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The Garden State Law Podcast discusses all things legal in the state of New Jersey. Presented by lawyers from Saiber LLC, the Garden State Law Podcast highlights trending topics in litigation, transactional law, real estate, and more.
00:00:03:18 - 00:00:12:06
Tim
Welcome back to the Garden State Law Podcast. I'm your host, Tim Lough. Joining me today is commercial litigator, real estate litigator and recurring guest of Mike Shortt. Mike, welcome back.
00:00:12:11 - 00:00:14:23
Mike
Thank you Tim. Thanks. Good to be back.
00:00:14:25 - 00:00:29:03
Tim
Today Mike and I will be discussing real estate law, real estate sales and litigation, specifically real estate disclosures. So this is a conversation that's mostly meant for real estate brokers and agents. Before we get into it, Mike, maybe you could tell us a little bit about your practice.
00:00:29:05 - 00:01:02:12
Mike
Sure. Yeah. Like you said, I'm a litigator here at Saiber. I've been here for about seven years, practicing overall for a little over 15 years. I do a broad scope of litigation, primarily over the last several years. real estate litigation representing brokers, agents and everything ranging from, claims that they failed to disclose or disguised conditions of property that they sold mostly residential to representing them in front of the, the real estate, board down in Trenton.
00:01:02:18 - 00:01:07:25
Mike
So just a variety of things like that, and then just some broader commercial litigation, contract disputes, things like that.
00:01:07:27 - 00:01:31:18
Tim
So let's let's start from the beginning with respect to a, a real estate sale commercial specifically for the most part. Okay. a sale happens. There is typically a seller's disclosure. The real estate agent needs to disclose, any issues or problems with a home. So there is something called a seller's disclosure statement. Correct? So what is that?
00:01:31:18 - 00:01:33:09
Tim
Where do we start? Start from the beginning.
00:01:33:09 - 00:01:59:05
Mike
Yeah. So actually so this is more this more applies to residential. So not to commercial. So for residential you know, if you bought a home, you want to find out what exactly it is you're buying. So that's why people go and they do their in-house tours, they go to open houses, things like that. But when you get down to the nitty gritty of putting in an offer, that's at the point where usually you will get 99.9% of the time, a seller's disclosure statement.
00:01:59:05 - 00:02:18:18
Mike
So the seller's disclosure statement is a probably like 4 or 5 page form that the seller fills out. The one that 99% of the people use is one that's been promulgated by the new Jersey Association of Realtors. It's a stock form, and it goes through how long you go in the house. How old is the roof? Are you aware of any lead problems?
00:02:18:18 - 00:02:38:23
Mike
Are you aware of any flooding problems? Are you aware of any termite problems? And it's a checklist that you go through, as a seller, and you fill it out to the best of your ability. And when a buyer, a potential buyer is getting it, they're going to look at that seller's disclosure statement. And during that attorney review period, they can determine, is this the property I want to buy.
00:02:38:23 - 00:02:56:14
Mike
Because you might look at the building and say, oh, this is a charming old victorian in Westfield. It's everything I want. Beautiful gable windows, the whole nine yards. And then you get the seller's disclosure statement and it's chock full of lead. There's been flooding every day. Anytime it drizzles, there's there's water in the basement. Then you can make a decision.
00:02:56:14 - 00:03:28:02
Mike
Is this still the property I want to pursue or not? So, the seller's disclosure statement is also, in a way, for the sellers to, defend themselves from any claims that they disguised any type of, material defect in the property, whether it's a latent defect, one that you can't really see. But maybe the seller knows about. By disclosing it, if someone then purchases the property, finds this, or has issues with this potential issue, they can't come back to the seller and say, hey, you never told me about this.
00:03:28:05 - 00:03:51:15
Mike
and for purposes of, real estate agents like who I represent on a regular basis, they can be held liable under the Consumer Fraud Act, which is this very pernicious, statute in new Jersey where if someone is able to successfully file a claim under the Consumer Fraud Act, they're entitled to their actual damages times three plus attorney's fees.
00:03:51:15 - 00:04:22:20
Mike
So you could take a case that might be over a $2,000, you know, a $2,000 window that somebody knew was broken. But it was never disclosed. And that could become a $6,000 claim plus attorney's fees. So attorneys have an incentive to try and pursue what would otherwise be a pretty low, low value claim. so by having a seller's disclosure statement under the Consumer Fraud Act, there's an exclusion for real estate agents if they have conducted a reasonable inquiry into the property.
00:04:22:23 - 00:04:43:09
Mike
And there's case law saying that, obtaining a seller's disclosure statement, then providing that's the buyer satisfies that inquiry, and then on top of that, the real estate agents conducts their own visual inspection. So if a guy fills out a seller's disclosure statement says, like, we've never had water in the basement, and the agent goes down there and there's fish swimming through, you feel like, I don't know if that's right.
00:04:43:11 - 00:04:54:06
Mike
So, like stuff like that. It's not a complete like inoculation as soon as you get a seller's disclosure statement that the realtor has no potential liability, they still have to do some level of due diligence at that point.
00:04:54:07 - 00:05:03:27
Tim
So, forgive me if you if you said this, this is required by law or not required by law in New Jersey. And I would imagine it might be state specific, state by state.
00:05:03:29 - 00:05:31:26
Mike
Yeah. And there's, there's some wild ones, like just for an example, like in New York, until very recently, I think it's coming into effect in 2024. A seller could pay a $500 fee and not disclose anything. So they might be aware of asbestos, leaky pipes, all kinds of structural issues. But as soon as they filled out this form and submitted a $500 check, I believe to the Department of State, they were not required to provide any disclosures at all.
00:05:31:26 - 00:05:33:26
Tim
That's a red flag as a buyer. Right?
00:05:33:28 - 00:05:55:10
Mike
It is and it isn't. Is it because it was so commonplace that, almost nobody would do it because then why would you why would you risk failing to disclose something if you just pay $500. But I believe that's going away, except for some minor exceptions for if the property is owned by an estate. Other people that didn't live there, they're not going to have firsthand knowledge about what happened in the property.
00:05:55:10 - 00:05:56:03
Mike
So they could do that.
00:05:56:03 - 00:05:57:00
Tim
And again, that's New York.
00:05:57:02 - 00:06:27:16
Mike
That's New York, yes. So in new Jersey, there's a legal requirement that under case law that is seller provide or disclose all known defects, latent or myth or visual, to a buyer prior to the sale. If they don't, they could be liable after the fact for failing to, you know, basically a breach of contract or, a fraud act if they sell a property that they knew had a giant structural issue that was going to cost $100,000 to replace, they could then be held liable for that.
00:06:27:16 - 00:06:50:22
Mike
The buyer could pursue a claim against them. So the way that, to make it a, a system that works efficiently, that's where the association of Realtors in New Jersey came up with this seller's disclosure statement, which they update periodically. and then promulgate that to all the realtors who are members of the NJAR and then that is provided to sellers who fill it out and give it to buyers.
00:06:50:22 - 00:06:57:11
Tim
It's a form that can't be manipulated. It's pretty standard. Like what you see is what you get. It's just going to be the same one across the board that everybody's using.
00:06:57:11 - 00:07:20:22
Mike
Yeah. And and there could be like addendums. I think we might talk about that later. There might be like, additional information that might not be squarely contained within the seller's disclosure statement that if the seller knows and the realtor knows that it's a material issue, they might have to disclose that. So, and it is it does involve it gets updated in regular basis.
00:07:20:22 - 00:07:55:18
Mike
And even more recently, just as of 2024, there's a new, a new, form that has to be filled out by sellers. That's not part of the seller's disclosure statement promulgated by the Association of Realtors. It's a form, that's been sent out by the state of new Jersey that deals directly with floods. So there's been such a change in, like, climate and over the last 5 or 10 years, so now there's a requirement that you have to fill out a form of provided to, either a buyer or if someone's leasing a property, you have to provide to them as well, disclosing whether there's known flood risks, how often it's flooded, is
00:07:55:18 - 00:07:58:11
Mike
there any flood remediation issues going on at that property.
00:07:58:11 - 00:08:21:15
Tim
So okay, so you're selling your property, you're working with an agent, you're filling out of this form, you're working with your agent to disclose whatever it is that you you know, how forthcoming, how honest really are we being? Are we picking apart every last little thing that could possibly be an issue or are we just talking about serious things that you're aware of.
00:08:21:19 - 00:08:23:05
Tim
How honest are we?
00:08:23:12 - 00:08:26:29
Mike
Yeah. The key word is material.
00:08:27:01 - 00:08:38:14
Tim
If you have a leaky toilet and you know that time to time there is some water there, could there be water damage I don't know, I don't think so. I've been trying to keep it clean. But you know, what level of detail are we really going?
00:08:38:16 - 00:08:58:13
Mike
So something like that. Like, say, a leaky toilet that might be causing leaks. You and the best practice would be to say, potential leaks in toilet has been remediated over the years, unsure of current status. That's the thing that's very important. You might not know. So if you don't know the age of the roof, let's say you can say, do not know.
00:08:58:15 - 00:09:15:03
Mike
And then that's putting the buyer on notice. This seller does not know. Now you can do your due diligence. Yeah. You'll have a home inspector. So when the home inspector comes out he might look for the seller's disclosure statement. He might also see that the seller does not know the age of the roof. So now he knows...
00:09:15:03 - 00:09:35:12
Mike
All right, I'm gonna have to go do my due diligence. Check this out, see if I can ballpark the age of it. Does it need to be replaced? Is it near the end of it's utility life or whatever it might be. So generally you want to disclose anything that's material, anything that is, you know, a structural issue, a systems issue, like the Hvac doesn't work.
00:09:35:12 - 00:09:54:26
Mike
The thermostat doesn't work. if you have a pool and the pool's leaking into the yard, if you're aware of, decommissioned underground storage tanks, the back that might contain oil or heating oil for the home. You have to disclose all that, because if you don't, you're doing it at your own peril, because that's the moment where you're giving yourself a defense to any potential claims.
00:09:54:26 - 00:10:10:01
Mike
And as the realtor, if you're working with your seller, that's the time as well. So if he's saying, I know there's a storage tank somewhere in the backyard, but I don't know, we filled it with sand ten years ago and we've never had any issues. Should I put it down? The answer is yes. You should put it down.
00:10:10:04 - 00:10:22:14
Mike
And if they don't want to put it down, that's an issue that you need to really work out. Probably talk with your legal counsel for your broker and find out. Is this a listing that we're still going to continue with if this person is failing to disclose that information?
00:10:22:16 - 00:10:26:17
Tim
Okay. Yeah. So, I've purchased a house twice.
00:10:26:17 - 00:10:26:29
Mike
Okay.
00:10:26:29 - 00:10:48:21
Tim
I remember a big part of it was getting your inspection completed. Which made me feel as a as a buyer... this is on me. I don't remember anybody being particularly forthcoming. I'm sure there was a disclosure. Probably said nothing. Yeah, but we had to meticulously go over, you know, every component of the house that we thought we needed to.
00:10:48:25 - 00:11:10:16
Tim
Why does it seem to be a seller's issue? It seems like when I've gone through the process, I'm the buyer, if you want to find something, here's the inspection. Have at it. You know, be at the house for a couple of hours, see what you see.
00:11:10:16 - 00:11:12:22
Tim
And you let us know if you think there's a problem.
00:11:12:22 - 00:11:50:11
Mike
Right. And so I think the issue there is you're, first of all, new Jersey as a state, as a government is extremely consumer protective. So the fact that there is the Consumer Fraud Act, these requirements for disclosure and a myriad of case law talking about the requirements to disclose material defects, that's very consistent with New Jersey's, approach to these types of things when it comes to consumers, when there are cases where somebody can buy a property and as long as it's marketed forthrightly as an “as is” property, the seller’s saying, I'm not making any representations about this.
00:11:50:11 - 00:12:10:27
Mike
Like, I'll fill out my ISD's my seller's disclosure statement. And with the information I know, but you're on your own. Come look at it. And from a market perspective that's built into the price, you're not going to pay top dollar for a property that's completely as is. and let's just put a pin in that, because I'll come back to that for a second.
00:12:10:29 - 00:12:39:09
Mike
So that's built in. We're not a strictly buyer beware.... caveat emptor state. There is a requirement in New Jersey policy decision that's been made by the lawmakers and by the courts that sellers are required to be forthcoming to protect consumers. Now, the thing that I just put a pin in is since Covid happened and the overheated, particularly in North Jersey, the real estate market has been wild.
00:12:39:09 - 00:13:08:17
Mike
You have people coming in and they're buying a $500,000 house, or that would have been $500,000 in 2019. They're coming in, paying cash at 750, to buy the property. People are waiving mortgage contingencies. And more importantly, they're waiving inspection contingency. So it used to be that we're going to come out, we're going to inspect it, and then we're going to go back and forth with the attorney review, and we might have your price come down as we do, like some horse trading over that.
00:13:08:20 - 00:13:27:01
Mike
What you see now is that there are cases where the inspection is waived to the extent that they're not going to ask for credits, but people still do want to come in and inspect the property. And if they find some structural issue, they're going to say, hey, during this attorney review period, we're going to terminate the contract for such and such reason.
00:13:27:03 - 00:13:33:11
Mike
But even in those cases, you do find a lot of people that still proceed with the sale because they want the property. And it's so competitive in a lot of these towns.
00:13:33:11 - 00:13:36:27
Tim
Can they waive the seller's disclosure disclosure statement entirely?
00:13:36:27 - 00:14:00:00
Mike
As a buyer I'm not sure if you can waive it entirely, because that would probably be something that would be void against public policy. There would probably be an argument to be made by the courts or by anybody that these types of disclosures are beneficial to the entire community, to the entire system. So it's a wave that's probably something you might not be able to enforce.
00:14:00:01 - 00:14:05:27
Tim
And if you're willing to waive that, you're basically willing to also just say “I don't care what comes up on it either.”
00:14:06:13 - 00:14:17:01
Mike
Exactly. And sometimes you have people who are buying the land as opposed to the house. So they don't really care. As long as there's no asbestos they're going to knock the house down, build their brand new house or whatever it might be.
00:14:17:03 - 00:14:48:05
Tim
So you're selling your home. You are aware, let's say, of something, but when that form hits your desk, you choose to ignore it. That whatever that issue is, ends up becoming, you know, noticeable as found by the buyer after the time closing. so what are what are some of the penalties associated with not including or not disclosing something...
00:14:48:08 - 00:15:02:00
Tim
both for the seller as well as the agent too, because the agent comes under fire, too. I mean, the agent can be lied to, essentially. Right. And then the lawsuit could still be filed against, a real estate agency.
00:15:02:03 - 00:15:25:24
Mike
So that's the one thing, anybody can be sued for anything at any time. So even filling out the seller's disclosure statement as the seller or being an agent and having somebody fill out the statement doesn't inoculate you completely from getting sued. Anybody can get sued. The downside would be if you're a seller, is that you're going to be exposed to attorney's fees.
00:15:25:26 - 00:15:49:26
Mike
You're going to have to pay somebody to defend yourself unless you want to proceed pro se, which you can do. But generally not the greatest idea because in these cases the risk quotient is pretty high because, say there's somebody suing for a cracked foundation that's going to cost $100,000 to repair. You're being affirmatively sued for $100,000, and that's a fair amount of money for 99% of the people out there.
00:15:49:26 - 00:16:13:00
Mike
So, by not disclosing it, you're creating a situation where a plan for attorneys reviewing the case is much more likely to take the case if they think “this is a clear issue.” There was a crack horizontally across the foundation. These owners painted it over. They had to have known about it. And now I have them on the hook because they never disclosed it.
00:16:13:02 - 00:16:31:29
Mike
That’s a problem. So now you're exposed to $100,000 or to a $100,000 claim plus attorney's fees. and just the headache of having a lawsuit hanging over your head, you might want to turn. You might have moved out of state.. And like, there's a six year statute of limitations for contract disputes.
00:16:32:02 - 00:16:39:21
Mike
Same for Consumer Fraud Act claims, but it's just a headache you don't have. You've moved on from the property and now you're dragged back in because it's been disclosed something so.
00:16:39:21 - 00:16:45:28
Tim
And it's more costly than just fixing the issue to begin with. Entrepreneurs are being forthright about it and say, we have a problem here. It is.
00:16:45:28 - 00:17:02:24
Mike
Exactly. Or having it be priced into the contract. So if there's something that's going to cost $50,000 to repair, you could say, well, I'm not going to get I'm not going to give you a $50,000 credit, I'll give you a $5,000 credit. Everybody agrees the attorneys are all involved. Yeah, everyone moves on at that point. So yeah. Yeah.
00:17:02:28 - 00:17:13:09
Tim
Okay. So bottom line for the for sellers and for agents as well. What are the things that they need to meet. Make sure they're considering when going through this process.
00:17:13:11 - 00:17:34:10
Mike
Your guiding principle is disclose disclose disclose. Yeah. like you said we don't need to go through and say, you know, there's a little chip of paint missing on the bedroom upstairs, but anything material, like if your Hvac isn't working, if your plumbing is constantly backed up, if you had a sewer line collapse in the backyard that's never been remediated.
00:17:34:10 - 00:17:57:02
Mike
And, if you have a septic system that doesn't match, that doesn't function properly, put it down. The seller's disclosure statement, it's easier to put it in, have it addressed, let the buyer decide whether they still want to pursue this, purchase or not, and then move on because you want it. You want the transaction to have a box around it, you know, like you're done, the sales done, the closing should mean closing is done.
00:17:57:02 - 00:18:09:06
Mike
You're moving on. Right? We've closed, but now I'm going to have this thing in the back of my head like it should. I've told them about that for the next 5 or 6 years. So that's your best principles. Just disclose.
00:18:09:22 - 00:18:31:19
Tim
Thank you very much, Mike. Yeah. If anybody has any questions for Mike, you can contact him at (973) 232-0614 or mshortt@saiber.com. Thank you to all who are listening and watching. Thank you and make sure to subscribe to our YouTube and podcast channel and we'll talk to you next time.