March 26, 2016
We hear a lot of misinformation from prospective sellers and Realtors on when a Residential Property Disclosure Form must be used in Ohio:
- “I’ve never lived in the house, and thus I am exempt from filling out the form.”
- “I’m just an investor. I don’t have to complete the form.”
Neither of these statements is true, so let’s bust these myths and in the process really dig into why a residential property disclosure form is “required” and when it is “required.”
What is the “requirement”?
As an opening proposition, Ohio law does not actually require the use of the Residential Property Disclosure statement. And by this I mean that no one is going to go to jail for failure to use the form, and the civil consequences are generally limited to termination of the contract before closing, if any.
The law in question is Ohio Revised Code Section 5302.30. It is indeed entitled “Property disclosure form required for all residential real estate transfers.” But when reading the statute it becomes apparent that the penalty for non compliance is: rescission of the contract, but only prior to the earlier of thirty days after the contract is signed or the date of closing (ORC § 5302.30 (K)(4)):
If a transferee of residential real property subject to this section does not receive a property disclosure form from the transferor after the transferee has submitted to the transferor or the transferor’s agent or subagent a transfer offer and has entered into a transfer agreement with respect to the property, the transferee may rescind the transfer agreement in a written, signed, and dated document that is delivered to the transferor or the transferor’s agent or subagent in accordance with division (K)(4) of this section without incurring any legal liability to the transferor because of the rescission, including, but not limited to, a civil action for specific performance of the transfer agreement.
Ohio Revised Code §5302.30 (K)(2) also provides for rescission if the seller amends the Residential Property Disclosure Form after the contract is signed.
It is always advisable to disclose
Before we get to the question of whether Ohio law requires disclosure, there is another question of whether disclosure is advisable. The answer is almost always “of course.”
The basis of property defects fraud claims is either (a) a material misrepresentation as to a known defect (i.e., lying about the basement leaking or the presence of termites) or (b) non-disclosure of a known material defect that is not readily open to observation by a buyer.
A full and proper written disclosure inoculates a seller from both of these claims and this is advisable even if the law does not require full disclosure.
What types of transactions are covered?
Section (B)(1) of the statute tells us what types of transactions are covered by the “requirement”:
- transfers by sale;
- transfers by land installment contract;
- transfers by lease with option to purchase;
- an exchange of property; or
- a lease for a term of ninety-nine years and renewable forever.
Who must provide the form and who is exempt?
The statute provides that it covers all “transferors ” of properties containing one to four dwelling units. So, this would seem to include otherwise commercial properties that contain under four dwelling units, such as a bar or restaurant with apartments above.
And then the statute contains an extensive list of exemptions from its requirements detailed below, but the exemptions do include:
- New construction;
- Transfers from an estate; and
- Transfers among family members and co-owners or pursuant to a divorce;
The statute does not exempt investors or simply owners who did not live in the property.
Waiver by buyer
Finally, a buyer can waive his right of rescission for a Residential Property Disclosure Form (O.R.C §5302.30 ((K)(3)(c). And, since this is the only remedy for the failure to deliver the Residential Property Disclosure Form, it is essentially a waiver of rights of the buyer under the entire statute.
So, the myth is busted. Investors and other owners who did not live in the house (except those administering an estate of a seller) are not exempt from the requirements of the statute.
A more complete list of exemptions is below:
(3) A transfer by a mortgagee, or a beneficiary under a deed of trust, who has acquired the residential real property at a sale conducted pursuant to a power of sale under a mortgage or a deed of trust or who has acquired the residential real property by a deed in lieu of foreclosure;
(10) A transfer from a transferor who both has not occupied the property as a personal residence within one year immediately prior to the transfer and has acquired the property through inheritance or devise.