Don’t Waive Property Disclosure Law!

“Must waive AS 34.70,” the listing information says on a house you are considering. What’s AS 34.70? Should you waive it?

Don’t! AS 34.70 is the Alaska statute reference to the property disclosure law. It requires any owner of a single family residence or duplex to give the buyer a state-mandated form that asks pertinent questions about the condition of the property.

The law has two exemptions. One exempts new construction. The idea is that builders typically warranty their products, as do the appliance manufacturers. If there is something wrong the builder or manufacturer should stand behind it. Disclosing “defects” in a new house isn’t pertinent.

The other exemption allows the buyer and seller to agree to waive the property disclosure requirement. The Legislature added this provision late in the consideration of the bill when rural people said that property transfers in their areas are generally informal and should stay that way.

This isn’t an exemption that makes much sense in an urban area, where buyers and sellers typically don’t know each other. Everyone hopes a home sale is a forthright business transaction, but when it isn’t there should be recourse. The route to recourse is often based on what people said or didn’t say in the course of the transaction. Making a seller put his or her representations in writing is just good business.

From a seller’s perspective it makes sense to say that all representations about the property are in the listing and the property disclosure. “Don’t buy this property because of anything I might have said verbally or because of something you think I said,” is the statement a seller should make. Give a written disclosure and let that be the seller’s whole story.

Unfortunately, there is an increasing tendency in the Anchorage market for sellers, particularly institutional sellers, to say that they won’t sell to someone who wants a written property disclosure. “Waive AS 34.70 or don’t buy this property,” the listing will say.

One scenario involves the “cash as-is” sale. Knowing the property has defects that would exclude it from most forms of bank financing, the seller sometimes says “what you see is what you get; investigate for yourself and beware.” That’s just not the law. A buyer and seller are permitted to waive the state’s property disclosure form, but a seller can’t keep what he knows about a property from a buyer. That’s fraud. It can be with smoke signals or in skywriting, but one way or another there has to be disclosure.

An even more disturbing scenario involves the corporate relocation company that fails to obtain a disclosure statement from its transferee. The major relocation companies have standard procedures for acquiring properties from relocating employees that include disclosure forms. Sometimes the form isn’t obtained, or gets lost. Now the buyer is asked to waive property disclosure on the theory that the relocation company has never lived in the property and knows nothing about it.

Third-party owners like relocation companies often don’t have the right forms to give to their transferees. This means that the information that reaches the buyer is less complete than it should be. The current state-mandated form is inadequate to begin with: it only asks if the owner knows about anything that is now wrong with the property. It completely ignores the recent history of repairs, which could be revealing of things to examine now.

Foreclosure is perhaps the only scenario in which waiver of property disclosure is sometimes appropriate. The lender is very unlikely to have any information about the owner’s experience with the property and reasonably can say that when it obtains a property that it knows very little about it.

Whether this justifies a complete waiver of property disclosure is doubtful, however, if the lender hires contractors to make repairs and a broker to market the property. That process necessarily puts information about the condition of the property in the hands of the lender. Why not disclose it? Certainly the broker will, if only to avoid a complaint against his or her license.

The one who has the most influence is the buyer. Buyers faced with a request to waive property disclosure should refuse and ask the seller to put in writing what it and its broker know. Even if the live or institutional owner says “I know nothing about this house” that’s something to rely on if that later turns out to be untrue.