Before selling residential property in Michigan, a seller is required by law to tell the prospective buyer certain things about the property's physical condition. (This comes from the Michigan Seller Disclosure Act.) As a seller, you must disclose this information by completing a written disclosure statement and giving it to the buyer. (Mich. Comp. Laws Ann. § 565.951).
This information will help property buyers make an informed decision as to whether to purchase and on what terms. It's important to comply with these requirements, as failure to do so will allow the buyer to cancel the sale of the property or later sue you for fraud, upon discovering defects that you knew of but didn't disclose.
Who, in Michigan, needs to fill out the disclosure form? For starters, only sellers offering residential property consisting of between one and four units. This would include, for example, a single family home or a larger building that contains up to four apartments.
The disclosure requirements go beyond standard sales, however. You must comply with the disclosure requirements even if you are selling by a property exchange, land contract, option to purchase agreement (including a lease with option to purchase), ground lease, or a transfer of stock or interest in a residential cooperative. (Mich. Comp. Laws Ann. § 565.952.)
However, see the exceptions below.
In some limited circumstances, sellers are not required to comply with the disclosure law. These exceptions include:
(Mich. Comp. Laws Ann. § 565.953 (a)–(i).)
Michigan requires sellers to use a standardized form for property disclosures, called the Seller Disclosure Statement, and sets forth the language for it within the actual law. (Mich. Comp. Laws Ann. § 565.957.)
The form is essentially a checklist asking you to indicate the condition of various features of the property, such as appliances, roof, basement, and HVAC systems, and known problems affecting it, such as encroachment issues, environmental issues, and pending legal issues.
While some states have specifically addressed whether or not sellers must disclose whether a property is "stigmatized" (by death, murder, infectious disease, and so forth), Michigan has not. The disclosure statement instead generally limits disclosures to the physical condition of the property.
When in doubt about whether to disclose a particular issue, however, it's usually best to do so. Otherwise, the buyer might be permitted to cancel the agreement, or perhaps worse, one day pursue a claim against you for fraud.
You are required to present the disclosure statement to the prospective buyer or the buyer's agent prior to signing a purchase agreement (or sales contract). (Mich. Comp. Laws Ann. § 565.954(1).) Complying with this timing requirement is crucial, because the buyer may terminate the purchase agreement if you deliver the statement late, after signing the purchase agreement. (Mich. Comp. Laws Ann. § 565.954(3).) In that case, your property sale will not occur.
It is customary, and good practice to provide the disclosure statement early, for example, at open houses or when showing the property to prospective buyers. That way, you avoid the possibility of buyer termination under this provision.
The Michigan disclosure statement requires that you disclose only information about the property that you actually and personally know, according to the "best information available." (Mich. Comp. Laws Ann. § 565.956.) In other words, you need not perform any investigation of the property before completing the form (though if you've done so, you must reveal the results).
If you do not know certain information requested on the form, you may satisfy the disclosure requirements by checking the "unknown" box.
If conditions on your property change after you've delivered the statement to a prospective buyer; for example, the roof springs a leak; you should amend the disclosure statement in writing as soon as possible. (Mich. Comp. Laws Ann. § 565.962.)
If the information you enter on the form came not from your own knowledge, but from what you learned from public agencies or professionals contracted to inspect the property, you are not liable for any error, inaccuracy or omission in the information they gave you; unless, that is, you were aware of contradictory information. (Mich. Comp. Laws Ann. § 565.955 (1)–(3).)
If you violate Michigan's disclosure law, for example, by failing to provide a complete written disclosure or intentionally misrepresenting information, the buyer may cancel your purchase agreement prior to the closing. (Mich. Comp. Laws Ann. § 565.954 (3).)
Or, if the closing has already occurred, the buyer may pursue legal action against you for fraud, on the basis of misrepresentation or omission. (Roberts v. Saffell, 760 N.W.2d 715 (Mich. 2008).) The buyer may also separately sue you for fraud or misrepresentation, without relying on the disclosure laws. (Mich. Comp. Laws Ann. § 565.961.)
If you are represented by a real estate agent or broker, the agent is not liable under the disclosure requirements unless that person acted with you in bad faith. (Mich. Comp. Laws Ann. § 565.965.)
If you have a specific question about disclosure requirements, want to get the latest news about developments in Michigan's disclosure laws, or find yourself in situation where you need help, consult an experienced local real estate lawyer. These laws can be complicated, and are best interpreted by professionals who handle such matters every day.