The Ins and Outs of Seller Disclosure Statements

Buying or selling residential property in Michigan? The Michigan Seller’s Disclosure Act, 1993 PA 92, requires a seller of residential property, containing one to four dwelling units, to fill out a Seller’s Disclosure Statement (SDS). The SDS is a legal document where sellers of a home disclose certain known conditions of the property they are attempting to sell. The seller is required to be truthful and make all statements in good faith and potential buyers may “reasonably rely” on those statements. The Sellers Disclosure Act does not apply to a transfer of vacant land or commercial property.

The purpose of the SDS is to disclose various attributes and conditions of a house before it is sold. The SDS chart asks whether the seller’s house has certain features, such as a dishwasher or a water heater; the seller must check one of four options (yes, no, unknown, or unavailable). Below that section, twelve more questions about the property’s condition are asked. This is where sellers typically get confused, and rightly so, as the questions are extremely broad and open-ended. That is especially true when some questions require disclosure of the property’s current condition, and other questions address past conditions. For example, one of the questions asks, “Roof: Leaks?”. That is the entire question which refers to the condition of the roof.  Another example is “Basement/Crawlspace: Has there been evidence of water?”. This question is presented in past tense and appears to require discussion on prior water issues, but how far into the past should the seller disclose? The Michigan Court of Appeals has not provided a precise “look-back” period, however, anything reportable on the SDS and anything known by the seller, should be disclosed, no matter how long ago it occurred. For example, in the unpublished appellate court case Pena v Ellis, the buyer sued the seller for not disclosing past “evidence of water.” The buyer argued that because the flooding occurred twenty-six years prior to the seller’s purchase of the property, they were not required to disclose it. The Court of Appeals disagreed noting there is no time limit on the SDS, and because the sellers were aware of the “water,” they were required to disclose it. No. 257840 (Mich Ct App Apr 18, 2006) (unpublished). The inconsistency and vagueness of the questions create not only confusion but potential liability for sellers of the property.

While the SDS can be challenging to understand, there are a few things to keep in mind when filling one out:

  1. Always disclose what you know. The seller is required to fill the SDS out to the best of their knowledge;
  2. Read each question carefully – some require disclosures of current problems, and some ask about past issues. When in doubt, disclose; and
  3. If anything changes with the structural, mechanical or appliance systems after providing the SDS to the buyer and prior to closing on the sale of the property, disclose any new information through an amendment

If you are not required to complete an SDS, do not provide one. Transfers from a spouse, a grandparent, a child, a grandchild, or between co-owners, are exempt from the Seller’s Disclosure Act and sellers in these transactions are not required to provide a SDS.  Fiduciaries who do not currently occupy the property such as trustees, personal representatives (probate), guardians and conservators, are also exempt. However, landlords, investors, flippers, LLCs and nonprofits are not exempt and must provide a complete SDS.

Truthful disclosure is the best way for a seller to be protected from future liability on top of reading carefully and paying attention to the details of the question being asked and buyers are entitled to reasonably rely on the statements made by seller. When knowingly false statements are made by the seller, buyers may have a claim against seller for fraud. For a detailed analysis on a seller disclosure issue, please contact Abby Cooper at [email protected] or any of the attorneys at Cooper & Riesterer, PLC.

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