1. Disclosure and Due Diligence
Richard V. Mack
and
Frank Dickens

2. Learning Objectives
Avoid the risks associated with failing to make the required disclosures to clients and nonclients.
Identify required seller disclosures as required by common law and Arizona statute.
HO pg 5

3. Identify items required to be disclosed by buyers in a transaction.
Explain the use of the Buyer Advisory in assisting buyers with due diligence inspections and investigations.
Avoid risks associated with buyers failing to complete the appropriate inspections and investigations.

4. What you don’t know can hurt you!
Unit 1: Disclosure
What you don’t know can hurt you!

5. Broker Disclosures
What risks are associated with failing to make the required disclosures to clients and non clients?

6. Jennings v. Lee
The court’s decision highlighted the broker’s duty to disclose to his client information in his possession pertaining to the transaction.

7. Morley v. J. Pagel Realty & Insurance
The broker had a duty to:
Effect a sale for the client on the best terms possible
Disclose to the client all information in his possession that pertained to the transaction
Give the clients an opportunity to obtain advice elsewhere if he couldn’t give competent advice

8. Mason v. Bulleri An appellate court found that:
The broker had seriously breached fiduciary duty by failing to disclose that the buyers would be unable to complete the purchase if the sellers retained security interest in the property
The broker also breached fiduciary duty by presenting a lower offer and not disclosing that the buyers were willing to pay a higher price

9. Kimmel v. Clark The trial court found that:
“A broker employed to sell property may not, without the principal’s full knowledge and consent, become the purchaser”
A fiduciary relationship existed between the broker and the seller, and had clearly been breached by the broker for failing to disclose a relationship with the buyers

10. Lombardo v. Albu
The buyer has a duty to the seller to disclose facts critical to the ability to perform.
The financial wherewithal of the buyer to perform the contract is not confidential information.

11. Aranki v. RKP Investments
After a trial, the court found:
The listing broker was not liable to the buyers for passing along information obtained from the seller without proof the listing broker knew or should have known the information might be false

12. Broker Disclosure List
Disclosures to Seller Clients
Disclosures to Buyer Clients

13. Seller Disclosures

14. Hill v. Jones The court found:
A seller has a duty to disclose facts materially affecting the value of the property which are not readily observable and are not known to the buyer.

15. Universal Inv. Co. v. Sahara Motor Inn, Inc.
If the buyer asks the seller about an aspect of the property, the seller has a duty to disclose the information whether or not the seller considers the information material.

16. S. Development Corp. v. Pima Capital Management Co.
The court held that known latent defects in a property must be disclosed regardless of whether the property is being sold “as is”.

17. Buyer Disclosures

18. Statutory Disclosures

20. Specific Disclosures Lead Based Paint Swimming Pool Barrier
Planned Community/Condominium
Affidavit of Disclosure
Meth Lab (and other dangerous drugs)
Subdivision Disclosures/Public Reports

21. Lead-based Paint Disclosure

22. Swimming Pool Barrier Disclosure

23. Planned Community/Condominium Disclosure Information

24. Affidavit of Disclosure

25. Meth/Drug Lab Disclosure

26. Subdivision/Public Reports Disclosure

27. Unit 2: Due Diligence

28. Due Diligence & the Buyer Advisory

29. Document Review MLS Printout Subdivision Public Report SPDS CC&Rs
HOA Governing Documents
HOA Disclosures
Economic Items
Title Report/Title Commitment

30. Document Review Loan Documents Home Warranty Policy
Affidavit of Disclosure
LBP Disclosure Form
County Assessors/Tax Records
Professional Home Inspection Report
Termites & Other Wood Destroying Insects and Organisms

31. Physical Inspections Home or Property Inspections
Repairs and New Construction
Roof*

33. Wood Destroying Insects & Other Wood Destroying Organisms
Swimming Pools and Spas
Square Footage
Sewer, Septic and Other On-Site Wastewater Treatment Facilities*

35. Water/Well Issues
Soil Conditions
Previous Fire/Flood
Pests*

37. Endangered & Threatened Species
Deaths & Felonies on the Property
Indoor Environmental Concerns
Property Boundaries*

39. Flood Plain Status
Insurance (Claims History)
Other Property Conditions

40. Surrounding Area Conditions
Environmental Concerns
Electromagnetic Fields
Superfund Sites*

42. Freeway Construction & Traffic Conditions
Crime Statistics
Sex Offenders
Military & Public Airports*

44. Forested Areas
Zoning/Planning/Neighborhood Services
Schools
City Profile Report

45. THANK YOU!