When you contract for the sale of your property, disclosure of facts which may affect a potential purchaser’s decision to purchase your property are required under Arizona’s common law. Arizona courts have ruled that a material fact is one in which a reasonable person would consider important in making a decision to purchase the property in question. These facts can either make or break the contract. By contrast are immaterial facts, which should also be disclosed, however would not affect the sale of the property.
Why Disclosures are So Important
When a material fact is not disclosed, by law it is treated as though the seller is assuring that the fact does not exist - essentially the seller is saying there is no problem. However, when the fact does in actuality exist and the seller does not disclose it, under Arizona law this is called misrepresentation and it is a form of fraud. This can be further categorized into negligent or intentional misrepresentation depending on the form the misrepresentation took. If the seller had the thought and took action to misrepresent the material fact he or she will be found liable to the buyer under intentional misrepresentation. If the seller was merely lazy about discovering or disclosing the fact, he or she will be found liable to the buyer for negligent misrepresentation. These measures are protections for the buyer against any would-be negligent seller and ensures honest transactions.
"As-Is" Clause Does Not Excuse Duty to Disclose
Too often, sellers attempt to circumvent their disclosure requirements by use of an “as-is” clause in the purchase contract. The seller’s use of an "as is" clause in a real estate contract is usually viewed as an attempt to shift the burden upon a potential buyer to determine the condition of the property purchased and/or to imply that the property is in some way defective and the buyer may not justifiably rely on seller's silence as a representation that no defects exist.
However, under Arizona law, an “as-is” clause is insufficient to insulate a seller if it can be shown that the seller knew of the material condition and did not disclose it. Known defects must be disclosed with specificity to fully protect the seller from liability for incomplete disclosure. The rationale used by the courts to support these conclusions is that an “as-is” clause is viewed as a waiver by the buyer of only breach of warranty claims. This means tort claims such as fraud or misrepresentation are not waived. Furthermore, the court has reasoned that latent defects, or defects that are hidden and not readily discoverable by a buyer’s reasonable inspection, unfairly shift the risk of non-disclosure to the buyer. The unfair shift is violative of the implied duty of good faith and fair dealing imported by law into all contracts.
Therefore, because a buyer could potentially construe any number of defects as material, the best defense for the seller is to disclose, disclose, disclose. By failing to disclose, even if you think the condition probably is not considered material, you run the risk of producing a time intensive and costly litigation.
Questions About Disclosures?
If you have found yourself in a situation where a buyer has brought a lawsuit against you for nondisclosure, have bought a home where material disclosures were not made, or merely have a question about a contract you are thinking of entering into that may involve a material disclosure, contact our office or 602-277-4441 to speak with one of our experienced attorneys at Platt & Westby, P.C., who will carefully evaluate your case.
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