If you’ve sold or purchased a home in Michigan after 1994, you’re probably familiar with a Seller’s Disclosure Statement (“SDS”). An SDS is a list of 59 questions concerning the condition of the property. A seller must complete an SDS by answering the questions honestly and in good faith. It is required for any transfer of real estate consisting of 1-4 residential units. It is not required for transfers made pursuant to court order, familial transfers, mortgage foreclosure, transfers by nonoccupant fiduciaries, and other similar transfers. The SDS must be completed with the best information available and known to the transferor. If at the time the SDS is filled out, an item of information is unknown or unavailable, the seller may state the information is unknown.
A seller must deliver an SDS to a prospective buyer before the seller executes a purchase agreement. If a seller delivers an SDS after the seller signs a purchase agreement, the prospective buyer may walk away from the deal within a certain amount of time. But a buyer’s right to terminate expires at closing when the deed is executed.
The Seller Disclosure Act (MCL 565.951, et al, the “Act”) does not expressly authorize a lawsuit. Notwithstanding, a buyer may still be able to sue for common-law fraud or silent fraud. In order to bring a fraud claim, the buyer must establish that the seller knowingly or recklessly misrepresented a material fact with the intent that the buyer rely on it. For a silent fraud claim, the buyer must prove that the seller knew of a material fact but concealed or suppressed it through false or misleading statements or actions with the intent to deceive. But a seller cannot be sued for an innocent misrepresentation because the Act precludes liability against sellers who lack personal knowledge with respect to errors, inaccuracies, or omissions in an SDS. With these principles in mind, here is a list of tips for buyers and sellers.
Tips for Sellers
- Be honest, act in good faith: Don’t lie or attempt to cover up known, responsive information. This may sound like a lesson from All I Really Need to Know I Learned in Kindergarten, but it is an important rule of thumb.
- Use the best information available and known: You do not need to go out of your way to find defects, e.g., by ordering an inspection; however, in certain cases, you may be able rely on a report or opinion prepared by a qualified expert.
- If information is unknown or a question is inapplicable, say so: Do not guess or speculate.
- Answer the question, but nothing more: It’s natural to want to explain or help a buyer, but be cautious if you provide more information than required. Sellers have subjected themselves to liability by needlessly providing additional information. Some sellers do not answer questions (e.g., if the property was not owner occupied), but that may not be a risk-free approach, especially if the seller is aware of responsive information.
- Amendments: If the SDS becomes inaccurate as a result of any action, occurrence, or agreement after the delivery of the SDS, the resulting inaccuracy does not constitute a violation of the Act. However, if any changes occur in the structural/mechanical/appliance systems of the property from the date of filling out the form to the date of closing, update the SDS.
- Inspections and As-Is Clauses: They will not alleviate your duty to fill out the SDS honestly and in good faith. But an as-is clause could protect you if an alleged defect should have reasonably been discovered upon inspection, but was not.
Tips for Buyers
- Do an inspection: The best way to know what you’re buying is to do a thorough inspection. But go with a reputable inspector because if a defect is conspicuous and the inspector misses it, you may not be able to sue for fraud.
- Don’t sign or accept an unsigned SDS: If a seller leaves any questions blank or fails to sign the form, ask for a complete SDS.
- Ask the hard questions: If you’re concerned about mold, leaks, flooding, or other serious issues, ask. The seller’s response may be very telling and you may also be able to use the response in a lawsuit if it was false and intended to mislead you.
The above is not intended to be a complete or exhaustive summary of the Seller Disclosure Act. Moreover, the appropriate or best strategy will depend on the facts of each case. If you have any questions about a Seller’s Disclosure Statement or the Seller Disclosure Act, contact Joe Doerr (firstname.lastname@example.org; 248-212-0167; doerrfirm.com).