Disclosure and Due Diligence Richard V Mack and

Disclosure and Due Diligence Richard V. Mack and Frank Dickens

Learning Objectives • Avoid the risks associated with failing to make the required disclosures to clients and nonclients. • Identify required seller disclosures as required by common law and Arizona statute. HO pg 5

• Identify items required to be disclosed by buyers in a transaction. • Explain the use of the Buyer Advisory in assisting buyers with due diligence inspections and investigations. • Avoid risks associated with buyers failing to complete the appropriate inspections and investigations.

Unit 1: Disclosure What you don’t know can hurt you!

Broker Disclosures What risks are associated with failing to make the required disclosures to clients and non clients?

Jennings v. Lee • The court’s decision highlighted the broker’s duty to disclose to his client information in his possession pertaining to the transaction.

Morley v. J. Pagel Realty & Insurance • The broker had a duty to: – Effect a sale for the client on the best terms possible – Disclose to the client all information in his possession that pertained to the transaction – Give the clients an opportunity to obtain advice elsewhere if he couldn’t give competent advice

Mason v. Bulleri • An appellate court found that: – The broker had seriously breached fiduciary duty by failing to disclose that the buyers would be unable to complete the purchase if the sellers retained security interest in the property – The broker also breached fiduciary duty by presenting a lower offer and not disclosing that the buyers were willing to pay a higher price

Kimmel v. Clark • The trial court found that: – “A broker employed to sell property may not, without the principal’s full knowledge and consent, become the purchaser” – A fiduciary relationship existed between the broker and the seller, and had clearly been breached by the broker for failing to disclose a relationship with the buyers

Lombardo v. Albu • The buyer has a duty to the seller to disclose facts critical to the ability to perform. • The financial wherewithal of the buyer to perform the contract is not confidential information.

Aranki v. RKP Investments • After a trial, the court found: – The listing broker was not liable to the buyers for passing along information obtained from the seller without proof the listing broker knew or should have known the information might be false

Broker Disclosure List • Disclosures to Seller Clients • Disclosures to Buyer Clients

Seller Disclosures

Hill v. Jones • The court found: A seller has a duty to disclose facts materially affecting the value of the property which are not readily observable and are not known to the buyer.

Universal Inv. Co. v. Sahara Motor Inn, Inc. – If the buyer asks the seller about an aspect of the property, the seller has a duty to disclose the information whether or not the seller considers the information material.

S. Development Corp. v. Pima Capital Management Co. – The court held that known latent defects in a property must be disclosed regardless of whether the property is being sold “as is”.

Buyer Disclosures

Statutory Disclosures

Specific Disclosures • • • Lead Based Paint Swimming Pool Barrier Planned Community/Condominium Affidavit of Disclosure Meth Lab (and other dangerous drugs) Subdivision Disclosures/Public Reports

Lead-based Paint Disclosure

Swimming Pool Barrier Disclosure

Planned Community/Condominium Disclosure Information

Affidavit of Disclosure

Meth/Drug Lab Disclosure

Subdivision/Public Reports Disclosure http: //services. azre. gov/publicdatabase/Search. Developments. aspx

Unit 2: Due Diligence

Due Diligence & the Buyer Advisory

Document Review • • MLS Printout Subdivision Public Report SPDS CC&Rs HOA Governing Documents HOA Disclosures Economic Items Title Report/Title Commitment

Document Review • • Loan Documents Home Warranty Policy Affidavit of Disclosure LBP Disclosure Form County Assessors/Tax Records Professional Home Inspection Report Termites & Other Wood Destroying Insects and Organisms

Physical Inspections • Home or Property Inspections • Repairs and New Construction • Roof*

• Wood Destroying Insects & Other Wood Destroying Organisms • Swimming Pools and Spas • Square Footage • Sewer, Septic and Other On-Site Wastewater Treatment Facilities*

• Water/Well Issues • Soil Conditions • Previous Fire/Flood • Pests*

• Endangered & Threatened Species • Deaths & Felonies on the Property • Indoor Environmental Concerns • Property Boundaries*

• Flood Plain Status • Insurance (Claims History) • Other Property Conditions

Surrounding Area Conditions • Environmental Concerns • Electromagnetic Fields • Superfund Sites*

• Freeway Construction & Traffic Conditions • Crime Statistics • Sex Offenders • Military & Public Airports*

• Forested Areas • Zoning/Planning/Neighborhood Services • Schools • City Profile Report

THANK YOU!