Rules of Disclosure Buying, Selling — and Telling

Home sales rarely if ever happen sight-unseen, and condominium and cooperative units are no exception. When purchasing a lived-in space from its previous owner, a buyer may expect to receive certain pertinent information that could impact the offering price – or even the buyer’s interest in the property itself. Rules and regulations regarding what sellers must disclose have been established in effort to ensure that buyers can make fully-informed choices, and don’t find themselves stuck living in the proverbial lemon. While much of the burden tends to fall on the buyer to be astute, do their due diligence, ask important questions, and observe with care, both sides of an apartment transaction would be well-advised to study up on disclosure protocol before entering into a deal.

Caveat Emptor

New York and New Jersey have similar rules when it comes to condo sales, in that the onus of ensuring that the goods are as advertised falls on the buyer.

“Between purchaser and seller, the rules subscribe to one of the few Latin phrases that almost everyone knows: ‘caveat emptor,’ or, let the buyer beware” says attorney Matthew J. Leeds, a partner with Ganfer & Shore LLP in Manhattan. “This means that generally, the seller does not have any obligation to disclose facts to a purchaser. It is up to the buyer to either ask to perform certain inspections, or to waive said inspections. The purchaser then has to decide if they still want to undertake the risk of purchasing.”

In New Jersey, the aforementioned Latin credo was the law of the land until the 1970s, until a state supreme court decision in the case of Weintraub v. Krobatsch led to an updated interpretation. According to J. David Ramsey, a shareholder with Becker & Poliakoff in Morristown, a scuffle over a seller’s (Ms. Weintraub) failure to disclose a cockroach infestation to a home buyer (the Krobatsches) resulted in the supreme court finding that said failure “may perpetrate a fraud that would excuse the purchaser from performing under the contract.”

“Since then, the law has developed, and New Jersey courts have held that the failure to disclose a material fact entitles a purchaser to either cancel a contract or sue for damages once the closing has occurred,” Ramsey explains. “This begs the question as to what constitutes a ‘material fact.’ As one example, it has been held that the failure of a builder to disclose that there was an environmentally contaminated site next to homes being sold was a fraud. In addition, New Jersey courts have imposed on sellers an implied warranty of habitability. In other words, unless the entire home is habitable, the seller must disclose if there is any condition that renders it uninhabitable.”

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Comments

  • Good article, very important information too. At our 3 story 12 unit Brooklyn NY co-op, “buyer beware” is more of the norm though. There is so much disclosure that isn’t getting disclosed, disclosure that is damaging shareholder’s interests. I will go through the long list of disclosures. We had an accountant who embezzled $73,000 instead of paying the property taxes ($78,000). The accountant didn’t go to jail because he was too old, sick, and a first time offender, but the court did order that he pay us back, but because he is poor he was able to never pay us back anything. The building insurance did pay the co-op $25,000 for employee theft, though a few years later they discontinued us and the board then went on to skimp on insurance by getting a very cheap policy that doesn’t cover much. During hurricane Sandy the 4 1st floor apartments where all flooded. Months later termites were discovered and we had to treat for them. The building needs a new flat roof, as there is blistering, ponding water, soft spots, and uneven surfaces. The only roof replacement was in 1985, but was a hack job, and since then it has been patch work repairs after patch work repairs. The building needs tuck pointing, lintel replacement, weepholes, new intercom, and windows. There are cracks on the eastern wall, from foundation to roof. The building finances have been run into the ground. We have 0 reserves. There is a $17,000 property tax debt that should have been paid off by now. The majority of the shareholders are cheap and greedy and voted to make assessments illegal for this co-op and they prefer to pay for legal fees and property tax debt interest rather than for needed building repairs. The Investor rate is >=50% (Owner occupants is <50%). Banks do not give mortgages to this building, so buyers need to pay cash or get seller financing. 2 units were sold using seller financing. The current board rubber stamps approve all new buyers. There is currently 1 open civil court case against the co-op. There had been 4 prior cases since 2013. Last, but not least, the co-op president and treasurer (one person) in the position since 6/2017, never had a job, has a criminal record, has a prior eviction, prior bankruptcy, and lives alone in an empty studio apartment. The guy has a lot of loser qualifications. He acquired his unit by paying the mother of his niece a measly $30,000 in 2015 for her interest in the unit with the intent of later selling the unit, which he did not sell. After he became president he tried to invoke Objectionable Conduct against me with the goal of trying to replicate the cheap acquisition, but no case has been filed yet and its long overdue.