Days after closing on their dream home – a brick colonial near the historic Texas Capitol – Hino and Mino Schute learned of their property’s ghastly past. Eleven months earlier, an intruder entered the house, shot and killed a 9-year-old girl and her father. Horrified, the Schutes unsuccessfully demanded their money back. When that failed, Hino and Mino tried to paint over the grim history, refinishing the woodwork and refurbishing the kitchen. After a couple of months Mino gets transferred by his company to another state and they have to sell the house.  Since the murders were not disclosed when Hino and Mino bought the house, do they have the obligation to disclose the house as a “stigmatized property” to the future buyers?

Probably, yes. The Texas Property Code expressly provides that a realtor is not required to disclose or release information related to whether a death by natural causes, suicide or accident unrelated to the condition of the property occurred on the property. Murder is not covered by this “no duty” rule. Since a murder on the property might be considered a material fact that a buyer would want to know in deciding whether to purchase, it’s probably prudent for sellers to disclose this fact.

What Not To Disclose?

It is a discriminatory practice in violation of the Texas Real Estate Commission’s Canons of Professional Ethics and Conduct for a real estate licensee to inquire about, respond to or facilitate inquiries about race, color religion, sex, national origin, ancestry, familial status or handicap. You can’t talk about AIDS, HIV-related illnesses or HIV infection related to the property, any occupant or owner, either.

What MUST Be Disclosed?

Physical stigmas arise when some negative or detrimental physical or environmental condition exists that may affect the health or safety of the occupants or the value of the property, whether direct or indirect. An obvious property condition would be houses in an area subject to sinkholes, like central Florida where an occupant was killed when his house collapsed. More indirectly, health-related problems whether real or imagined, can impact property marketability or value, like the asbestos scare or perhaps if the house is Haunted! The Seller’s knowledge of active termites and damage, flooding, toxic wastes, previous fires, landfill, settling, soil movement, fault lines and manufacture or sale of methamphetamine, must all be revealed in a Seller’s Disclosure of Property Condition. If the seller fails to provide the notice required by the statute, the purchaser may terminate the contract for any reason within seven days after receiving the notice.

Tilting the Scales in Your Favor.

If you own or intend to purchase real property, consider the following:

  • GOOGLE the property address and ask questions about prior usages and property circumstances, and know that your buyer or seller is likely to do the same;
  • In Texas carefully review and complete the Seller’s Disclosure of Property Condition for residential sales, knowing that if you are the buyer there may be more to the disclosure list than meets the eye, and if a commercial transaction, consider the same questions and responses;
  • Even if there are no disclosed property conditions or physical stigmas, separately investigate if there may be and, if so, try to determine whether the stigma is based on rumor or fact;
  • If it’s a fact, consider how material it is to the transaction—how sensational was the event, how long ago did the event occur, would it likely impact the purchase price or resale value;
  • Discuss the physical stigma, its accuracy, perceived impact and likely consequences with your broker to evaluate the impact upon the value of the property and / or the risk of legal liability and responsibility;
  • Generally speaking, more informative disclosures are better. Doing so, in writing, reduces the likelihood that a subsequent lawsuit will be successful and, therefore reduces the risk that a contingency fee lawyer will be interested in taking the case.

Lawsuits stemming from nondisclosure of a property’s problems were ranked by real estate brokers in the National Association of Realtors 2011 Legal Scan as among their “top three current and future issues.” It is almost certain that neighbors will later inform buyers about deaths and other physical stigmas related to the property. Whether the physical stigma may be a death involving or any other stigma not specifically covered by a duty to disclose, sellers may choose to voluntarily disclose information about all stigmas to avoid contract termination or worse yet, subsequent litigation.

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