Legal Update
State Supreme Court Decision Makes Major Changes to Previous Case Law on Property Disclosure Statements

(June 2011) A recent Kansas Supreme Court decision in the case of Osterhaus v. Toth makes major changes to previous case law on the ability of buyers to recover damages from sellers for misstatements or omissions in the seller’s property disclosure settlement. In this decision, the Court ruled that “sellers have an affirmative duty to be honest by making accurate and complete disclosures in the property disclosure statement,” and that “sellers are not shielded from claims of fraud by the buyers’ agreement to waiver language.”

Courts had previously held that the waiver language in the buyer’s acknowledgement and agreement in the property disclosure statement prevented a buyer from suing the seller for misstatements and omissions in their property disclosure statement. The Osterhaus v. Toth decision overrules those prior decisions.

Specifically, when a buyer has made a “reasonable effort in exercising due diligence by conducting an inspection of the property,” waiver language will not bar the buyer from pursuing a claim of fraud against the seller for false representations in the property disclosure statement.

However, a different legal standard will be applied when the buyer chooses not to conduct an inspection on the property during the transaction. Along with several other necessary elements, if the truth or falsity of a seller’s representation in the seller’s property disclosure statement would have been revealed by an inspection, and the buyer declined to inspect the property or hire a professional inspector to inspect the property on his or her behalf, the buyer cannot claim that they reasonably relied on the false representations of the seller.

When acting as a transaction broker or seller’s agent, you must continue to disclose actual knowledge of a defective property condition to the buyer and buyer’s agent when the condition is not disclosed by the seller or revealed in an inspection. This obligation does not extend to conditions or facts not “actually known by the licensee,” and the seller’s agent has no duty to conduct a property inspection or verify the accuracy or completeness of any statements made by the seller or a third party.

In order to avoid liability for the non-disclosure of adverse material facts, when acting as a transaction broker or seller’s agent, you should always provide a copy of any inspection reports on a property to the opposing parties, and should recommend to your seller that they amend the property disclosure statement to note any problems identified in inspection reports received following contracts that have been cancelled due to the presence of unacceptable conditions.

Questions? Contact Jeff Carson at 913-266-5916 or jeffc@kcrar.com.