The Great Unknown....

The Great Unknown

What, if anything, do you do when the seller of a property indicates “unknown” to one of the questions on the disclosure form? What should you do?

Let’s start with a backdrop.

Pursuant to the New Administrative Code, all licenses are subject to and shall strictly comply with the laws of agency and the principles governing fiduciary relationships. In accepting employment as an agent, the licensee pledges himself to protect and promote, as he would his own, the interests of the client or principal he has undertaken to represent…This obligation includes “absolute fidelity to the client’s or principal’s interest…”

Furthermore, “every licensee [must] make reasonable effort to ascertain all material information concerning the physical condition of every property for which he or she accepts an agency or which he or she is retained to market as a transaction broker…A reasonable effort to ascertain material information shall include at least:

i. Inquiries to the seller or seller’s agent about any physical conditions that may affect the property; and

ii. A visual inspection of the property to determine if there are any readily observable physical conditions affecting the property.”

Information is “material” if a reasonable person would attach importance to its existence or non-existence in deciding whether or how to proceed in the transaction, or if the licensee knows or has reason to know that the recipient of the information regards, or is likely to regard it as important in deciding whether or how to proceed, although a reasonable person would not so regard it.

So what should you do when you see “unknown” on the disclosure form?

First we suggest that you consider everything “material”, regardless of the definition attached by the legislation to that word. It appears also you must;

1. Ask the seller or seller’s agent about the “unknown” condition, and

2. Visually inspect the property to determine if there is a readily observable affect on the property from it. You must determine whether or not to recommend further inspection by an appropriately licensed person. We urge you to err on the side of caution in most, if not all, circumstances.

You must also be mindful that any violation of the New Jersey Administrative Code is considered a per se violation of the Consumer Fraud Act allowing a prevailing party to collect triple damages and attorneys fees and costs. There is a limited exemption from the assessment of such punitive damages for real estate professionals. Under N.J.S.A. 56:8-19.1, a real estate professional who had no actual knowledge of the falsity of a statement, and who made a “reasonable and diligent inquiry” as to the truth of a statement will not be liable for treble damages under the CFA if the statement turns out to be false. A “reasonable and diligent inquiry” is defined to mean that the real estate professional either (a) consulted a licensed person who inspected the property or (b) consulted a governmental report or official, or (c) relied on the seller disclosure statement and visually inspected the property with reasonable diligence to ascertain the accuracy of the information disclosed by the seller.

The last part of this statute begs the question as to what will be considered “reasonable diligence to ascertain the accuracy of the information disclosed by the seller” when the seller has answered “unknown”. Are you supposed to verify whether the seller’s answer is truthful? In other words, do you need to determine if its true that the seller really doesn’t know? Or, are you required “make reasonable effort to ascertain material information” about the unknown condition.

In the end, the answer to those questions is truly The Great Unknown.

-Dan Posternock

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.