Hargis & Harpold, l.l.p.

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STIGMATIZED PROPERTIES: THE FINAL CHAPTER

By:  J. Richard Hargis

Hargis & Harpold, L.L.P.

February 1998

 

 

Over the past couple of months, we have examined the ambiguities which exist in Texas law concerning the seller and broker=s duty to disclose so-called stigmatizing events affecting a listed property.  While current law excludes disclosure of death occurring on the property due to natural causes, suicide or accident unrelated to the property=s condition, there are many other events or facts which may have a psychological impact upon the property for which the duty to disclose is unclear.  These events include homicide, felony crimes, off-site matters (e.g., existing or proposed landfills) and most recently, Megan=s Law registrants.

 

The absence of specific guidance regarding the seller and broker=s duties of disclosure suggests that it is safer to weigh on the side of disclosure rather than being accused of concealing some material fact concerning the property.  Why should this be the case?  Certainty and clarity are needed, not continued ambiguity.  Thus, Texas ought to adopt a law addressing these concerns like so many other states have already done.

 

Texas Should Join Other States

 

No less than 16 states (and, perhaps more) have laws in place which exclude disclosure of events occurring on or near a listed property that may psychologically impact the property.  These states include:

 

Arizona                                                Minnesota

Colorado                                              Missouri

Connecticut                                          New Mexico

District of Columbia                              New York

Georgia                                                Oklahoma

Louisiana                                              Pennsylvania

Maryland                                              Utah

Michigan                                              Virginia

 

Other states have similar legislation under review and may have even enacted laws by now.  Although it is extremely painful to ever criticize Texas, we clearly are lagging behind in this one area.

 

The Common Thread Among Laws

 

There is not a uniform Apsychologically impacted@ property statute common to the states.  However, there definitely is a common thread of identified events for which disclosure is not required.  The typical language of the statutes goes like this:

 

ANo cause of action shall arise against an owner of real property or a real estate licensee for the failure to disclose in a real estate transaction the fact or suspicion that such property (1) was the site of a homicide, suicide or other death by accidental or natural causes, or any crime punishable as a felony.@

 

Many of the statutes provide that such facts or suspicions are not material facts that must be disclosed in a real estate transaction.

 

At least three states (Arizona, Minnesota and Pennsylvania) go a step further to address growing concerns over the effect of Megan=s Law which requires that sex offenders register their addresses with local police, and allows this information to be publicized.  For example, Arizona=s law states:

 

ANo criminal, civil or administrative action may be brought against a transferror of real property or real estate licensee for failing to disclose that the property being transferred is or has been:

 

The Hybrid Approach

 

A few states (Connecticut, New York and Oklahoma) take a hybrid approach to disclosures surrounding psychologically impacted properties.  Each of these states excludes disclosure of homicides, suicides and felonies which occurred on the property.  If, however, a prospective buyer or lessee advises an owner or his or her real estate agent, in writing, that knowledge of a psychological impact is important to his decision to purchase or lease, the owner, through his real estate agent, shall report any findings or information to the buyer or lessee, provided the owner chooses to disclose any such facts.  If the owner refuses to disclose such information, his or her agent shall so advise the buyer or lessee in writing.

 

This hybrid approach attempts to balance the equities in terms of providing sellers and buyers with choices.  It allows the buyer to inquire of psychological impacts, but also allows the seller to decline disclosure of such information.  A likely result of a seller declining to disclose such information to an inquiring buyer is the potential loss of sale or lease.

 

Another problem with this approach is the potentially unlimited scope of psychological impacts which may be important to the inquiring buyer.  A strict interpretation of the Ahybrid@ statutes suggests the psychological impacts are limited to homicides, suicides, felonies and any other events for which disclosure is not required by the applicable statute.  Any other interpretation would only serve to create more ambiguity.

 

Texas Needs New Law

 

As noted above, Texas law already excludes disclosure of deaths occurring on the property due to suicide and natural or accidental causes.  It would be most desirable to expand our law to exclude disclosure of homicides and felonies as well.  And while we are at it, there should be no requirement to disclose that a property is either occupied by or located in the vicinity of a registered sex offender pursuant to Megan=s Law.  Certainty of disclosure requirements should be our goal.

 

As we prepare for the next regular session of the Texas Legislature, an expanded statute which excludes disclosure of all psychological impacts in a real estate transaction should be a high priority for Texas real estate licensees.

 

Copyright 2010 Hargis & Harpold, L.L.P.

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