3.2 Residential Disclosures, Lead-Based Paint, and Environmental Due Diligence

3.2 Residential Disclosures, Lead-Based Paint, and Environmental Due Diligence

Auction is a sale method, not a disclosure exemption: Determine the property type, transferor, and statutory exception before deciding what must reach bidders.

Texas Seller’s Disclosure Notice

Property Code § 5.008 generally applies to a sale of residential real property containing not more than one dwelling unit. The seller gives the purchaser the statutory written notice disclosing the seller's actual knowledge of the property's condition.

The statute lists exemptions for defined transfers, including certain court-ordered or foreclosure transfers, transfers by specified fiduciaries, transfers between co-owners or certain family members, new residences not previously occupied, and property where the dwelling's value is five percent or less of the total property value.

Do not create a broad “auction exemption.” A living owner voluntarily auctioning an ordinary single-family residence can remain within § 5.008.

If the purchaser does not receive the notice before the effective date of the executory contract, the purchaser may terminate for any reason within seven days after receiving the notice or before closing, whichever occurs first. Delivering the notice in the bidder package before the purchaser becomes obligated is the safer process.

The notice is based on the seller's actual knowledge and is not a substitute for inspection. The seller and auctioneer should not fill gaps with guesses or describe an exempt transfer as proof that no defects exist.

“As Is” and Fraud

A valid “as is” allocation can affect claims, but it does not authorize a knowingly false answer, concealment, or failure to give a notice that law requires. Catalog statements about flood history, roof, foundation, utilities, or environmental conditions should be supported.

If a material fact changes before the auction, correct the disclosure and notify bidders. Preserve the notice, delivery acknowledgement, and updated information.

Federal Lead-Based-Paint Disclosure

Federal law generally covers target housing built before 1978. Before the purchaser becomes obligated, the seller or agent provides:

• the EPA pamphlet, “Protect Your Family from Lead in Your Home”;
• disclosure of known lead-based paint and hazards;
• available records and reports;
• the required lead warning statement and acknowledgements; and
• a 10-day opportunity for lead inspection or risk assessment, unless the parties agree in writing to a different period or waiver.

Signed disclosure records are generally retained for at least three years.

The federal law has defined exemptions, including certain zero-bedroom dwellings, housing for elderly or disabled persons when no child under six is expected to reside there, qualifying short-term leases, and foreclosure sales. Renovation and known-child occupancy facts can change an exemption. Therefore, “all pre-1978 housing transfers universally require the package” is too broad.

Auction terms should incorporate the opportunity or a lawful written waiver before bidding. The fast pace of the event does not justify presenting the form after the winner is already obligated.

Commercial and Rural Environmental Review

Commercial, industrial, and rural property can present underground tanks, dumping, pesticides, dry-cleaning chemicals, oilfield operations, wetlands, or other environmental issues. Buyers often obtain a Phase I Environmental Site Assessment under the current ASTM standard as part of federal all appropriate inquiries.

A Phase I report does not guarantee clean property and does not itself grant immunity. It is typically nonintrusive and may recommend further work. Bona fide prospective purchaser protection under CERCLA has other conditions, such as acquisition timing, no prohibited affiliation with a liable party, required notices, cooperation, compliance with land-use restrictions, reasonable steps regarding releases, and information requests.

Avoid the inaccurate statement that every current owner is automatically jointly and severally liable regardless of divisibility or statutory defenses. CERCLA liability is powerful, but causation, divisibility, defenses, and protected-party status require legal analysis.

Auction Due-Diligence Room

Before the event, assemble the disclosure notice or exemption basis, lead documents, title commitment, survey, environmental reports, permits, notices of violations, leases, and known remediation records. Give every bidder equal access and log receipt.

Do not describe an inspection report as a warranty. State its date, author, scope, reliance rights, and whether the bidder must obtain independent advice.

Examples

A homeowner voluntarily auctions a 1965 single-family home. No state exemption applies. The § 5.008 notice and federal lead package should be delivered before the winning bidder is obligated, with the inspection opportunity or written waiver addressed.

A lender conveys property through a qualifying foreclosure sale. State and federal exemptions may apply, but the title, environmental, and truthful-advertising duties do not disappear.

Exam Method

Ask: What property? What transfer? Which exact exemption? When was the notice delivered? What did the seller actually know?