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Legal IssuesIs listing agent obligated to disclose easement for bank-owned property?
A listing agent listed a bank-owned property for sale. Since the bank had taken possession of the property by a deed in lieu of foreclosure, it wasn’t obligated to provide a sellers’ disclosure statement. After the property was listed but before any offers were received, a neighbor called the listing agent to disclose that he owned an easement across the front lawn of the property. He also provided the recording information to the listing agent so she could get a copy of the easement.
Was the listing agent obligated to tell prospective buyers about the easement? One argument suggests the listing agent does not have a duty to say anything. If the parties are using the PAR Standard Agreement of Sale, the “Title, Surveys & Costs” paragraph states that the buyer is taking title to the property subject to “. . . easements of record . . .,” if any. It’s up to the buyer to review the title report and make his own determination whether there are any easements of record and, if so, whether they affect his decision to buy the property. This is another good example why a buyer’s agent might want to insist that the title examination be conducted during the property inspection contingency period – since the buyer retains the right to terminate the agreement if he is not satisfied with the condition of the property as it’s stated in a written report.
Is the easement a material defect that the listing agent is obligated to disclose? A material defect is defined by the Seller’s Disclosure Act to include, “a problem with a residential real property or any portion of it that would have a significant adverse impact on the value of the property. . .” Would an easement meet this definition? For good or ill, there is no clear answer to this question; it simply would depend on the circumstances.
There are a number of good arguments that suggest the listing agent does not have a duty to disclose a recorded easement to a buyer, unless the buyer asks about easements. What if the prior owners told the listing agent about the easement (maybe the agent had them fill out a Seller’s Disclosure form)? What other facts can you add to change or impact the analysis? The better course of conduct, in most instances, is to disclose.
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About Brett: Brett Woodburn, Esq. is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline. |
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If the neighbor had only stated they had an easement, I would have simply disclosed his claim.
The fact that he provided the recording information, obligates me morally to retrieve that document and provide it to all interested buyers. Regardless of what the law requires.
It is always best to follow the “Golden Rule”. This would help avoid so many problems in our industry.
Our advice is always “When in doubt, disclose.” but since several attorneys are indicating a grayness of this disclosure situation, I will pass on that debate.
BUT, strongly believe it is ALWAYS necessary to obtain and allow the buyer to review a Title Commitment under a due diligence provision and the Property Inspection contingency allows for this.
I agree that its always better to disclose.Legally I understand what is implied but I think we always need to disclose everything and give the buyer all the information available.
As stated in the article, prudence suggests disclosure. However, if a bank-seller instructs the listing agent not to disclose the easement, what are the listing agent’s obligations? In a transaction that falls under the umbrella of the Residential Real Estate Transfers Law and the Real Estate Sellers Disclosure Law, the obligation to disclose any “legal issues affecting title or that would interfere with the use and enjoyment of the property” suggests a duty to disclose when the listing agent knows about the easement and the seller does not disclose. However, if the transaction falls within one of the exceptions then what are the listing agent’s obligations? Is a recorded easement something that the law would require a listing agent to disclose, even if the seller instructed the agent to withhold the information? That discussion progresses far beyond what this blog is intended to cover. Suffice it to say, if a listing agent finds him or herself in such a quandary, check with your broker and legal counsel for guidance and advice.
I am surprised at this advice and disagree with it as an exclusive buyers agent and an attorney. If I understand this argument, an agent is not liable to disclose if the agreement’s terms address the issue? I don’t think that would hold up in court. It certainly would not creat good will with the buyer who later finds out about it. The downside to disclosing is that the deal will fall through? Disclosing doesn’t create any liability for the agent–the only thing I can assunme you are trying to avoid. What a poor standard we set!!! Better to look over the easement with the buyer and see if it means any loss of potential use or enjoyment of the property and then let the buyer decide.
Some might even go so far as to say that if the agent did not know about it, he had a duty to find out. So, it certainly seems that if the agent knew, he should have disclosed it. Just follow the rule of the three D’s in real estate to stay out of trouble!
The Agreement of Sale is clear that the buyer has the right to review and terminate if the title search determines there are easements that make the property unsatisfactory to the buyer. However, common sense would dictate that the easement be disclosed by the listing agent immediately upon learning of it. The loss of a potential sale because of the existence of an easement is mild compared to an angry buyer who is informed that, not only is there an easement, but the listing agent was made aware of, and failed to disclose the existence of said easement. Would you really want to end up as a defendant as part of a lawsuit because you failed to disclose? I certainly wouldn’t. There’s a good chance that the plaintiff would lose if they chose to pursue a lawsuit, but the harm that could be done to the listing agent’s reputation may take several years to mend.
I stongly believe that it is always better to disclose!