Saturday, August 20, 2005


Stigmatized Properties: Disclosure of Latent Defects

Latent defects are those hidden or concealed defects that would not be discovered in the course of a reasonable inspection. Latent defects are the opposite of patent defects, which by definition are defects plainly visible or that can be discovered in the course of a reasonable inspection. In real estate, although misrepresentation normally requires a statement to be made to the Buyer silence can also result in some liability on the part of the Seller. Prior to entering into a Contract to sell real estate the Seller is required to disclose to the Buyer any latent defects the Seller is aware of. Failure to disclose will not affect the consent of the parties, but will have similar consequences as misrepresentation.
Technically speaking, latent defects are facts that :
1) are unknown to the Buyer and are so crucial to the enjoyment and value of the property that the Buyer might not have entered into the Contract had he known they existed and
2) cannot be discovered upon reasonable inspection of the property.
An example of a latent defect in one case was the presence of an underground water culvert which was not apparent from a normal inspection of the land and which the Seller was aware of and failed to disclose. If the Seller does not disclose the existence of a latent defect, the Buyer can rescind the Contract and/or recover damages. Other more typical examples of latent defects are the existence of urea formaldehyde foam insulation or asbestos insulation in a property offered for sale. However, the Seller will not be held liable for failing to disclose a latent defect he was unaware of unless a reasonable person would have been aware of it.
Some latent defects are out of the ordinary but must still be disclosed if known to the Seller. For instance, properties rumored to be haunted are one such example, as is a property previously used as a site for a marijuana grow operation. In one recent court case, a luxury condominium where someone had committed suicide was held as a property with a latent defect that the Seller had a duty to disclose to the Buyer. These are known as 'stigmatized properties' because they are associated with a 'stigma' , an unusual, distressing event or circumstance such as murder, suicide or criminal activity. These properties may be worth less or could be hard to resell because prospective Buyers might not consider them. As such, the market for stigmatized properties is drastically reduced - and so is their value.
Luigi Frascati

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