Disclosure in buying and selling – leaky pipes, murders, and ghosts.

When looking into entering the real estate market, there may be a few questions as to what exactly you have to tell prospective buyers, those who are about to actually purchase your home or what exactly the sellers have to let you in on when you yourself are the potential buyer.

Do you have to mention that the basement has a tendency to flood, or that pesky double homicide that occurred in the house 20 years ago?

What about the former homeowner who committed suicide because his lottery numbers came up the one day he didn’t bother to play them? Do you even want to know about these happenings before choosing a home?

What are the laws regarding the disclosure of certain factors during house selling? With regards to physical problems in the structure, one must first understand the difference between a patent and latent defect.

A patent defect is one that is extremely obvious during a regular inspection of the property. One does not have to disclose something that is visible, for example, mold that is readily seen or broken windows and other structures. A latent defect is something unseen and unknown – poorly insulated plumbing leading to pipes having a tendency to freeze and burst in the winter or an illegal basement apartment are examples of latent defects that must be disclosed.

Traumatic events occurring near or on the property are referred to as psychological defects. The law is not as clear on the ins and outs of the disclosure of these psychological defects, or “stigmatized property” as these lots can sometimes be referred to.

Tragic events like these are typically well known throughout neighbourhoods and easily become stories retold for generations. They are generally covered by the media and can be found by googling the neighbourhood or address, and cannot be kept secret for long, and ghost stories can even boost the mystery and value of your home.

A Canadian example of a far less damaging psychological defect is a case that went to court in 2003 in British Columbia, when the buyers were unaware when they bought the home that there was a nude beach next door and that they would be subjected to plenty of naked people running about in the summer time. The buyers did not notice upon original inspection, and the sellers did know and did not disclose this information. The Court of Appeal ruled in favour of the sellers as naked people did not constitute a latent defect in their opinion.  Courts in the United States have been less forgiving than Canada in their rulings, as in the 1980’s a woman purchased a home in California not knowing that a woman and her four children had been murdered there. The Court of Appeals ruled in her favour to set aside the sale.

The same consequence occurred in New York in 1989 when a man purchased a home that appeared to come with less than friendly roommate who just happened to be a ghost. He was able to get his deposit back, despite the unprovable validity of the ghost claim.

Because of cases like these, laws in the United States have evolved to include the disclosure when selling properties where murders have occurred.

The general laws when it comes to disclosure in Ontario are not nearly as developed and are very much “buyer beware”, not dealing with much other than physical defects, but not disclosing defects of any kind can result in a lack of credibility of the seller once the deal is done and could possibly bring on lawsuits later on – after all, the laws in the United States were created following the legal actions taken in the disclosure cases.

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