him to answer yes, no or no representation. So what's the answer? Well, let's go even deeper. I like to call the no representation example or answer the false negative. And so let me dig a little deeper into that and tell you why. So back when our state legislature was debating cellar disclosure, prior to that we were a caveat emptor state and one caveat emptor meant was buyer beware. And so at that time, South Carolina decided they wanted to change that law away from a buyer beware type law of caveat emptor and move more into a seller disclosure statute. and South Carolina was one of them. It was one of the first states to do that. We were at the forefront of this but there were still many in the legislature that were opposed to having this law altogether. So as a compromise, the compromise was you could answer yes no or no representation. Now, this is extremely odd because your answer option seems to contradict the plain language of the law that requires a seller to provide the buyer a seller disclosure form To answer the questions on the form truthfully, so my point being is if a seller answers no representation for one of the questions when the seller has actual knowledge of the issue, to me is the same as them not providing the required answer or giving a false statement under the statute. While there's a multitude of reasons, a seller should not use the no representation. Answer. I believe there are three main reasons here that should convince any seller to avoid that response. First, every year, our South Carolina real estate commission requires certified education instructors to attend a seminar on mandatory education classes that they teach my office Blair, Cato Pickford and caslon. We provide continual education for real estate agents. Now, each year, you have to take or every other year rather, the agent has to take a class called mandatory continual education, it's an MC E Class, that's a four hour class that agents have to take. After that they're allowed to use the rest of the hours that they're required as electives, but this class is required of all agents. In 2017, we attended the seminar on the new class that was going to be used for 2018 and 2019. And in that class writing was the section on seller disclosure. Now, during that seminar where we all as instructors had to attend, the question arose as to when the use of no representation was appropriate with this seller disclosure form. Now, keep in mind, the attendees at this real estate event are real estate agents who are instructors, mainly brokers that have a lot of experience and teach classes, you had owners of real estate schools, you had a lot of real estate lawyers who teach continuing education. So these are the people truly in the know, that have lots of experience, not only in teaching, but also in real world applications of the law. And as I said, during one session, somebody advanced the argument of when we should be able to use no representation. And for about one hour, which we kind of got off the topic. When we started debating this for almost an hour, we debated the use of no representation, and one by one, people in the crowd would offer an example of why they would be able to use no representation. And one by one they were roundly rejected, not a single option was ever presented that made or survive the rooms criticism of it. For example, someone is raising a hand and said, Well, if you're a landlord, they should answer no representation because the landlord's never lived in the house. Well, when that was said it was met with extreme laughter, because everybody knows being a landlord is not exempt anyone from doing a seller disclosure that is not one of the exemptions, as I mentioned in my previous podcast, but also because we know that a landlord tends to know more about the condition of a property than the average homeowner does, because tenants tend to complain about every minor issue in the house. Secondly, when the tenant vacates the property, the landlord is going to closely inspect that property. And oftentimes they have an inspection company go in, to inspect to see if there's any issues in the property before they return the security deposit. So they have actual knowledge, and the landlord's in a position to answer those questions. And remember, the questions are yes or no, do you have actual knowledge. So it's not asking, as I mentioned earlier, the statue is not asking you to go out and do inspections and find problems. What this law is simply saying is if you have actual knowledge as the seller, you have to disclose, so it's not imposing any duties to investigate. So a landlord should easily be able to answer the question truthfully. Now, this is just one example of many examples that we're giving throughout that our people were talking about a stage talking about selling property for their parents. But the bottom line, it always came back to the question of, do you have actual knowledge, yes or no, of this issue? And that's important to understand, because that is the question being asked in the seller disclosure. If you look at that question, it's not asking should you know, or do you maybe have a possibility or knowing it says, Do you have actual knowledge? Yes or no. So when you think of that, regardless what the situation is whether it's you never lived in the house, or you haven't lived in the house in a while, or you're selling your son's house, or your daughter's house, or you're selling your parents house, whatever the reason, you're a landlord, you're a tenant, you're, you're an LLC, you're a company, whatever the reason, you can answer the question is yes or no. Do you? Or do you not have actual knowledge? It's a very simple question that really doesn't need any obfuscation. You either know where you don't know what the issue and so as long as you answer the question, truthfully, that's all that matters. If something's wrong with the house and you said, No, you had no actual knowledge, they can't hold you liable because you did not go and find that issue. Now. If you knew about it in your life. That's a whole different ballgame. Secondly, under the law, the seller has a duty to disclose certain material defects in the property as does the real estate agent. And when the seller selects no representation on an item when he has knowledge, he is failing to disclose a known defect, which will likely result in a claim for failure to disclose. And the fact that the seller answer no representation will provide them absolutely no defense or no shield from a lawsuit. When the seller says you are buyer says you the seller failed to tell me something that you knew about. So for example, if the house has severe foundation problem, and the seller knows about it, but checks no representation on the box, they still fail to disclose a known material facts, something that affects the structural integrity of this house, they fail to disclose that they have an affirmative duty under the law to disclose that. And so when they get sued for failure to disclose the fact that they check the box, no representation will provide them absolutely no defense. Because the question again asked as the seller, do you have actual knowledge yes or no, of a structural defect? The answer is simple. Yes, they didn't know the answer. It also puts the real estate agent at risk. And the reason it puts the real estate agent at risk is because the real estate agent has a duty under the wall under 40 dash 57 to disclose material adverse facts. Now an adverse fact is something that affects the structural integrity of the property. And so if you know that this house has foundation problems, and you fail to disclose that, as a real estate agent, you also have violated the statute, all material adverse facts. Thirdly, and finally, I've been doing this for 26 years, I have represented almost every major and minor real estate agency in terms of size in Columbia, South Carolina. And I can tell you that we continue to see an increased number of lawsuits and claims against sellers for failure to disclose properly. And when the seller truthfully discloses, there's always less likely to have a claim, but when they know something, and they fail to disclose it. That is when the lawsuits start happening, I think it is complete nonsense to think that you can check a box that says no representation. You know, when the buyer has an issue, that they are not going to reach out and file a lawsuit and file a claim. lawsuits are extremely expensive, and they should be avoided at all costs. Because what happens in lawsuits, you wind up paying a lawyer a lot of money to defend you, and you look at it and go, Well, I've mas will just go ahead and pay the claim. Because if I have to pay the lawyer $10,000 to defend me, I'm better off just paying the $6,000 claim and not having to pay the lawyer as well. So what do you do as a real estate agent when you have a seller who has selected no representation? At that point, I believe the real estate agent needs to tell the seller that they have a legal liability by not answering the questions, you can provide them a copy of this podcast so they can understand how that answer will not protect them against any lawsuits. If they still don't believe you. They should contact consult a real estate attorney prior to making these decisions. Make sure that they find somebody who truly understands seller disclosure, and will not just blanketly read the answer goes well it says I can answer no representations so they can answer no representation. They need to make sure that they contact a lawyer and a law firm that understands seller disclosure and all of the requirements related to it. Ultimately, what the real estate agent wants to do is to hand the form back to the seller and say these answers are not going to protect you, you need to answer them Do you have or do you not have actual knowledge of the items they are asking? And if your client still refuses to update the answer, sometimes, unfortunately, it's time to fire a client. Now while nobody wants to do that, getting into a lawsuit because a client would not truthfully answer questions is a true risk of every real estate agent. Remember that buyers believe that every real estate agent is rich. And so when they see that the seller has failed to disclose, they're also going to sue the real estate agent in most cases claiming the real estate agent knew as well. Even though you would have absolutely no way of knowing a lot of plaintiff lawyers believe that they can add as many parties as they can to a lawsuit, somebody will pony up and somebody will have it have insurance that will pay off the claim. And they also know that the cost of the lawyers is so expensive, that people will just capitulate and pay him some money to make them go away. And we don't want that to happen to you. Now the last part of this discussion, which I think needs to be heard as well, is what do you do when you had an issue and you repaired it? Well, the statute only requires you to disclose items that are actual damage that they're they're actual problems. You don't have to disclose items that have been repaired. And that's evident by the way the question is asked for you will look at the question box it has to be applied to all sections in the seller disclosure on the top of page two. The question says as owner, do you have any any actual knowledge of any problems concerning and beside the word problems has an asterick. A problem is defined as including present defects, malfunction damages conditions, or characteristics, which goes back to part one of this discussion is, why can't you answer that question? Why do you have to answer no representation? You either know the answer yes or no, or whether there's actual knowledge of a defect, malfunction, damage, condition or characteristics. To me, that is the main point of why the no representation, answer is never appropriate. But now let's look at it in terms of disclosing things that you have already repaired that are still not present defects, malfunction damages conditions or characteristics. So why would I go ahead and disclose items that have already repaired if I have no duty to disclose them? What's the point? Well, we know that consumers get very upset about certain things in the house, even when they have been repaired and will give you four h V AC a heating and air system, there's ever been a repair on an hv AC system, the heating and air system, the buyers typically want to know even if it's been done two years ago, and everything's working fine. And when the item has been repaired, but they have not been told they feel like somebody is trying to hide something. Number two is termite issues. If your house has ever had termites, they absolutely want to know about that, which also goes into water intrusion. Whether it's water intrusion in the crawlspace that is rotted a sale or whether it's water intrusion in the roof. Those two items are our items that every buyer wants to know. And when they are not disclosed to them. Even when they have been repaired. They typically want to file claims. And then the last one and fourth one is foundation matters. If your house has ever had foundation issues, even if you put in structural piers, people want to know about In fact, I served as an expert in a case where the seller was sued because they did not disclose that they had placed peers into the foundation of the house. Clearly under the statute, they had absolutely noted no duty to do so because they had no present problem characteristic or defect. In fact, the house with the new peers in them was probably the most structurally sound house in the entire community. Because it had the peers, any builder will tell you, if they had infinite amount of money to buy to build properties. They would put piers under every foundation because that guarantees a rock solid foundation. But in this situation, the seller did not disclose to the buyer sued because they did not tell them and they sued saying their house was worth less and so forth. Well, of course it wasn't because the house appraised for what they paid for it. But as the cost of litigation went up the sellers paid money for the case to go away. So my point being is if you have ever had an hv AC issue, termite issue, water intrusion or foundation matters, it might be best in your situation to go ahead and disclose those items, disclose that they have been repaired and disclose the company that made the repair so that the consumer the purchaser can do an independent investigation and make sure that they are satisfied with those repairs. Once you provide disclosure of the items, it'd be very difficult for the buyer to maintain an action for failure to disclose. So there's your answer to no representation, it should never be used. It's not proper is not going to get you out of answering the question, but not answering the question you will find yourself faced with more liability and lawsuits. Secondly, you need to look at the seller disclosure and determine for you Are there certain things you want to disclose even though you have no duty to disclose, such as repaired hv AC or heating and air systems, such as termite issues, such as structural matters, such as water intrusions, even though if those matters have been repaired, you may not have to disclose them, it might be in your best interest to do so to avoid future claims. And now to Corona crazy closing in this week's episode is kind of funny because I think it demonstrates how people who are just on edge have brought now in 2020 2020 has been such a crazy year and and sucked in a lot of ways. And so people are just right on edge. And this story really explains that when the Coronavirus first started back becoming a thing in March. As you all know, we were doing closings in the parking lot where we were going over documents in the on the phone and then handing the documents to the client at the car and they would sit in their car and sign the documents. And most of our staff was working from home most real estate agents were not allowed to go into their offices and all of the vendors that they were using for repairs and inspections and things like that. Were also working typically out of their car and most of their staff. Were also working out of home if at all. And so it was very difficult March and April to get invoices and other things for real estate agents because the agents simply couldn't get on themselves because the companies that we're dealing with the office manager and the bookkeeper and everybody we're working from home and it was very difficult time for everybody and people were On EDGE after the lockdown people really were fed up and just very own edge. And so I had this closing with this gentleman, and he was very well aware that we were having issues getting some of the invoices and the agents were doing everything they could to get them. And so we did the closing and reminded the gentleman that once the invoice came in, he would have to come back and resign a new HUD and may have to bring additional money. So after the closing the invoice finally came in, we contacted the client, he came back to the office was very, very angry about the whole thing. And when he gave us the check for the additional money for the invoice, which he was well well well aware of. He decided to make the check out to sheets and swindlers so we actually cash a check made payable to cheats, and swindlers. So just another example of how people are getting Corona crazy with their closings. And now we go to Gary's good news only. And we have lots of good news on the Coronavirus front as well as in the economy. And this week, I want to go ahead and start with the Coronavirus like I did last week because we have such outstanding news. We need to get that out to you guys. So it was about six months ago that the operation warp speed was announced. And this was the government's effort to support the pharmaceutical industry in developing manufacturing and delivering to us a vaccine. And as you all remember, last week, Pfizer announced that their clinical test showed that their vaccine was 90% effective, and that they would be able to start rolling it out here sometime around Christmas. Well this week, another pharmaceutical company madona announced that their vaccine is 95% effective and it also will start coming out here before or around Christmas. So outstanding news ministration announced that Madonna got over $2 billion in funding and support for its development, manufacturing, and delivery of EDS vaccine. So two vaccines that are in excess of 90% effective should be out here before the end of the year, which is basically right at a month or so. Now and economic news, the Dow Jones Industrial Average came within a smidgen of 30,000 points this week, you get within 36 points of getting to the 30,000 mark which it would be the highest in history. So go check out your 401k your IRAs etc. It is also noted that the Dow Jones has fully recovered from this drop when the lockdown occurred, and now not only has it recovered is an Alec seeding the numbers before the virus. And lastly own real estate news realtor.com announced that us housing market takes a breather but is still staying very hot. And mortgage news daily announced other good news which is the forbearance plans have now hit a pandemic low. So as always, there's lots of good news out there. Unfortunately, you just have to look for it. And that's where we come in. And that is Gary's good news only. And that is this week show. We will be off next week due to Thanksgiving but we will be back the following week with another great episode. If you have some time over Thanksgiving just want to escape your family because you're kind of tired of hearing the same six stories that your dad tells over and over again, you can always go back and listen to more of our podcast we have some great episodes on wholesaling on marketing with video on how to grow your business. There's some other episodes such as how to represent a buyer when the seller is for sale by owner as well as some other seller disclosure podcast so if you have a chance to this holiday season, please feel free to go to any podcast and type in Gary Pickering ga r la p IC k ra n podcast and any of those podcast platforms will bring up the other episodes. Don't forget to like, share and subscribe. But most importantly, I hope you have a wonderful and safe holiday