In 2003, the Oregon Legislature passed Senate Bill 515, which eliminated the disclaimer option allowed in real estate transactions, instead requiring sellers of residential real estate to disclose certain issues of which they were aware to potential buyers. Prior to the passage of SB 515, sellers could simply sell a house “as-is,” disclaiming any knowledge about the structure or other problems, thus leaving a buyer to conduct his or her own due diligence.
While the legislature arguably had good intentions in passing this law, it may lead to problems. For example, the Oregon Department of Consumer and Business Services (DCBS) is now erroneously claiming that the law requires people to obtain permits for previous work done in their homes in order to sell their home. This is more than inaccurate; it is misleading and will likely cause many to spend hundreds of dollars on assessments of permits, only to find out that they’ll need to spend hundreds or thousands more on bringing a house “up to code.” This article sets the record straight on what the law does and does not require.
What the Law Says
SB 515 requires the seller of a home to disclose what he knows about the condition of the property, such as whether the roof leaks or whether there are plumbing or electrical problems. The disclosure form required by the law contains over 80 questions that must be answered “yes,” “no,” or “unknown.” One of the sections on the disclosure form concerns whether any remodeling of the property has occurred, and if so, whether permits were pulled and a final inspection obtained. According to the general counsel of the Oregon Association of Realtors, the purpose of the bill is to eliminate a “disclaimer” option previously allowed under which a seller could disclaim any knowledge about the condition of a property, effectively selling it “as-is.” Realtors saw the disclaimer as a problem because it led to less than full disclosure in property transactions.
More important, the disclosure statement is not a warranty. Thus, if information on the form is incorrect (say, for example, a person states that permits were pulled when they were not), a buyer could not use this as a basis on which to sue for breach of warranty. If, however, a person lies on the form, this may give rise to a claim for fraud.
What the Law Does NOT Say
Contrary to statements by DCBS, the law does not require you to get old work permitted. Rather, if you are selling your house and know that work was done without a permit, you would simply check the “no” box when asked if permits were pulled. (If you did the work yourself, you have an obligation to get permits regardless of the law.) In addition, SB 515 does not require a seller to research conditions of which they are unaware; rather, sellers can check the “unknown” box without incurring liability.
Potential Problems with the Law
While the previous disclaimer option may have led to less than full disclosure, it played an appropriate role in real estate transactions, for it allowed a seller to sell a home as-is, thus putting the onus on the buyer to conduct her due diligence. This law also presents a potential problem for people selling their home. I recently represented an individual who discovered that an addition on the home he purchased was constructed without permits by the former owner, and constructed very poorly at that. Unfortunately, the amount he was able to recover from the prior owner was less than the cost to bring the structure up to code. Now, he must sell it and disclose all of the problems he discovered during the lawsuit, making it likely that he’ll ultimately have to take a loss on the structure.
Another problem is, as demonstrated by the DCBS comments, many believe that SB 515 requires permits. Indeed, as a result of the legislation, DCBS has a “Get Legal” program that allows homeowners, for a non-refundable $350 charge, to obtain a plan review that will tell them what work was done with permits and what work and which permits are required to bring the house up to code. One person I spoke with attempted to take advantage of this program only to learn that in order to slightly modify the framing to a set of stairs for a proposed kitchen remodel, it will cost over $30,000 in remodeling because the stairs are not up to code, and if the stairs are up to code, the entire living space accessed by the stairs will need to be up to code as well. All this for a DCBS program that is neither required nor contemplated under SB 515.
In many respects, this law may backfire. Rather than being forthright and examining whether to obtain permits for existing work, a person might be better off by not learning whether permits were obtained, thus preserving his ability to check the “unknown” box on the disclosure form. As a result of the “Get Legal” program, some might learn of their property’s shortcomings, not have the financial ability to fix it, and be forced to take a hit on the offering price because they are required to inform the buyer about what they learned from the permit process. In this instance, perhaps homeowners are better off not knowing about the skeletons in the closet.
Jonathan Norling is a partner in the Portland law firm of Lovinger Norling Kaufmann LLP, where he handles
construction-related matters, including representing parties before the CCB. He can be reached at email@example.com or call 503-230-8311.