A bank has taken title to a single-family home through foreclosure and now lists it as an REO (real estate owned) property. The bank's listing agent knows the home has a chronic roof leak that caused hidden attic damage. Under typical seller disclosure statutes, what is the most accurate statement about this situation?
- ABecause the bank never occupied the property, neither the bank nor its agent has any duty to disclose the roof problem.
- BThe bank must personally complete a full seller's disclosure statement because corporate and institutional sellers are never exempt.
- CMany states exempt certain sellers, such as foreclosing lenders, from completing the standard seller's disclosure form, but the listing agent must still disclose known material facts to prospective buyers.
- DDisclosure is unnecessary because a roof leak is a patent defect that any buyer could discover during a routine walkthrough.
Show answer & explanationAnswer & explanation
Correct answer: C. Many states exempt certain sellers, such as foreclosing lenders, from completing the standard seller's disclosure form, but the listing agent must still disclose known material facts to prospective buyers.
Most states carve out statutory exemptions from the seller's property disclosure form for certain transferors (fiduciaries, foreclosing lenders, court-ordered sales), because they lack personal knowledge of the property's history. However, this exemption applies to the seller's disclosure form obligation, not to a licensee's independent duty to disclose known material facts affecting value or desirability. Attic water damage from a chronic leak is a material fact regardless of who owns the property.
Why the other options are wrong
- A. Incorrect—agents have an independent disclosure duty for known material facts even if the seller is exempt from the form requirement.
- B. Incorrect—foreclosing institutions are commonly exempt from completing the disclosure form itself.
- D. Incorrect—hidden attic damage from a leak is latent, not necessarily visible during a walkthrough, and must still be disclosed if known.
Disclosure Form Exemptions vs. Agent Duty
Certain sellers (e.g., lenders in foreclosure sales, fiduciaries, estates) are often statutorily exempt from completing the standard seller's property disclosure form, but licensees remain obligated to disclose known material facts.
- Common exemptions: foreclosure/REO sales, court-ordered transfers, new construction, transfers between co-owners
- Exemption applies to the disclosure FORM, not to the licensee's independent duty to reveal known defects
- Agents must disclose material facts they personally know, regardless of seller's exempt status
Memory trick: Exempt from the FORM, not from the TRUTH.