6.2 Disclosure Obligations, Stigmatized Property, and Liability

Disclosure obligations

The duty to disclose is built on a single distinction: material facts must be disclosed; mere opinions and non-material details need not be. A material fact is one that would affect a reasonable buyer's decision to purchase or the price they would pay.

Latent vs. patent defects

The exam draws a sharp line between two defect types:

Latent defects drive litigation because the buyer cannot protect themselves by inspection. A seller who knows the basement floods every spring but conceals it has committed actionable misrepresentation, and an agent who knew and stayed silent shares the liability.

The erosion of caveat emptor

The old rule of caveat emptor ("let the buyer beware") placed the entire burden on buyers. Modern law has narrowed it dramatically. Today, active concealment and silence about a known material defect can both be misrepresentation. The licensee's duties run in two directions:

• To the seller/client: loyalty and confidentiality — but confidentiality never covers concealing a material defect from a buyer.
• To third-party buyers and customers: honesty and disclosure of known material facts; no fraud.

The trap answer says an agent must hide defects to protect the seller. Wrong: an agent may not facilitate fraud. Fiduciary duty to the seller stops at the line of misrepresenting the property to a buyer.

What is a material fact?

Material facts include physical defects (roof, foundation, systems), environmental hazards from Section 6.1, encroachments, and known title or boundary problems. They generally do not include the licensee's opinion of value, normal wear, or, in most states, stigmas.

Stigmatized property

A stigmatized property carries a psychological or reputational mark unrelated to its physical condition: a prior death, suicide, homicide, alleged criminal activity, or even rumored hauntings. Because the stigma does not affect the building's structure, most states do not require disclosure, and many have statutes that expressly shield licensees from liability for not disclosing it.

Two limits matter:

• A licensee must not affirmatively lie if directly asked (depending on state law); the protection is usually for silence, not for active fraud.
• Fair housing overrides everything here. It is illegal to disclose whether a prior or current occupant had HIV/AIDS — a protected disability under the federal Fair Housing Act. Likewise, do not steer or volunteer protected-class information about occupants.

The classic trap pairs a "haunted house" or "site of a death" with a buyer's general question. Unless state law requires it, those facts are typically non-material and not required disclosures.

Megan's Law and sex-offender data

Under Megan's Law, sex-offender registry information is publicly available, and many states direct licensees to refer buyers to the public database rather than research or vouch for offender locations themselves. The safe answer is to point the buyer to the official registry. A licensee who researches and represents offender data risks both inaccuracy and liability, so referral to the public source is the protective practice.

The distinction to hold onto: a physical material defect (a leaking roof, a cracked slab, a known environmental hazard) almost always must be disclosed when known, while a psychological stigma (a death, a crime, a rumor) is governed by state statute and usually is not required and is often statutorily shielded.

Environmental liability — CERCLA

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, 1980), the "Superfund" law, governs liability for hazardous-waste cleanup. Its three liability features are heavily tested:

1. Strict liability — an owner is liable regardless of fault; they need not have caused the contamination.
2. Joint and several liability — any one responsible party can be held liable for the entire cleanup cost, then seek contribution from others.
3. Retroactive liability — liability reaches back to acts that occurred before the law was passed.

The people on the hook are Potentially Responsible Parties (PRPs): current owners/operators, owners/operators at the time of disposal, generators, and transporters.

Defenses and the innocent landowner

CERCLA recognizes an innocent landowner defense for a buyer who conducted all appropriate inquiry (an environmental due-diligence assessment, often a Phase I Environmental Site Assessment) before purchase and found no reason to suspect contamination. This is why commercial buyers order Phase I assessments — to preserve the defense.

Worked liability example

Three successive owners contributed to soil contamination on a parcel; total cleanup is $900,000. Under joint and several liability, the EPA may pursue the current owner alone for the full $900,000, even if that owner caused only a fraction of the harm. The current owner then sues the prior owners for contribution — perhaps recovering $300,000 from each of the other two. The exam point: the government's recovery is not limited to a single owner's proportional share.

Common traps

• Saying CERCLA liability requires proof of fault — it is strict liability.
• Assuming each PRP pays only its share — liability is joint and several.
• Disclosing an occupant's HIV/AIDS status — a fair-housing violation.
• Treating a stigma (death, crime) as a required physical-defect disclosure — usually it is not.
• Letting fiduciary duty to the seller justify concealing a known material defect — it never does.