Mandatory Federal & State Disclosures in Real Estate

Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

This lesson will explore common mandatory disclosures required in real estate sales. The federal government and individual states set disclosure requirements. The major disclosures required involve lead paint, asbestos, wetlands, and floodplain disclosures.

Disclosure Definition

As part of the sales process, sellers and agents have legal and ethical responsibilities (which vary by state) to disclose information about the property. What is disclosure? The buyer needs to receive certain information about the property. He or she needs to know if there is something about the property that could cause illness or restrict their enjoyment of the property.

But what if the state doesn't require disclosure for certain items? One protection comes from the buyer's real estate agent. Part of their responsibility is to inform their clients about anything that might be a problem before the purchase offer is made. Much of the following disclosure information can be assumed or researched. An older home can be assumed to contain materials known to be hazardous unless positive steps have been taken to remove them. And areas prone to flood or environmental restrictions can be identified through federal and local government resources.

For sellers and their agents, it's often wise to disclose everything (regardless of what is legally required). Buyers may be more likely to back out of a sale if they find out about an issue after the offer is made, rather than knowing about the issue up front. They may feel that the seller is hiding the issue in question or perhaps other problems as well.

Lead Paint Disclosure

Homes built before 1978 may have paint containing lead. Lead exposure is known to be toxic to humans. Particles of lead can be inhaled when the surface is disturbed and children sometimes eat chips of paint containing lead. Therefore, buyers and renters have a right to know about any potential hazard from lead.

Before a contract is signed the seller must provide the buyer with a copy of the federally mandated pamphlet 'Protect Your Family From Lead in the Home'. The buyer then has ten days to conduct their own lead testing. The seller must provide any records of known sites contaminated with lead and their current condition. The contract must contain a statement certifying that the seller has complied with the law, and both parties to the sale must sign this attachment. Landlords must provide tenants with the same disclosure documents and certification statement. However, they do not have to give tenants an opportunity to test the property for lead under federal law.

Asbestos Disclosure

Asbestos is a fire-resistant material used in insulation, tile, vinyl floors, and other construction materials. It was used in construction until the early 1980's, but was discontinued when it became know that asbestos causes cancer. Because of this, many states now require that sellers disclose any known asbestos on the property. The federal government does not require this. Of course, the seller could always be sued if they knowingly failed to disclose this information and someone got sick from asbestos exposure.

Like lead paint, asbestos is mostly a problem when it becomes damaged. Many homes still contain asbestos, and as long as it's undisturbed and not shedding harmful fibers, there's little cause for concern. There is no requirement to remove it. If asbestos becomes damaged or will be exposed during a remodeling, than qualified contractors should be used to dispose of it.

Wetlands Disclosure

Wetlands are areas of land that are mostly or almost always soaked or covered with groundwater. These areas have an incredible diversity of plant and animal life, and often have local restrictions on development due to environmental considerations. Some states do not require the seller to disclose that an area is considered a wetland. This is true even if there are laws prohibiting or restricting development.

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