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What Is a Seller's Disclosure?
A seller's disclosure under Montana law is the information given to a buyer regarding the overall condition of the property. However, confusion exists between buyers, sellers and real estate brokers as to what a seller is required to disclose under Montana law. This confusion has created enmity, and litigation, between buyers and sellers, as well as sellers and their brokers. This article is meant to aid all parties in understanding the scope and extent of a Seller's Disclosure Under Montana Law.
In 1988, the Montana Supreme Court heard the seminal case on current seller's disclosure requirements in Montana, Wagner v. Cutler, 232 Mont. 332, 757 P.2d 779, (1988).
Wagner: The Background Facts
In April of 1982, Wagner arrived in Bozeman from Los Angeles. She was interested in buying a house. Wagner contacted Carmen Murphy, a real estate agent for ERA Landmark of Bozeman. Murphy showed the LDS house to Wagner. She also provided Wagner with a copy of the ad in the Multiple Listing Service. Murphy knew that the house was a “CAPP Home” but did not disclose that fact to Wagner. Murphy represented to Wagner that the house was “well built” according to “code.” Murphy also gave Wagner a document from the Gallatin County Sanitarian representing the document to be an approval by Gallatin County of the septic system.
Wagner liked the house and toured it several more times. After some negotiations, Wagner and LDS agreed on a purchase price of $78,500. On July 15, 1982, the sale was closed. LDS received $15,500 down. The balance of $63,000 was carried by LDS on a contract for deed at 13 percent with a balloon payment due after five years. Upon taking possession, Wagner encountered numerous problems with the house. Wagner then sued to recover damages for misrepresentation, violation of duty to inspect and disclose defects, and breach of the implied warranty of habitability.
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How Did The Court Rule?
In Wagner, the Montana Supreme Court outlined that Sellers must “obtain and communicate the true condition of the house.” Wagner at 783. The Supreme Court) disallowed recovery for "obvious defects" and limited all recovery to only those related to latent defects. Id. The reasoned that buyers are “accountable for the defects a reasonable buyer would have noticed”, essentially applying a contributory negligence analysis. Id.
The Wagner holding was upheld and extended by the Montana Supreme Court in their holding in Strom v. Logan where sellers failed to disclose the nature and extent of a fire that occurred some 20 years prior. Strom v. Logan, 304 Mont. 176, 177, 18 P.3d 1024, 1026 (2001). The Supreme Court upheld the Wagner standard in full, and thoroughly incorporated the Wagner case into their ruling. Id. at 181-183.
If the Law is Clear, Why is There So Much Confusion?
The confusion is being created by real estate brokers. The Montana legislature has placed a duty on Real Estate Brokers and Real Estate Agents to disclose certain information under what is still an evolving standard known as the "Adverse Material Fact" standard. The statute requires seller's agents to disclose to a buyer or the buyer agent any adverse material facts concerning the property that are known to the seller agent, except that the seller agent is not required to inspect the property or verify any statements made by the seller. MCA section 37-51-313(3)(a). The phrase "Adverse Material Fact" is statutorily defined under MCA section 37-51-102(2)(a) as:
- a fact that should be recognized by a broker or salesperson as being of enough significance as to affect a person's decision to enter into a contract to buy or sell real property and may be a fact that:
- materially affects the value, affects structural integrity, or presents a documented health risk to occupants of the property; or
- materially affects the buyer's ability or intent to perform the buyer's obligations under a proposed or existing contract.
Ambiguity in the Statutory Definition
The legislature purposely made the "Adverse Material Fact" definition as broad as possible. The issue is that, while the definition seems thorough enough, there is ample room for ambiguity when applied to real world facts. As a result, fact issues regularly occur as to whether a particular issue that exists, or previously existed, on a property is one that constitutes an "Adverse Material Fact". While this definition has certainly granted buyers the right to sue Real Estate Brokers who have wholly failed to disclose
"Adverse Material Facts" to buyers, the unexpected issue that has arisen is the level of confusion between all parties as to what a seller is actually required to disclose to the Real Estate Broker.
How Have Real Estate Brokers Responded to This New Duty?
To combat this, Real Estate Brokers in Montana, through the Montana Association of Realtors, have promulgated a form to help Real Estate Brokers meet their statutory guideline known as the "Owners Property Disclosure Statement". Brokers have made signing this disclosure statement a requirement of the listing contract with the broker and sales agent. The disclosure statement, however, modifies the statutory definition of "Adverse Material Fact" to remove the "broker/salesperson" standard by saying: Montana law defines an adverse material fact as a fact that should be recognized as being of enough significance as to affect a person's decision to enter into a contract to buy or sell real property and may be a fact that materially affects the value of the Property, that affects the structural integrity of the Property, or that presents a documented health risk to occupants of the Property. Owners Property Disclosure Statement, lines 10-14.
The Unintended Effects of the "Owner's Property Disclosure Statement"
As a result of the Owner's Property Disclosure Statement, certain enmity has been created between sellers and their brokers and listing agents in litigation brought by buyers of a property. The enmity is created by the fact that Sellers Disclosure Requirements Under Montana Law are still as found in the Wagner case cited above. However, in response to their newer statutory duty to disclose, brokers and listing agents have required sellers to disclose information that goes above and beyond their common law duty.
In litigation, Real Estate Brokers argue that the sellers signed a Disclosure Statement which was shared to the buyer which satisfies their duty under MCA 37-51-313. Sellers argue that their only actual duty to disclose is found in Wagner, and that the Seller's Disclosure Statement only "assists" the Broker in meeting their statutory duty to the buyer. Further enmity, and subsequent fact issues at trial, also relate to the modified definition of what constitutes an "Adverse Material Fact" found in the Disclosure Statement.
Inevitably, the facts of each case will determine whether any party has violated their duty to disclose information to the buyer, but clarity regarding the duty of each party is required in order for a resolution that protects all parties to a transaction. Although this was the intended effect of the "Owner's Property Disclosure Statement", it has not fully achieved its purpose.
HagEstad Law Group: Montana's Premier Real Estate Disclosure Litigation Firm
The attorneys at HagEstad Law Group have grappled with Montana's difficult disclosure requirements as they relate to both sellers and real estate brokers. With over 20 years of experience, HagEstad Law Group is uniquely positioned to represent and protect the interests of both sellers and brokers in Property Disclosure Litigation. If you are a seller, broker, or professional liability insurer, and would like to know more about Seller's Disclosure Requirements Under Montana Law, give HagEstad Law Group a call today.
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