• Disclosure by Home Sellers
  • May 5, 2003 | Author: Mark W. Vyvyan
  • Law Firm: Fredrikson & Byron, P.A. - Minneapolis Office
  • When marketing a home, sellers face the difficult choice of whether to disclose problems to potential buyers. While Minnesota Statutes require disclosure of the existence of certain items, including wells and individual sewage treatment systems, and some local ordinances require disclosure of the condition of the physical components; most Minnesotans are not required by statute or ordinance to disclose the condition of a home. Under Minnesota common law, one party to a transaction generally has no duty to disclose material facts to the other. Klein v. First Edina Nat'l Bank, 196 N.W.2d 619 (Minn. 1972). This general rule of nondisclosure is, however, subject to at least three exceptions. First, a party who chooses to make statements about a material fact must say enough to prevent his words from misleading the other party. Second, a party with special knowledge of a material fact to which the other party does not have access has a duty to disclose that fact to the other party. Third, a party who stands in a confidential or fiduciary relation to the other party must disclose material facts.

    The first exception requires a party who makes statements to say enough not to mislead the other party, and is aimed at statements, which although literally true, are either half-truths or convey a false impression. Home sellers should be careful if they choose to make statements regarding their home's condition, including on disclosure forms provided by real estate brokers, to avoid misleading or giving a false impression.

    The second exception to the general rule of nondisclosure which requires a party to disclose material facts of which that party has special knowledge if the other party to the transaction does not have access to those facts, is typically the most important when deciding whether to disclose problems with a home. Home sellers should ask themselves whether they have "special knowledge" of the fact, whether the potential buyer could reasonably discover that fact, and whether this knowledge would likely have an impact on a buyer's decision to purchase. A number of cases decided by Minnesota appellate courts are helpful in determining whether a seller has "special knowledge" of a defect and whether that defect is reasonably discoverable by a buyer.

    In one case, home buyers complained that their sellers had not disclosed that extremely low water pressure in the home made the plumbing system unsuitable for normal family use. Hommerding v. Peterson, 376 N.W. 2d 456 (Minn. Ct. App. 1985). In deciding against the home buyers, the Minnesota Court of Appeals found that the low water pressure was not a "hidden defect" because it was able to be discovered "upon reasonable inquiry."

    In an unpublished decision, the Minnesota Court of Appeals found a trial court's grant of summary judgment in favor of a home seller inappropriate, where the home buyer alleged that water damage to a kitchen floor not visible at the time of sale, and therefore a hidden defect that needed to be disclosed. Crews v. Jordan, 1995 WL 687691 (Minn. Ct. App. 1995).

    The third exception to the general rule of nondisclosure which requires a party in a confidential or fiduciary relationship with the other party to disclose material facts, is rarely applicable to home sellers. It is, however, applicable to real estate brokers and can become particularly important when a broker is acting as a dual agent for seller and buyer.

    In conclusion, when deciding whether to disclose potentially adverse facts regarding their home's condition, home sellers need to consider the effect of any earlier statements, whether a problem could be considered "hidden" from buyers, and whether the problem is reasonably discoverable by a potential buyer.