Overconfident Sellers Plus Overeager Buyers Equals Broker Liability
Completion and review of the Seller Disclosure Statement, Form 17, happens (or should happen) in nearly every transaction. Yet, there seems to be confusion regarding whether particular seller groups are obligated to complete the Seller Disclosure Statement. Moreover, too many buyers are failing to understand the significance of the three different, and very distinct, buyer signature lines on the last page of the Disclosure Statement. This article will take an in-depth look at the sellers who are exempt from the Seller Disclosure Act and the meaning of the various signature lines from which buyers must choose.
From the Seller’s Perspective:
The Seller Disclosure Act applies to the sale of almost all real property in Washington State. There are two categorical types of real estate to which the Seller Disclosure Act does not apply. Those two broad categories include new condominium units where the declarant is required to deliver a Public Offering Statement to the buyer and timberland, as that term is defined in Washington law (RCW 84.34.020.) Every other type of real estate is subject to the Seller Disclosure Act.
Additionally, there is one category of seller, which will likely be encountered by a real estate broker, from time to time, that is exempt from the obligation to comply with the Seller Disclosure Act.* That seller is an estate. In order for a seller to be an “estate” and thus exempt, the preliminary commitment for title must show that the fee simple owner of the property is “the estate of [a deceased person].” The person who signs the deed as the seller must be the personal representative or executor of the estate. If the fee simple holder of title is anything else, such as a trust, even if the property is in the trust as the result of the prior owner’s death, the transaction is not exempt.
To be even more clear and to dispel myths infecting the industry, the fact that seller never occupied the house has absolutely nothing to do with seller's obligation to provide a completed and signed Form 17 to buyer. In fact, none of the following factors have anything to do with a seller's obligation to comply with the Seller Disclosure Act: occupancy; new construction; property owned by a trust; seller represented by a power of attorney or a guardian; seller incapacity; seller's familiarity with the property; seller taking ownership through foreclosure (there is an exemption related to foreclosure but it is limited to the sale that occurs on the court house steps, when defaulted seller's interests are foreclosed and the property is sold to the highest bidder).
A new construction seller of residential property is not exempt from the obligation to provide a completed Form 17 but the new construction seller is not required to complete Sections 4 and 5 (Structural/Systems And Fixtures).
Too often, sellers are under the impression that they are exempt, or more likely, believe they should be exempt and improperly complete the Disclosure Statement. Sellers who are not exempt but who fail to give buyer a completed and signed Form 17 leave themselves vulnerable to a transaction that can be terminated by buyer, any time prior to closing, unless buyer waives the right to terminate, as explained below. Setting aside the buyer who waives the right to terminate, a seller is vulnerable to termination if the seller puts an X through every page, answers every question with “don’t know” or “N/A” or simply fails to answer all of the questions, including providing additional information or relevant documents to questions marked with an asterisk. If a seller, who is not exempt, refuses to properly complete the Form 17, broker should advise seller, in writing, that buyer will retain the right to terminate the agreement and recover the earnest money, all the way to closing.
It is imperative that listing brokers understand and explain to sellers, the risks associated with seller failing to comply with the requirements of the Seller Disclosure Act. Buyers who are entitled to receive a disclosure statement have a statutory right to terminate the purchase agreement for up to three days following receipt, by buyer’s broker, of the completed and seller-signed disclosure statement. In order to curtail this buyer right, listing brokers should deliver the disclosure statement to buyer brokers as soon after mutual acceptance as possible.
Merely attaching the Form 17 to the MLS printout as an attached document does not constitute proof of delivery. Listing broker needs actual proof that buyer broker received the Form 17. If a buyer broker gives proof to listing broker that buyer broker received the Form 17, then additional delivery of the form is not required. However, mere attachment of the disclosure statement to the MLS listing is not sufficient if listing broker does not have proof of buyer broker’s receipt of the form.
Finally, it should be understood that there are different forms of Seller Disclosure Statements. It is important to use the correct disclosure statement for the type of property that is being sold. In the statewide forms system, the Seller Disclosure Statements are identified as Form 17, Form 17C and Form 17-Commercial.
- Form 17: The form to be used by sellers of improved residential real property. Property is “improved residential” if it includes one to four residential dwelling units. The transactions that should include a Form 17 include, among others, transactions for the sale of a resale condominium unit and transactions that include a personal property mobile/manufactured home or a transaction where the mobile/manufactured home title has been eliminated.
- Form 17C: Should be used for the sale of unimproved residential real property. Unimproved residential real property is raw land that is zoned for residential use.
- Form 17- Commercial: Is the disclosure statement to be used for the sale of commercial property which is essentially all property that is neither improved nor unimproved residential property. A more specific definition for commercial property will be found at RCW 60.42.005.
From the Buyer’s Perspective:
When a buyer’s broker receives seller’s completed Seller Disclosure Statement, buyer has only three days to review the disclosure statement and terminate the purchase agreement, if that is what buyer chooses to do. It is critical for buyer broker to provide the disclosure statement to buyer as soon as possible after broker receives it. Buyer’s broker should deliver the disclosure statement to buyer and retain proof of delivery in broker’s transaction file.
Buyer will likely need assistance in understanding the significance of signing any of the various buyer signature lines located on the last page of seller’s disclosure statement. If buyer signs the first buyer signature line, buyer acknowledges only that buyer received the Seller Disclosure Statement as it was provided by seller. By signing this line, buyer does not remark on the completeness or incompleteness of the form. Buyer's signature on the first buyer signature line signifies only that buyer received the form on the date of buyer's signature. If the form is fully completed and signed by seller, then three days after buyer acknowledged receipt, buyer's right to terminate the purchase agreement, based on the Seller Disclosure Act, will expire.
If buyer signs the second buyer signature line, buyer acknowledges receipt of seller's Form 17 and indicates that buyer has read the form and based on buyer's review, buyer waives the right to terminate the purchase agreement based on the Seller's Disclosure Act.
If buyer signs the third buyer signature line, buyer waives the right to receive a completed Form 17 and also waives the right to terminate the purchase agreement based on the Seller Disclosure Act.
If the buyer signs the second or third buyer signature line and seller did not fully complete the Seller Disclosure Statement, buyer will waive the right to terminate the purchase agreement based on the Seller Disclosure Act. This statement assumes that none of the answers to any of the questions in the Environmental Section of the Form 17 should have been marked "yes". If any of the questions in the Environmental Section of the Disclosure Statement should have been marked “yes”, then buyer is prohibited from waiving the right to receive and/or terminate the purchase agreement based on the Seller Disclosure Act until three days following seller’s provision of all the answers to all the questions in the Environmental section of the form.
Finally, if buyer does not sign any of the lines on Form 17, then buyer’s right to terminate the purchase agreement expires three days following the date on which listing broker can prove that listing broker delivered the fully-completed and seller-signed Form 17. If seller did not fully complete the Form 17 and buyer never signs any of the buyer-signature lines on Form 17, then buyer retains the right to terminate the agreement until the transaction closes.
It is important to understand that if seller fully completes and signs the Form 17, and buyer refuses to sign any of the buyer-signature lines on the last page of Form 17, then it will be up to listing broker to prove the date of delivery of the Form 17 to buyer's broker. In that situation, buyer's right to terminate the purchase agreement, based on the Form 17, will terminate three days following buyer broker's receipt of the Form 17. Expiration of buyer's right to terminate happens three days following buyer broker's receipt of Form 17 even if buyer never acknowledges receipt of the Form 17. For this reason, it is critical that listing broker retain proof of the date of delivery of the Form 17 to buyer's broker.
It should be communicated to buyer that if seller chooses not to comply with the Seller Disclosure Act by providing a signed, fully completed disclosure statement, buyer has three choices. Buyer can: 1) immediately terminate the purchase agreement and recover the earnest money; 2) waive the right to receive the completed Seller Disclosure Statement (assuming that none of the answers to any of the questions in the "Environmental Section" of the Form 17 should be marked "yes") ; or 3) take no immediate action but retain the right to terminate the purchase agreement anytime prior to closing. All buyer remedies, based solely on the Seller Disclosure Act, expire upon closing of the transaction.
If buyer chooses to sign one of the buyer-signature lines on a Form 17 that seller failed to complete fully, buyer must understand the meaning and impact of the particular line that buyer chooses to sign.
Hotline Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. If you’d like to submit questions to the Legal Hotline, e-mail them to legalhotline@warealtor.org. Please have your NRDS number ready when you e-mail the Hotline with your question. The Legal Hotline lawyer does not represent Washington Association of REALTORS® members or their clients and customers.