Suppose your great aunt passed away recently and you are the unlucky family member who gets to deal with her estate. She’s lived in the same house for forty years, and everyone in the family agrees that the house should be sold ASAP. You don’t know much about the house. You do have a vivid memory that back in 1990-ish, a frozen pipe broke and soaked the basement carpet and drywall. The damage has been fixed so no one would ever know. Also, as a kid you remember your great aunt scolding you about putting holes in the walls – something about asbestos? You list the house on the market, and the question is this: Must you tell potential buyers about the busted pipe and the asbestos? Even if you are not legally obligated, should you tell them anyway?
There are two bodies of law that govern what a seller must disclose. First is contract law, specifically, the contract regarding the property sale. You probably used standard forms created by the Colorado Real Estate Commission (“CREC”). By default, the forms require the seller to disclose “adverse material facts” that the seller actually knows about. CREC has created a detailed 8-page Sellers Property Disclosure form with dozens of items, some of which are frankly absurd if taken literally (Example: Have dead/diseased/infested trees or shrubs ever existed on the property?). If the 8-page form is understood as being a non-exhaustive list of things that constitute “adverse material facts,” then “adverse material facts” would seem to mean practically anything that would be bad about a property.
A seller also has a common law “tort-based” duty to disclose “latent material defects” the seller actually knows about. This duty applies regardless of whether the seller also has contractual disclosure duties. However, the duty is far less onerous than the disclosure obligations in the CREC forms—“latent material defects” are generally physical issues with the property such as structural problems that are not easily detected with a brief inspection.
So, back to our example with your great aunt’s house. The broken pipe is responsive to more than one item on the Seller’s Property Disclosure Form, so you have a contractual duty to disclose it no matter how long ago it occurred or how well it has been repaired. You probably don’t have a tort duty to disclose it because it has been fully repaired. Regarding asbestos – you probably have no legal duty disclose because it is not within your personal knowledge. That said, I would advise telling potential buyers about the possibility of asbestos anyway. This way, the buyers cannot accuse you hiding it from them. Another approach is to put a provision in the buy-sell contract that the seller has no obligation to disclose anything about the property at all.
Let’s say that you decide to keep quiet about the asbestos and you did not see the asbestos test results in your great aunt’s papers showing that every drywalled surface in the house is contaminated. The buyers are mad – they wanted to do a down-to-the-studs remodel and asbestos abatement is going to cost $30,000. They say you “should have” known about the asbestos and therefore “should have” disclosed it. Can you be liable for this “negligent nondisclosure?” Probably not, but Colorado law is not crystal clear, which is all the more reason to disclose.