Should My Sellers Check “No” or “NK” on the Property Disclosure Form?

Question

My Sellers are trying to fill out the property disclosure form, but are unsure how to answer some of the questions.

For the questions about which the Sellers are unsure, should Sellers check “No” or “NK” (i.e. “No Knowledge”)?

Answer

This is a very good question and I’m sure my Answer is going to cause a stir with a lot of Real Estate Brokers throughout Louisiana.

For years I’ve told Real Estate Agents that if Sellers are not 1,000,000,….etc.% positive of an answer to one of the questions on the Property Disclosure form, the Seller should check “NK.”

Every time I provided this recommendation in the past, Brokers would let me know that a Property Disclosure form becomes relatively useless if it is littered with “NK” responses.

Well, we now have a Louisiana Supreme Court case entitled Valobra v. Nelson, 136 So.3d 793 (Louisiana 2014), that creates a pretty significant issue for Sellers who check “No” on the Property Disclosure form instead of “NK”.  (This case also supports the recommendation that I’ve been giving for years on this issue!!).

Here are the facts:

On April 25, 2012, Plaintiffs/Buyers purchased a residence located in Metairie, Louisiana from The Allan R. & Louise Nelson Revocable Trust and The Allan R. Nelson Marital Trust for $1.4 million.

On February 24, 2012, the Trusts co-trustees executed a Sellers’ Property Condition Disclosure form wherein they represented the property’s condition.

When selecting from the option to choose “Yes,” “No,” or “NK” to the various questions asked, the Trustees checked the “No” boxes for each inquiry regarding defects in the property (with a few exceptions where they checked “NK”).

Based upon the “NK” responses and the pre-sale inspection, the Plaintiffs/Buyers averred they agreed to purchase the property “As Is” and waive their Redhibition rights.

Subsequent to the sale, in October 2012, the Plaintiffs/Buyers filed suit against the Trusts/Sellers alleging the property was found to have numerous and major defects.  Plaintiffs/Buyers essentially alleged the following adverse to Sellers:

  1. Sellers committed fraud when they checked “No,”;
  2. This fraud induced Plaintiffs/Buyers to waive their Redhibition rights; and
  3. Due to this alleged fraud, Plaintiffs/Buyers could not be bound to the Redhibition waiver

 

In other words, Plaintiffs/Buyers alleged they should be able to maintain a lawsuit against Sellers to reduce the sales price and/or rescind the sale due to defects in the property.

The Trusts/Sellers denied any liability and asserted they were never in a position to know of any defects that may have existed in the property.

The Trial Court and Court of Appeals dismissed the Plaintiffs/Buyers lawsuit.

However, the Louisiana Supreme Court overturned the dismissals and remanded the case back to the lower Courts for further proceedings.

According to the Louisiana Supreme Court, Sellers committed two fatal errors:

  1. Sellers failed to advise the plaintiffs that they were not in a position to know one way or another whether the property contained defects; and
  2. By checking “No” (instead of “NK”), Sellers intentionally misled the plaintiffs into believing that the Sellers were in a position to know the condition of the property and that the property did not contain any defects.

 

So, what are Real Estate Agents supposed to do with this?  At the present time, it might be wise to consider the following:

  1. If Sellers are not in a position one way or another to disclose whether the property has any defects, Sellers should disclose this fact to Buyers in writing;
  2. If Sellers are not 1,000,000….etc.% sure of an answer to a question on the property disclosure form, Sellers should check “NK.”