Seller’s Disclosure Notice
Seller’s Disclosure Notices are required in most Texas residential transactions.
When is a seller exempt from giving the notice? The statute lists a number of transfers in which the requirement does not apply. An exact reproduction of the entire list of exemptions is beyond the scope of this article, but to summarize them, a disclosure is not required for transfers:
1. Made as a direct part of a court order, foreclosure or bankruptcy;
2. Back to a lender in lieu of foreclosure;
3. From a lender to a new buyer resulting from the lender’s repossession of the property pursuant to a foreclosure or deed in lieu of foreclosure;
4. From a fiduciary to a new buyer to settle an estate, guardianship, conservatorship or trust. This would include executors, administrators and trustees;
5. From one co-owner to another;
6. Between spouses or direct relatives;
7. As part of a divorce;
8. To or from a governmental entity;
9. An unoccupied new residential home;
10. A home whose value represents 5% or less of the property value as a whole.
Disclose, Disclose, Disclose.
Sec. 5.008 of the Texas Property Code contains the statutorily required contents of the notice, as well as the exemptions allowed. The statute makes clear that the requirement only applies to single unit residential property, that there is no requirement to disclose a death or HIV/AIDS illness, and that the notice must be completed to the best of seller’s belief and knowledge as of the date of the notice. If a particular matter is unknown to a seller, they may indicate that on the form.
One important matter to understand is that the disclosure is in fact a legal representation of fact by a seller, and is subject to liability if a buyer reasonably relies on its accuracy in making a purchase decision. It is not, however, a warranty that the property is suitable, and does not take the place of an inspection. So in other words, if a seller accurately reflects his or her knowledge and belief, a buyer should not be successful in later suing the seller for a defect.
In evaluating these exemptions, many sellers mistakenly assume that they are exempt if they inherited the property, and never occupied the home. This is incorrect, unless the transfer is made directly from the executor as part of the distribution of the estate. Individual heirs still must make the disclosure if the estate has already been distributed, or if no probate of a will occurred. Likewise, many folks believe that if they hold the property in a revocable grantor trust, then they are exempt. This is also probably incorrect. It is highly advisable for trustees of these type trusts to issue the disclosure notice; only trustees of irrevocable trusts, conveying property as part of the distribution of the trust, are exempt. Otherwise, everyone would form trusts to avoid disclosure liability!
Remember, a buyer can terminate a transaction for any reason up to seven days after finally receiving a notice, if not received prior to contract. So have your sellers fill out the form is as much detail as they know to be true, and rest assured that they are protected from future liability.