2.3 Michigan Disclosure Requirements

The Michigan Seller Disclosure Act

Unlike some states, Michigan has a mandatory seller disclosure statute. The Seller Disclosure Act (MCL 565.951 et seq.) requires the seller of one-to-four family residential property to deliver a completed Seller's Disclosure Statement (SDS) to the buyer. The SDS is the seller's good-faith statement of the property's condition (appliances, roof, basement seepage, well/septic, environmental issues, etc.).

Timing and the buyer's termination right

The SDS must be delivered before the buyer makes a binding purchase agreement. If the seller delivers it after the offer, the buyer may terminate within:

Exemptions

The Act exempts certain transfers, including:

• Court-ordered sales (foreclosure, probate, divorce)
• Transfers between co-owners or to a spouse/relative
• Transfers by a fiduciary administering an estate or trust
• New construction never occupied

Exam trap: A foreclosure or estate sale is exempt from the SDS — a favorite distractor. But the licensee's own duty to disclose known adverse material facts is not waived by the exemption.

Adverse Material Facts vs. Stigmatized Property

The licensee must disclose known adverse material facts about the physical condition of the property — facts that affect value, are not readily observable, and would influence a reasonable buyer. Examples: a cracked foundation, recurring basement flooding, a failed septic field, or active mold.

The stigmatized-property safe harbor (MCL 339.2518)

Michigan law specifically does NOT require disclosure that a property was the site of certain non-physical events:

A licensee is not liable for failing to disclose these stigmatizing facts. However, the agent may not affirmatively lie if directly and specifically asked.

Federal Disclosures Layered On Top

Lead-based paint (pre-1978 housing)

Federal law (Residential Lead-Based Paint Hazard Reduction Act) applies regardless of Michigan rules:

Other federal overlays

• Flood-zone notice when a federally related loan requires it
• RESPA disclosures for federally related mortgage loans
• Fair Housing — no discriminatory steering or representations

Recordkeeping

Brokers must retain agency disclosures, the SDS, the lead addendum, agreements, and trust-account records. Per LARA rules these are generally kept at least three years after a transaction closes or terminates.

Exam tip: "If it isn't in writing, it didn't happen." Document and keep copies of every disclosure.

The Seller's Disclosure Statement in Detail

The statutory SDS form walks the seller through the home's systems and asks the seller to mark each as functioning, not functioning, or unknown. Major line items the exam may reference include:

Good faith, not a warranty

The SDS is the seller's good-faith disclosure of known conditions — it is not a warranty and does not substitute for a professional inspection. A seller who completes it honestly is generally shielded from later liability for a defect they did not know about. A seller who knowingly conceals a defect can be liable for fraud, and a licensee who helps conceal a known defect shares that exposure.

The licensee's independent duty

Even when the SDS is exempt (foreclosure, estate, new construction) or when the seller checks "unknown," the licensee's own duty to disclose known adverse material facts survives. If the listing agent personally saw water pouring through a foundation crack during a showing, the agent must disclose it regardless of what the seller wrote.

Putting the Timing Rules Together

Scenario: A buyer signs an offer on a 1972 home, then learns no lead pamphlet was given and the SDS arrived two days later by registered mail. The buyer has a federal 10-day lead test window AND a 3-day SDS termination right from the postmark — two independent escapes the exam loves to combine.

Disclosure cheat sheet

• Must disclose: known physical defects, water intrusion, failed septic/well, structural and roof problems, environmental hazards on the SDS.
• Need not disclose: deaths, suicides, homicides, prior occupant illness (HIV/AIDS), felonies on site — protected by MCL 339.2518.
• Federal overlay: lead-based paint for any home built before 1978, with a 10-day buyer test period.
• Buyer rescission: late SDS gives 72 hours (in person) or 120 hours (registered mail) to terminate.