Murder at Your Listing . . .What Do You Need to Disclose?

By RICHARD WESTLUND

Not every real estate professional is called on to sell a property like the Nicole Brown Simpson townhouse in Los Angeles, where the sensational murders of Simpson and Ronald Goldman occurred in 1994.

But practitioners are regularly faced with the question of what to disclose in connection with the sale of less well known stigmatized properties--houses with unusual, emotionally distressing nonphysical features or histories. Such ''routine'' stigmatized properties include dwellings where a murder, a suicide, or child abuse has occurred or where a previous occupant was HIV-positive or had AIDS.

Blame Our Litigious Culture
To assist brokers in managing the disclosure process, the Legal Affairs department of the NATIONAL ASSOCIATION OF REALTORS® has developed several recommended guidelines. ''The common law isn’t clear on this subject,'' says Ralph Holmen, NAR senior counsel. ''This is our effort to give practitioners some direction.''

Although there are few reported cases of practitioners being sued by buyers or sellers over stigma-related disclosure issues, Holmen says, the issue is assuming greater visibility. ''Practitioners, buyers, and sellers are becoming more concerned about stigmas,'' he says. ''It's a function of the increased tendency toward litigation in our society.''

In HIV or AIDS cases, federal law provides some guidance. Since HIV isn't transmitted by casual daily contact, the buyer of a home owned by a person suffering from HIV infection or AIDS runs no risk of contracting the disease. As part of its fair housing rules, the U.S. Department of Housing and Urban Development has said it's illegal for real estate professionals to make unsolicited disclosures that a current or former occupant of a home has AIDS, and advises practitioners not to respond to direct questions on this topic from buyers.

Instead, Holmen says, you should give this type of response: ''It is the policy of our company not to answer inquiries of this nature one way or the other, since the company feels that this information is not material to the transaction. In addition, any type of response may be a violation of the federal fair housing laws. If you believe this information is relevant to your decision, you must pursue the investigation on your own.''

Based on Rumor?
The best way to handle disclosure in other stigma cases isn't always clear, Holmen says. A good first step is to determine whether the stigma information is fact or fiction (see chart this page). If the stigma is based on rumor, there may be no obligation to disclose. But if it's factual, the next step is to check your state law. Some states expressly define certain ''stigmas'' as nonmaterial to the transaction, thus permitting sellers and salespeople to omit disclosure of such facts without fear of liability.

In cases where there's no such explicit statute on the issue, the disclosure should be based on whether the facts are material to a buyer's decision. The guideline should be whether knowledge of the facts would affect the amount of the offer or the willingness of a reasonable person to buy the property. If you conclude that the stigma may have an impact, you should disclose the facts, says Holmen.

If you're the listing salesperson and you determine that the stigma is material and needs to be disclosed, you should first discuss the situation with the seller. This communication will help avoid after-the-fact objections from the seller. If the seller refuses to agree, you should strongly consider dropping the listing or other involvement in the transaction.

Buyer's representatives and transaction brokers don't have fiduciary duties to the seller and
aren't necessarily obligated to review their decision to disclose with the seller, though transaction brokers may want to do it anyway as a matter of prudence.

In any event, disclosures should be made ''appropriately and judiciously,'' according to the NAR guidelines. The best time to disclose may vary, but it should be done enough in advance of an offer to permit the buyer to understand and take into account the disclosed facts. Disclose only confirmed factual information and avoid making value judgments, since that's the prerogative of the buyer, Holmen adds.
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Stigma Disclosure: Step-by-Step

1. Is the information fact or fiction?
---Fact: Proceed to next step.
---Fiction: No obligation to disclose.

2. Does your state have a law governing stigma disclosure?
---Yes: Follow guidance of state law.
---No: Proceed to next step

3. Are stigma-producing facts material?
---Material: Proceed to next step.
---Not material: No obligation to disclose.

4. Listing brokers/subagents:
---Will seller allow disclosure of the stigma-producing facts?

---Buyer's brokers/transaction brokers: Disclose to seriously interested buyers.


If yes, disclose to seriously interested buyers.

If no, if the seller is your client, consider terminating listing and any other involvement in the sale.


Source: NAR Legal