Expert: Todd C. Menard - 1/11/2008

Question
Hello,
I purchased a house in September of 2007.  The previous owners lived in the house for only 9 months.  Before they purchased the house, a special assessment district was established for water line repairs and street maintenance.  This work was conducted in the summer of 2006 but the assessment finally hit the books in October of 2007.  The previous owners did not disclose the fact that there were pending specials on the house with a balance of $5000.  Do we have a case to bring to small claims court requesting the balance be paid by the previous owners because they did not disclose the pending special assessment amounts?


Answer
Hello Gabe -

Let me preface my reply with the disclosure that I am not a real estate attorney and I would recommend if you feel you have been wronged you should contact a real estate attorney for legal advice. I apologize for taking so long in returning your answer.
A seller has a responsibility to disclose material facts to the buyer. In Arizona a material fact is any information that would affect the consideration to be paid for a property. Although a Seller is not responsible for the failure to disclose items that a Seller could not have reasonably been aware of. Of course this is left for interpretation in court if it is not blatant or obvious.
Therefore, if the seller who sold the property to you (Seller B) has never been made aware of this fact from the previous seller, and has never been made aware of this fact during his tenure as owner of the property, there may be no liability on behalf of Seller B. We cannot enter into a discussion with regard to the first sale since it would be pure speculation. Although, if a neighbor were to provide you with communication that they received from the district during Seller B's ownership, or if the district could prove that a mailing was sent to homeowners in that district and Seller B's address is on that mailing list then this would increase the likelihood that Seller B 'should have known' about the situation and purportedly failed to disclose it to you. At the point this information is received you would then want to contact an attorney should you wish to pursue a claim against Seller B. You might also ask the real estate agent who listed the home on behalf of Seller B if they were aware of the district assessment. This may be an additional avenue.
In Arizona this information is usually disclosed on the Seller's Property Disclosure Statement which is provided to the Buyer no later than day 5 after a contract has been signed. The Buyer must act diligently during the Inspection Period to review and investigate any items found that the Buyer may disapprove of. In this case liens.
The AAR Real Estate Purchase Contract 05/05 provides the Buyer an opportunity to stipulate within the contract terms how liens that are liens as of the close of escrow shall be handled. To promote your complaint this box must state that these liens shall be "paid in full by Seller" prior to the close of escrow. The Contract also states that should a Seller be made aware of any information during the escrow period that may be different from something previously disclosed or new information not previously disclosed the Seller is obligated to make the Buyer aware. The Buyer would then be allowed 5 calendar days to review this new/changed information and elect to either immediately cancel the contract and receive a full refund of earnest monies deposited or give the Seller the opportunity to correct such items. In this case even if the Seller B learned of this information any time prior to close of escrow Seller B would have been obligated to tell you. Failure to do so would potentially open Seller B to exposure. To what extent would require the counsel of a real estate attorney.
I hope this information assists you in determining if Seller B could have known about these liens prior to closing escrow with you.
Please contact me if you have additional questions. Once again, please excuse the delay in my reply. Thank you -