In this article, we will discuss the Illinois Residential Real Estate Property Disclosure Act and how to avoid a claim for failing to properly disclose information about your property when selling. We will answer the following questions:
Looking at new houses is exciting and fun, but the enjoyment of buying or selling a home is quickly replaced by anxiety, stress, and frustration when the negotiations begin. Buyers want to make sure they don’t move into a money pit, and sellers don’t want to pay large sums of money just to sell their home. This creates friction, where the buyers want to know every single existing or potential issue with the home, but the sellers don’t want to scare the buyers away. The home inspection goes a long way to give the buyers peace of mind that the property they are buying won’t fall apart within a few years, or if it does have problems, at least they know what they’re getting into. But, the inspection can’t see everything. Does the house have a history of water damage? How many homeowners claims are against the home? What kind of structural renovations have taken place? These questions should be answered in the Disclosure Statement.
The Illinois Residential Real Estate Property Disclosure Act is a statutory law that describes what information must be disclosed by property sellers to the potential property buyers. The act is primarily concerned with the disclosure of material defects. Property covered under the act includes single family homes, multi-family homes up to 4 units, condominiums, townhomes and co-ops. Most agents require the seller to complete the disclosure statement before listing the property. This decreases the chance for any surprises during the negotiation process.
Material defects, flooding, and hazardous or harmful elements should be listed in the disclosure statement. Material defects include anything that could jeopardize the value of the home and the occupants safety, unless the seller reasonably believes the issue has been corrected. However, reasonable belief that the issue has been corrected will not protect the seller from liability. Some common areas of issue that are addressed in the disclosure statement include:
Even though the disclosure requires that the seller list any known issues under these categories, it does not mean the seller is required to investigate these issues in an effort to find problems. It is the buyer’s responsibility to schedule an inspection and to investigate any portion of the property they feel necessary. The buyer can hire a plumber, HVAC specialist, structural specialist, etc, in addition to the home inspector.
The seller is only required to disclose issues that they have actual knowledge about. They are not required to investigate a category on the list just for the sake of providing a definitive answer on the disclosure statement.
If the seller’s actual knowledge of an issue comes into question, evidence such as inspection reports, insurance claims, attempted repairs, building code violations, etc, can be presented in future claims against the seller.
If the seller makes a mistake in the disclosure statement, the buyers can terminate the contract. This is true whether the seller is aware of the mistake or not. However, depending on the seller's knowledge of the mistake, it may change the period during which the buyer can terminate the contract. If the sellers purposefully make a mistake in the disclosure statement, the buyers can usually terminate the contract at any point up until the closing and transfer of property. For example, during the final walkthrough if it’s found that an issue was clearly hidden by the sellers and not listed on the disclosure statement, the buyers can terminate the contract. Many times, an issue not listed in the disclosure statement will be found during the inspection and the buyers have the option to terminate the contract during the attorney review period. But if they choose to not address the issue within the attorney review period, then it is no longer a valid reason to terminate the contract.
If the seller becomes aware of a material defect that was not listed on the disclosure statement, the seller can write in a supplement notifying the buyer of the material defect. Depending on the severity of the material defect, this becomes somewhat of a grey area where negotiations can turn sour. Technically, if the late revelation of a material defect was no fault of the sellers, then the buyers should not be able to terminate the contract. However, the buyers and sellers will likely negotiate on the issue and if they can’t come to terms, the contract can still be terminated.
If the buyer discovers an issue after closing and it can be proven that the seller knew about the problem, or should have reasonably known about the problem, the buyer can sue the seller for damages, including any legal costs, court fees, repair costs, and punitive damages if appropriate. A much easier and less stressful option is to send a letter to the seller, notifying them of the issue and the potential claim, along with costs of repair, and asking them to cover the repair costs. However, the statute of limitation in Illinois for an action of “failure to disclose” is one year from the purchase of the property.
Bottom line, if you’re a seller, don’t try to hide anything that should be listed on the disclosure statement. The costs of fixing the problem later can be much greater than that of responsibly reporting them in the first place. If you’re a buyer, do your due diligence and hire the right professionals to inspect the home during the attorney review period.
O'Flaherty Law is happy to meet with you by phone or at our office locations in: