Home-defect disclosure law takes effect Jan. 1


The most significant change in real estate in Maryland next year may be sellers' new responsibility to disclose, in writing, defects in the home. But it is still unclear how the law will work in practice, and some home inspectors say the disclosure forms are inadequate.

Under a law passed by the General Assembly earlier this year, all sellers must itemize defects of their home, if any, or sign a disclaimer that they are offering the property "as is."

The Maryland Real Estate Commission, which spent much of the fall drafting the forms home sellers must use, issued its final draft on Dec. 15. Within 48 hours, thousands of copies of the form were printed and mailed to real estate boards and brokers throughout the state.

Local realty executives believe that sellers will be honest about problems with their homes -- fearing lawsuits if they don't tell the truth. A seller who lies could face a post-settlement lawsuit from a disgruntled buyer who discovers hidden problems, they said.

"It's very important for sellers to be candid," said Nancy Hubble, president of the Greater Baltimore Board of Realtors.

Lawsuits from embittered buyers against sellers, as well as their agents, have been common, according to Ms. Hubble. She expects the new law to reduce the number of suits.

Ms. Hubble also thinks the law will encourage sellers to correct defects before they put their homes on the market -- especially if they face a lot of competition.

The new seller-disclosure form has 17 main questions. Sellers are asked to answer either "Yes," "No" or "Unknown." Space for comments is available for each question.

The form asks about foundation; basement moisture; roof leaks; structural problems; plumbing; heating; air conditioning; electrical system; septic system; water supply; insulation; exterior drainage; termites; environmental hazards such as radon asbestos; zoning and easements; location in a flood plain; and miscellaneous defects.

The form also asks about the age of heating, air conditioning and hot water systems. Still, real estate professionals are divided about whether the new seller disclosure form will adequately protect consumers. Some, including a number of home inspectors, believe the form is not broad enough to cover hidden defects.

"The form really needs to be cleaned up if it's going to be a real resource for consumers. Right now it might be a lemon of a lemon law," said Jack Reilly, who heads his own home inspection firm with offices in Baltimore and Washington.

Mr. Reilly contends the form is inadequate because it asks no questions about home improvement work.

Each year, he said, many homebuyers find serious problems with substandard repairs performed by homeowners or unqualified home improvement contractors.

A form of larceny'

"Home rehab can be a form of larceny," said Mr. Reilly, noting that faulty electrical work is especially hazardous.

Too often, a homeowner isn't aware that a shoddy home improvement job was done on a property until after he moves in, Mr. Reilly said. It is especially important that the owner disclose problems that are concealed behind paneling, dropped ceilings or other barriers, he said.

To cover the home improvement area, Mr. Reilly advocates the addition of several extra questions on the state form -- suggestions that he sent to the Real Estate Commission recently.

One question would ask whether changes to the heating, cooling, plumbing or electrical systems had been done during the time the seller owned the property.

If such changes have been made, Mr. Reilly said the owner should provide detailed information on these.


Questions on complying with the home disclosure law:

* Who must comply?

The owner of any home that is on the market (but not under contract for sale) as of Jan. 1 -- whether an agent is involved or not.

Although listing agents will be providing sellers with forms, they are not permitted to fill out the forms for a seller, Ms. Hubble said.

"That's our toughest job; to keep hammering out to the agents that they can't fill out those forms," she said.

* Does the disclosure law cover new homes? No. Homebuilders will not come under the law, said Elizabeth Trimble, assistant attorney general for the state Real Estate Commission.

Legislators who drafted the law noted that new homebuyers already have warranty rights to protect them in case defects are found, Ms. Trimble said.

* At what stage must the homeseller or his agent provide a buyer with the disclosure or disclaimer form?

The law says the completed forms must be in a buyer's hands before ratification of a contract, which occurs when the seller puts his signature to a contract offer from a buyer, Ms. Trimble said.

If the completed forms are not delivered to the buyer before ratification, the buyer has the right to rescind the contract within five days after receiving the forms. Indeed, if the forms are not delivered within three days after ratification, the contract is void.

This could work against a buyer in a hot market, Ms. Trimble said. After ratifying a contract offer from one buyer, the seller could drag his feet on delivering the forms to that buyer, waiting to see whether a better offer came in. In that case, the seller could exit the first contract even if the first buyer wanted to stay in the deal.

Although they are not binding on homeowners, the Real Estate Commission last month issued guidelines for licensed real estate agents and brokers on use of the forms.

The guidelines suggest that an agent deliver to a prospective buyer completed forms as soon as the agent believes an offer may be coming in. If the offer comes as a surprise, the agent should deliver the forms to the buyer immediately after receiving a written offer for the property.

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