State of Alaska Property Disclosure Background

The Real Estate Commission's residential property disclosure form is broken, thanks to the Attorney General. They better fix it one day soon, or the lawyers are going to get rich with suits for misrepresentation and fraud.

The story goes back to the summer of 1992 when the Legislature agreed to require residential sellers to make written disclosure of property defects. This trend across the country has the support of the real estate industry and consumer groups. Everybody agrees that mandatory disclosure is a good idea. It was an easy vote.

You can't expect a legislature to write the questions that sellers should answer. They left that job to the Real Estate Commission. Scribble away the Commission did, and 187 questions later they had a form.

They wanted to know if a crime had ever been committed in the home. They wanted to know if there were "psychological impacts," maybe ghosts and the like. They asked baffling legal and technical questions.

The Attorney General took a dim view of this long and intrusive list and made the scribes take out their quills and shorten the thing. Now it all fits on two pages of reason­able size type, plus an instruction page and an addendum, if you need more space.

Like a pendulum everything swung to the opposite extreme. Now they don't ask anything particularly intrusive. On some subjects most buyers would say are important they don't ask anything at all!

We aren't talking spirits here. The concern is properties with adverse histories that owners think are fixed. How would you feel if you bought a property the owner told you was just fine, only later to discover that problems the owner thought he fixed are recur­ring? These are the ghosts nobody wants in a house.

That's the problem with the current disclosure form. It asks owners to disclose anything they know is now wrong with the property. There isn't a single question asking about the history of the property.

Of course a street-smart owner is going to go out of his way to share historical in­formation. Disclosure gets the monkey off the owner's back. If a buyer closes after disclo­sure, it's on him. The shortcoming of the form is that it leads an unsophisticated owner (and perhaps his agent) to think that filling out the current form will be enough to insulate him from litigation.

It won't. There's nobody madder than a new homeowner who experiences a prob­lem and learns the problem existed before but the owner never told him about it.  The owner saying "I thought I fixed it" won't keep the lawyers at bay.

Earlier forms that were common in the industry asked if the property had had any problems in the past two years. How far a seller goes back might not be as important; the issue is disclosing a property's history and not letting sellers think it's enough just to say everything is fine now.

They call it innocent misrepresentation when a seller simply fails to disclose something about a property that was amiss when the seller didn't know it. That might be the case where a seller thinks he fixed something and, after closing, the fix proves to be inadequate. They call it fraud when a seller knows something is wrong and tells the buyer otherwise.

It would be a fine line for the attorneys if the real estate disclosure form persuaded a seller not to disclose adverse history. Did the seller take advantage of a literal reading of what the form asks and omit something important? That would be fraud. Or did the seller honestly think things were fine now when that wasn't the case? That's innocent misrepre­sentation. Either is actionable. The difference is only in how much somebody stands to collect.

Unless the current form changes it's the one sellers are going to see for now. In the meantime it might be smart to locate a copy of one of older forms.