Iowa's Real Estate Disclosure Act - A Trap for the Unwary
If you have bought or sold a home in Iowa, you are familiar with real estate disclosures: those check-the-box forms which seller's must fill out disclosing problems with plumbing, roofing, heating and air-conditioning, and other matters. The obligation for the disclosure arises under Iowa Code Section 558A. In its ultimate wisdom and reflection of its knowledge of the industry, the legislature chose to dismiss with the chore of determining the particulars of such a disclosure and permit the Iowa Real Estate Commission to create the actual disclosure form. As a result, seller's actually have the obligation to investigate into the zoning of the property they are selling: an obligation the vast majority of seller's have no clue about. This legislation also creates liability on a seller for a failure to exercise ordinary care in obtaining the information to make the disclosure. What? So what must a Seller do? How much investigation constitutes ordinary care? How much must a buyer rely upon their own investigations? None of these questions are clearly answered.
In Jensen v. Sattler (Iowa 2005), the Supreme Court addressed a claim that a seller could only be liable for an erroneous disclosure if there were proof of actual fraud. Reviewing a statue clearly stating the seller could be responsible for the failure to exercise ordinary care, the Supreme Court rejected the fraud argument. Neither party raised the issue of how the ordinary care standard is to be applied and the Supreme Court did not specifically address it; however, the Supreme Court suggests the failure to exercise ordinary care in this situation is akin to negligence. In other words, if a buyer can prove mere negligence in the preparation of a disclosure and damages result, there is a good possibility the seller could be held responsible.
So....prepare those disclosures carefully and error on the side of disclosing too much. In the meantime, talk to the Iowa Real Estate Commission about preparing a form with fewer traps. Or, better yet, let's get the legislature to define a more reasonable standard -say willfulness, fraud or gross negligence. Mere negligence simply creates an undue burden on sellers and unjustified ammunition for unscrupulous buyers.
