UncategorizedReal Estate Disclosure Statement Can Be Both a Shield and a Sword

This post first appeared in the Chicago Daily Law Bulletin in August, 2022

I was pleased to see the passage of Public Act 102-765 amending the Illinois Residential Real Property Disclosure Act, 765 ILCS 77/1 et seq., as it tightened up some of the issues we see when handling certain kinds of transactions, especially those for sellers who have not lived in the property. It is not just a clarification for the sellers but a warning for the buyers.

The Disclosure Statement: A Shield and a Sword for Sellers

However, for sellers who have resided in the property before sale, the Disclosure Statement is both a shield and a sword, depending on the honesty with which the answers are provided. Depending on the length of time since a repair, I often advise sellers to disclose a problem, especially if it has been repaired and no further problems have been experienced. It then defuses the Buyer’s claim that the purchase price should be adjusted for the problem.

The Importance of In-depth Questions During Attorney Review

I recently had a buyer’s attorney ask in attorney review whether there had been any water infiltration in the past five years. It was a fair enough question—one I have adopted now for my own attorney review letter for property sold by the most recent residents, because the requirement to disclose water infiltration under the Disclosure Act does not exist if there has been a repair and there is no further damage.

For someone who has resided in the property, the question asks that the seller disclose the history of the property, not just items that have been repaired. The property in question had, in fact, had water infiltration from a failing sump pump, which was replaced. As far as the Act was concerned, the damage was repaired and there were no further problems. The answer showed that this was not a continuing problem. But the attorney’s question allowed for a deeper dive into the property’s repair history. A disclosure about a leaky roof or seepage in the basement might have caused a very different response from the buyer.

Potential Hidden Problems and the Role of Warranty Reviews

The question was fair because there could have been other infiltration that was repaired and then covered up with new drywall. It might have been difficult for the buyer to assess how likely the property would be to experience seepage or infiltration in the future. A failed sump pump is a very different situation from a cracked foundation. Further, the ability to review warranties for prior damage can be very telling. How many locations were treated with epoxy? How many times had the company doing the epoxy injections come out to the property?

Maintaining Honesty and Integrity in Disclosure Statements

While an improperly completed Disclosure Statement can be a sword for the buyer, it can also be a shield for the honest seller. Changes in the property can occur between the time the Disclosure Statement is completed and the time the sale occurs. The fact that there had been no issue previously does not mean that the Seller has lied if the problem occurs after the statement has been prepared.

If the buyer claims that there has been a failure to disclose, it is also incumbent on the buyer to prove that the Seller knew of the problem. The mere fact that a problem shows up is not proof that the seller lied on the Disclosure Statement, even if it shows up shortly after a closing; it is only evidence of a problem.

The Buyer’s Burden of Proof in Uncovering Undisclosed Problems

If the inspection did not disclose that problem, the buyer would need to find some external evidence that it existed at the time the Disclosure Statement was completed, such as a neighbor who had some information regarding repair people coming to the property, or a seller’s receipt showing earlier repairs. Otherwise, the evidence might truly only be circumstantial.

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