Video on Coronavirus: Disclosure Issues
In response to the Coronavirus, the Governor of Washington has ordered that in-person meetings with customers are prohibited except when necessary for a customer to view a property or sign necessary documents; no real estate open houses are permitted; and property viewings, inspections, appraisals, and final walk-throughs must be arranged by appointment and limited to no more than two people on-site at any time, exercising social distancing at all times.
Agents in Nevada are already feeling the impact of the COVID-19 and these same restrictions may eventually be imposed in Nevada. Drizin Law has released a series of informational videos to provide commonsense advice regarding best practices in these tumultuous times.
Lee Drizin: Hi, everyone. This is attorney Lee Drizin, and this is the second in our series of presentations regarding the Coronavirus. Today’s presentation is addressing one of the areas that traditionally has been the greatest source of liability against real estate licensees, and that is disclosure issues.
We’re going to look at these issues from two perspectives. The first relates to questions that are posed regarding the seller’s obligations, and that is whether a seller has to disclose to potential buyers if he or she or someone in the household has tested positive for COVID-19.
The other perspective, just as important, is the perspective of the obligations of the seller’s agent. My seller has a positive diagnosis for the Coronavirus. What are my obligations as the seller’s agent to release that information to the buyer, inspectors, and members of the public who’ve been to the property? Let’s start first with the perspective of the seller’s obligations to disclose.
Seller’s Obligations Under NRS 113.
According to the National Association of Realtors, sellers must make this disclosure. What I’d like to do is go through a series of steps of analyzing this so that you understand why I believe this is the correct interpretation that should be followed by all agents. The obligation of the seller to make disclosures is based on Nevada Revised Statute 113. NRS 113 requires the seller to complete the Seller’s Real Property Disclosure Form. The most relevant question regarding this particular type of disclosure is question number 11 which asked any other conditions or aspects of the property which materially affect its value or its use in an adverse manner.
What’s interesting is some agents have taken the position that the Coronavirus isn’t a condition on the property, that it’s not like, for example, mold where there’s water intrusion and mold contamination that adversely affects a system in the house. This is a distinction that it’s a little confusing, to say the least because not all Seller’s Real Property Disclosure Forms ask this question in the same manner.
Whether the value of the home is materially affected.
For example, in Texas, the disclosure form asks if the seller is aware of any condition on the property, which materially affects the health or safety of an individual. We don’t have that question on the Nevada form. Our form deals with issues affecting the value or the use. If we were answering the Texas form, this would be a no-brainer. We would certainly be counseling our sellers to disclose.
The question about whether the fact someone in the home had an infectious disease is materially affects the value of the home in an adverse manner is an interesting one. There was a study that just came out a couple of weeks ago from Zillow entitled “Information From Past Pandemics, And What We Can Learn: A Literature Review”. What’s interesting is they noted that during epidemics such as the 1918 influenza or the 2003 SARS outbreaks, economic activity fell sharply during the epidemic. No big surprise there. They noted that the pattern differs from a standard recession, which is a situation where the economic activity falls for 6 to 18 months and then recovers more slowly.
During the SARS outbreak, Hong Kong houses did not fall significantly. Although, the number of transactions did in fact decrease significantly. It’s so early. At this point, it’s not entirely clear what effect this will have on prices. We certainly know that sellers are becoming concerned and are withdrawing properties, but there’s a lot of properties that remain on the market and more that are being introduced to the market.
The Coronavirus Addendum.
One of the things that we have seen is buyers in numerous instances attempting after they’ve entered into the residential purchase agreement to get the sellers to execute the Coronavirus addendum that was recently released by the LVR. When there’s pushback on that, they’re asking for price concessions.
In a number of these cases, some of the concessions have been just so ridiculous that we’ve just simply rejected it and refunded the earnest money deposit and put the property back on the market. I think time will certainly tell whether or not this is going to have a materially adverse effect or not.
The reasons disclosures should be made.
The concern is that because the World Health Organization has indicated that it is a condition that the mere transmission can be completed by virtue of the fact that if the virus touches a surface, it can exist for a certain period of time.
On plastics, they have estimated that it’s generally three to four days. For metal surfaces, it’s less than that. On paper and porous services, it’s even less than that. The problem is that conceivably as a seller, they are inviting someone in to conduct an inspection or a viewing and there could be Coronavirus on these surfaces.
If somebody touches that surface and then puts their hand to their mouth or to their eyes or to their nose, they could transmit the Coronavirus in such a manner. I think that even for the agents that have a concern about whether it’s going to really impact values that much, the question is, is it going to impact use in an adverse manner? It easily could.
The reality is that that may only be a week and therefore considered inconsequential. Nevertheless, it could be deemed to be considered an adverse use of the property if someone in there has had Coronavirus. Even if all of that aside, even if agents think, “You know what, I don’t see it, I don’t think that it needs to be disclosed because the statute doesn’t require it,” I think you’re being shortsighted because in addition to statutory liability sellers could face what’s called common law liability and that is a lawsuit for negligent transmission of an infectious disease.
Possible common law liability.
In Nevada, a negligence case requires four elements: a duty to use reasonable care, a breach of that duty, proximate cause, in other words, that breach of the duty ended up proximately causing or resulting in the fourth element which are the damages to the plaintiff.
The proximate cause issue is probably the most interesting one because we think it’s going to be difficult for plaintiffs to be able to prevail in those cases. It really depends on each set of circumstances because the problem is that someone could be exposed to the Coronavirus and not display any type of symptoms for days. Then they go into view a home and then subsequently become ill. It may not be that the exposure to the house is where the disease was transmitted and it occurred at some event prior to that.
To satisfy this causation element, the plaintiff has to show that the defendant’s negligence resulted in injuries that would not have otherwise occurred. This legal causation requirement means that the defendant must be able to foresee that his negligent actions resulted in the harm of this particular variety. In other words, in order to establish proximate cause, the linchpin is foreseeability.
In determining foreseeability, the defendant doesn’t necessarily have to foresee the extent of the harm. They don’t have to foresee the manner in which it occurred. They need only be able to foresee that the negligent conduct could have caused this particular variety of harm to the plaintiff.
In a 2006 California Supreme court decision, which relied upon in a North Carolina finding, the court said it is a well-settled proposition of law that a person is liable if he negligibly exposes another to a contagious or infectious disease.
That’s the concern is that if the sellers don’t take reasonable steps and those steps would not just be to sanitize, but to also warn of potential exposure, it’s clear that at least under the California law that there is a claim for common law negligence relating to the transmission of the infectious disease. The moral of the story here is be careful, be extremely careful before you advise a client that there’s no duty to disclose that someone in the home has been exposed to or has the Coronavirus.
Disclosure obligations of the Seller’s Agent.
Let’s take a look now from the seller’s agent perspective. Under NRS 645252, the licensee who acts as an agent in a real estate transaction has to disclose to each party, not just his party, but both parties in the transaction as soon as practicable, any material and relevant facts, data or information which the licensee knows, which by the exercise of reasonable care and diligence, they should have known relating to the property.
Anti-Stigma Statute may not include Coronavirus
Again, I can see agents taking the position, “Well, it doesn’t really relate to the property, the fact that somebody is sick that was in the property. How does that relate to the property?” I think the analysis of the same, it is the concern about the contamination to the surfaces.
One of the interesting issues is that in Nevada we have what’s called an anti-stigma statute. NRS 40.770 provides that the fact that the property has or has been occupied by a person exposed to human immunodeficiency virus or suffering from acquired immune deficiency syndrome or any other disease that is not known to be transmitted through the occupancy of the property is not material to the transaction.
In other words, in Nevada there are certain things that by statute are not material and if our obligation as a licensee is only to disclose certain material facts and data, then no disclosure is required. What’s highlighted here is this language that it is a disease not known to be transmitted through the occupancy of the property.
On HIV, they’ve made that determination that touching a surface doesn’t enable someone to have HIV or to transmit it that way, but that isn’t the case with the Coronavirus. So I think anybody who’s trying to rely upon the anti-stigma statute, you’re going in the wrong direction.
I think that, again, because the World Health Organization is saying that someone could catch COVID-19 by touching the contaminated surface and then touching their eyes or their nose or their mouth, the failure to make that disclosure would be considered a material condition that you need to disclose based on the statute NRS 645252, but again, I am equally concerned about potential liability against agents not making that disclosure and then facing negligence cases and the NAR indicates as well that seller’s agents must make the disclosure.
I think the best practices in this area of disclosures are really sample. When in doubt, disclose, disclose, disclose. It’s really important that you sit down with your client and make them aware of the fact that there is this potential contamination issue because it could exist on the surfaces.
That means that not only should they be sanitizing, but nevertheless, because we have no way of guaranteeing that they’re going to sanitize every single area that someone might touch that has the Coronavirus, it’s important to make the disclosure, and I think you address this open and honestly with them.
Use this as a selling point also to show that the steps that people have taken to make this a safe house, a clean house, an environment that someone can come into, but nevertheless offer that additional layer of protection by making the disclosure, now putting the ball in the court of the buyer, but most importantly, if the seller’s agent is the one that’s going to make the disclosure, always make sure that you get written permission to do so.
Anyway, those are some of our suggestions regarding disclosure issues. In the meantime, be safe, be smart, and if you have questions, please don’t hesitate to reach out to us. We’ll talk with you soon.