The ‘New’ Rule in Residential Real Estate Transactions

“Caveat Emptor!” ­ “Let the Buyer Beware” – was the traditional rule in sales transactions. The buyer had the burden of making sure that the item purchased was satisfactory to him. Except in cases involving fraud, the seller would not be held liable for selling a defective product. Much of that has changed with the development of the law of products liability, the institution of “Lemon Laws” for the sale of new automobiles (See Minnesota Statutes § 325F.665), and legislation to prevent consumer fraud (See Minnesota Statutes § 325F.69). In Minnesota, it has now changed with respect to residential real estate sales as well.

Effective January 1, 2003, a person who sells residential real estate property is required to provide a written disclosure to a potential buyer before a purchase agreement is signed. The disclosure must include all facts known to the seller that could adversely and significantly affect an ordinary buyer’s use and enjoyment of the property or any intended use of the property of which the seller is aware (See Minnesota Statutes §§ 513.52 to 513.60). This statute represents a departure from the earlier practice, which placed the burden on the buyer to inspect residential real estate to determine whether there were any defects in the property.

While the general disclosure requirement is broadly written, the law also includes numerous exceptions. For instance, the seller is not required to inform the buyer that the real property was occupied by someone who was HIV positive or who had AIDS, that the house was the site of a murder or suicide, or that the house may be haunted, among other things. In addition, it does not require the seller to inform the buyer about any registered criminal offenders, including registered sex offenders, living in the area, as long as the seller informs the buyer that that information may be obtained from local law enforcement agencies or the Department of Corrections. Also, the disclosure requirements do not apply to a variety of transactions, such as gifts, transfers between certain relatives, transfers to a government agency, or transfers pursuant to a court order. Finally, the parties may waive the disclosure requirements in a written agreement.

Although recent changes to the law, effective August 1, 2004, have broadened the disclosure requirements, the disclosure requirement itself is no longer a “new” law. However, even though the law has been in effect for over two years, it is not a law that is well-known to the general public. Many do not know of the disclosure requirements, the limits of those requirements, or that the requirements may be waived. Whether you are buying or selling residential real property, an understanding of these requirements, among others, is necessary in order to protect one’s rights or to protect a seller from potential liability.

Timothy R. Maher

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