In March of 2006, Jack and Jill bought their dream house, a one-story home with the master bedroom and main living areas all on one floor, which had more than enough space to entertain family and friends. Nine months later, Jill was home alone one frosty December night when she heard a bang from the basement. After inspecting, she found that the furnace wasn’t working any more.
Jill remembered that the sellers had told them the furnace was more than twenty years old. Because of that, Jack and Jill had put aside a little money each month so that when the time came to replace the furnace they would be ready.
A real estate sales disclosure is a form checklist that some sellers must fill out and give to the buyer before the real estate sale is completed. Indiana law determines who has to fill out the form, and what must be told to the prospective buyer of the property.
Historically, the law has always said “let the buyer beware,” and made the buyer responsible for discovering any problems with property before the buyer purchases it. But in the last twenty years, the Indiana legislature has become more protective of residential homeowners. The residential real estate sales disclosure requirement was one of the first steps in the protections that have been enacted. In the last ten years, the Indiana courts have gone a step further by holding sellers responsible if they are found to have hidden known problems in the property from potential buyers.
Indiana’s Residential Real Estate Disclosure Law, Ind. Code §32-21-5-2 requires sellers of residential property to complete a standard form. The Residential Real Estate Sales Disclosure form is available online at the State Forms Center (enter form number 46234 in the search box or search for the form by name). You should also be able to request a copy from your county recorder. Real estate agents and real estate attorneys also have the form easily available.
Using this form, sellers need to tell potential buyers about material defects in the house structure and major systems, as well as any defects in the included appliances, that the seller knows about. Notice what this leaves out, namely any defects that the seller does not know about — an important distinction, because it means sellers don’t have to actually test or investigate for problems.
For example, the condition of any appliances that are included in the sale, such as the garbage disposal and the oven, are something the seller needs to tell the buyer about. The seller also needs to tell the buyer about the age and condition of the furnace and/or the heat pump. The condition of the water heater is also included.
Sellers should tell potential buyers about the building itself: Does the foundation have any significant cracks? Does the roof or the siding leak? Are the support beams sound? The systems used in daily living are also in question. Does the seller have any problems with leaky pipes or sewer pipes backing up and discharging into the house? If there is a septic system, what is its condition?
There are a number of other questions on the form. Some ask about whether the house is zoned for residential use. Others ask whether the seller knows if the house, garage, fence or other structure encroach, or sit on a part of, someone else’s property. Other questions ask about moisture and water problems, as well as termite or rodent problems. The law also requires the seller to let the potential buyer know if the property is within one mile of an airport.
Indiana also requires the seller to tell the buyer if the house was once used as a methamphetamine lab. What is unclear, though, is whether or not this requirement applies if the house was transferred to the seller under one of the conditions that are exempt from the disclosure law. In any case, homes that have been used to produce methamphetamine should be decontaminated through a special process before anyone lives in the home.
When there is a willing buyer and a willing seller for property that includes a house, the seller must comply with the disclosure requirements described above. There are some exceptions to this requirement though, notably when property transfers in name only. Some examples of this include a transfer from a husband alone to the marital community of husband and wife and a transfer from a husband and wife to their own living trust. Another transfer that does not require a disclosure form is when a parent transfers the title of the real estate to his or her children.
Property transfers can also happen when the seller is not a willing seller. If there is a foreclosure sale, a condemnation, or a court ordered transfer, such as in a divorce, a residential real estate disclosure in not required. Likewise, if the trustee of an estate or a bankruptcy is selling property, the trustee is not required to complete a disclosure form.
If you have any questions about your disclosure obligations, speak first with your real estate agent and perhaps also with a real estate attorney. When in doubt, however, it’s often better to disclose more rather than less. You’ll avoid angry buyers and the possibility of lawsuits this way.