11 Property Transfers That Don’t Require a Seller’s Disclosure Notice
All sellers—even those not required to provide a seller’s disclosure notice—must disclose any known material defects. However, the Texas Property Code states that the requirement to provide a seller’s disclosure notice does not apply to a transfer:
- pursuant to a court order or foreclosure sale
- by a trustee in bankruptcy
- to a mortgagee by a mortgagor or successor in interest, or to a beneficiary of a deed of trust by a trustor or successor in interest
- by a mortgagee or a beneficiary under a deed of trust who has acquired the real property at a sale conducted pursuant to a power of sale under a deed of trust or a sale pursuant to a court ordered foreclosure or has acquired the real property by a deed in lieu of foreclosure
- by a fiduciary in the course of the administration of a decedents estate, guardianship, conservatorship, or trust
- from one co-owner to one or more other co-owners
- made to a spouse or to a person or persons in the lineal line of consanguinity of one or more of the transferors
- between spouses resulting from a decree of dissolution of marriage or a decree of legal separation or from a property settlement agreement incidental to such a decree
- to or from any governmental entity
- of a new residence of not more than one dwelling unit which has not previously been occupied for residential purposes
- of real property where the value of any dwelling does not exceed 5% of the value of the property.
What Seller’s Disclosure Rules Mean for You and Your Clients
Caveat emptor may have been the norm in residential real estate long ago, but today a buyer-beware approach would land sellers and their agents in hot water. Seller’s disclosure rules exist to ensure that sellers don’t ignore or hide material information about a property that buyers might want to factor into their decisions. Disclosures also help sellers steer clear of accusations down the road that they were concealing details that buyers would have wanted to know. Here are some frequent questions regarding seller’s disclosure laws.
Texas REALTORS® and TREC have seller’s disclosure notices. Can my seller use either form?
Yes, both forms comply with Texas statutory requirements related to seller’s disclosure.
The TREC form is essentially a copy of the statutory minimum information required in Section 5.008 of the Texas Property Code. The Texas REALTORS® Seller’s Disclosure Notice (TXR 1406) has added provisions that provide more information for buyers and is designed to serve as a risk-reduction tool for sellers.
If the sellers learn of new information about their property after providing the seller’s disclosure notice, do the sellers have a duty to provide the new information to the buyers under the current contract?
Yes, sellers are required by law to disclose any known material information about the property’s condition—even if those conditions are revealed after the completion of the seller’s disclosure notice. While the Texas Property Code does not create a continuing duty or obligation to update the Seller’s Disclosure Notice, if information in the notice is no longer true, the seller may have a common-law duty to correct any misstatements or false impressions. The Texas REALTORS® Update to Seller’s Disclosure Notice (TXR 1418) form can be used to provide the newly discovered property information to prospective buyers.
My buyer wants to purchase a residential property owned by an investor who hasn’t seen the property in years. The owner refuses to fill out a seller’s disclosure notice, except to note he has no knowledge of the property’s condition. Is this sufficient disclosure?
The property code does not offer an exception to the seller’s disclosure requirement because a seller hasn’t seen or lived in the property. After all, knowledge of the property can come from sources other than a visual examination, such as complaints from tenants or reports from property managers. The seller is required to complete the disclosure to the best of the seller’s knowledge and belief as of the date of completing and signing the disclosure. However, if the seller legitimately does not know the answer to a question on the disclosure, the seller can mark that question unknown and still fulfill the obligations under the property code.
Failing to provide a completed seller’s disclosure notice to the buyer may entitle the buyer to certain remedies, like terminating the contract.
A buyer should never rely upon the information provided by a seller concerning the condition of the property, even in a situation in which a completed seller’s disclosure notice has been provided. A buyer should always have an inspection done to satisfy the buyer’s own concerns about the condition of the property.
Being Late Has Consequences
Section 5.008 of the Texas Property Code requires the disclosure notice be provided to a buyer on or before the effective date of the contract. If the seller does not furnish the notice on or before the effective date, Paragraph 7B(2) of the One to Four Family Residential Contract (Resale) (TXR 1601) allows for the parties to stipulate how many days the seller has to provide the notice. However, a seller who provides the notice after the effective date gives the buyer the opportunity to terminate the contract for any reason within seven days after receiving the notice—or if the seller never delivers the notice, at any point prior to closing—and receive a return of earnest money.
A buyer interested in purchasing a property is refusing to sign the seller’s disclosure notice. Can the buyer do that?
The signature of a buyer on any seller’s disclosure notice only acknowledges receipt of that notice by the buyer. The Seller’s Disclosure Notice is just that, a notice—it is not a contract and should not be listed as an addendum to the contract.
While there is no statutory mandate that buyers must sign the notice, buyers should cooperate by signing the receipt portion of the notice when they receive the notice. Such a signature could be helpful should a question later arise concerning whether the buyer received this notice or another seller’s disclosure notice provided by a seller containing different information. In any event, if a buyer refuses to sign the receipt for the notice, the broker could note on a copy of the notice the date that the notice was provided to the buyer and that the buyer would not sign the receipt. That noted copy could be retained in the broker’s file as evidence of compliance by the broker in furnishing a copy of the notice to the buyer.
My buyer’s option period has ended, and it’s eight days from closing. My client still hasn’t received the seller’s disclosure notice and asked me if he can terminate the contract. Can he?
Yes. The One to Four Family Residential Contract (Resale) provides that if the notice is not received, the buyer can terminate at any time prior to closing and the earnest money will be refunded.
My buyers just had an inspection done on a property. The listing agent of the property told me neither he nor the seller wants to receive a copy of the inspection report. Do I or the buyers have to comply with this request?
No. Despite the request, it is up to your buyers whether they would like to send a copy of the inspection report to the listing agent or seller. A listing agent or seller who receives an inspection report is charged with knowledge of the information in the report, even if the listing agent or seller doesn’t open it. If the report reveals material defects, the seller and the listing agent are obligated to disclose those defects to subsequent potential buyers.
Do This, Not That
Agents have a duty to disclose material facts they know about the property, but they are not required to do additional research for the purpose of making disclosures on properties they represent. Furthermore, agents should not help sellers fill out the seller’s disclosure notice, because doing so can increase their liability and the liability of their broker.
My seller told me that a murder occurred at her property before she owned it. Does she have to disclose this information to buyers?
Yes. According to the Texas Property Code, sellers aren’t required to disclose deaths on the property that resulted from natural causes, suicide, or an accident unrelated to the property’s condition. However, murder does not fall into these categories.
Your seller can use the Texas REALTORS® Seller’s Disclosure Notice, which includes a question about deaths other than those caused by natural causes, suicide, or an accident unrelated to the property’s condition, and provides space for the seller to explain her answer. A seller may want to voluntarily disclose any death on the property since a buyer may learn the information from another source.
My seller client knows that his next-door neighbor has applied with the city to change his property’s zoning. Should the seller disclose this information to potential buyers?
The seller and the seller’s agent are required to disclose known material facts about the property. Because the zoning change could be something a buyer would want to know before deciding to purchase the property, it’s a good idea for the seller to disclose what he knows about the potential zoning change. Whether a potential zoning change—or any fact a seller knows about the property—is a material fact that requires disclosure would ultimately be up to a court to determine.
You may want to inform the seller that, as the seller’s agent, you are also required to disclose known material facts about the property.
Protect Yourself and Your Clients
Texas REALTORS® licenses its disclosure forms to Sellers Shield, an online disclosure process that enables sellers to complete Texas REALTORS® seller’s disclosure forms at no cost to you or your clients. Sellers Shield was designed by legal experts to help prevent lawsuits and provide security to sellers if one occurs. Learn more at sellersshield.com.
Is the owner of a duplex required to provide a seller’s disclosure notice when listing his property?
No. The seller’s disclosure-notice requirements in the Texas Property Code only apply to sellers of residential property comprising “not more than one dwelling unit.” However, a seller must still disclose known material defects concerning the property. Therefore, it’s a good idea for the owner of a duplex to provide the notice for each side of the duplex.
Any seller should review the seller’s disclosure notice and consider the advantages of disclosing information about the property’s condition before an offer is made. The notice can be a significant risk-reduction tool.
Does a landlord have to provide a seller’s disclosure notice to a tenant entering into a lease?
No. The section of the Texas Property Code that requires the notice does not apply to any lease transaction.
Do the seller’s disclosure notice requirements apply to a relocation company?
Yes. A relocation company that has title to the property is not exempt from the notice requirements. Listing agents should suggest that the relocation company fill out the notice and attach the notice that they received from their employee along with any inspection reports that they have concerning the property.
My client inherited his mother’s estate after she passed away, and now he’s planning to sell the house she owned. He hasn’t lived in the property, so he has no idea if there are any existing issues. Is he still required to furnish a seller’s disclosure notice to potential buyers?
Yes. Although certain types of sellers, like administrators or executors of an estate, are not required to provide a seller’s disclosure notice to prospective buyers, the exemption does not apply to heirs. An heir must provide a completed seller’s disclosure notice, but may answer unknown if the heir does not have knowledge of information required by the notice. Failure to provide a completed seller’s disclosure notice may entitle the buyer to certain remedies, like terminating the contract.
Other Disclosure Forms
In addition to Seller’s Disclosure Notice (TXR 1406), Texas REALTORS® has the following forms related to seller’s disclosure: Information About On-Site Sewer Facility (TXR 1407), Information About Special Flood Hazard Areas (TXR 1414), Update to Seller’s Disclosure Notice (TXR 1418), and Information Regarding Windstorm and Hail Insurance for Certain Properties (TXR 2518).
Federal law requires sellers of property constructed prior to 1978 to provide a disclosure of lead-based paint hazards. You can use the Addendum for Seller’s Disclosure of Information on Lead-Based Paint (TXR 1906) as an addendum to the contract and as an attachment to the Seller’s Disclosure Notice for that purpose.