Property Disclosures and As-Is Sales

In Tennessee, sellers of residential property must either provide a residential property disclosure statement in the form provided in Tenn. Code Ann. § 66-5-210, a residential property disclaimer statement stating that the owner makes no representations or warranties as to the condition of the property and that the purchaser will be receiving the property “as is”, or an exemption form stating that the sale is exempt from disclosing the property condition. These disclosure, disclaimer, and exemption forms are required by sellers for every transaction, even when there are no licensed real estate agents involved. 

For sellers who desire to sell their property as-is, it is important to understand that not only must the buyer waive their right to a full disclosure for an as-is sale, but also the seller must answer a series of questions found in the Tennessee Residential Property Condition Disclaimer Statement. The Tennessee legislature passed § 66-5-212, § 66-5-213, and § 68-221-409, describing required disclosures that a seller must disclose in any real estate purchase contract. These include: (1) the presence of an exterior injection well, (2) the results of any percolation tests or soil absorption rate performed on the property, (3) whether a single family residence located on the property has been moved from an existing foundation to another foundation, (4) the presence of a known sinkhole on the property, (5) whether the property is a Planned Unit Development, and (6) the existence of a permit for a subsurface sewage disposal system issued during a moratorium that may put the buyer under an obligation to connect to the public sewer system. These sections do not contain any exceptions to disclosure for purchasers that opted for the disclaimer form. Essentially, the six questions must be answered even with an as-is sale.

Tennessee Code 66-5-202 states as follows:

Required disclosures or disclaimers.

With regard to transfers described in § 66-5-201, the owner of the residential property shall furnish to a purchaser one of the following:

(1) A residential property disclosure statement in the form provided in this part regarding the condition of the property, including any material defects known to the owner. Such disclosure form may be as included in this part and must include all items listed on the disclosure form required pursuant to this part. The disclosure form shall contain a notice to prospective purchasers and owners that the prospective purchaser and the owner may wish to obtain professional advice or inspections of the property. The disclosure form shall also contain a notice to purchasers that the information contained in the disclosure are the representations of the owner and are not the representations of the real estate licensee or sales person, if any. The owner shall not be required to undertake or provide any independent investigation or inspection of the property in order to make the disclosures required by this part; or

(2) A residential property disclaimer statement stating that the owner makes no representations or warranties as to the condition of the real property or any improvements thereon and that purchaser will be receiving the real property “as is,” that is, with all defects which may exist, if any, except as otherwise provided in the real estate purchase contract. A disclaimer statement may only be permitted where the purchaser waives the required disclosure under subdivision (1). If the purchaser does not waive the required disclosure under this part, the disclosure statement described in subdivision (1) shall be provided in accordance with the requirements of this part.

Despite the fact that the Tennessee legislature codified the disclosure form, the Tennessee legislature did not provide a disclaimer form.  However, according to the statute ,in situations where the disclaimer rather than disclosure is being provided, sellers must state that they are making no representations or warranties as to the condition of the property or improvements thereon and the parties must agree that the property is being sold “as is” in its current condition with all defects which may exist. See Tenn. Code. Ann. § 66-5-202. 

From the perspective of the buyer, while waiving the right to a disclosure form will allow the seller to not disclose any number of known defects involving the property, a waived disclosure may be a more attractive to a seller. A buyer may choose to agree to the waiver of such disclosures and purchase a property as-is, especially in situations where there are multiple interested buyers. 

 But what would occur if the buyer concedes to an as-is sale and the seller does not provide answers to the required six questions found in the disclaimer form? Many disclaimer forms regularly used by real estate agents in Tennessee state that by signing the form, the seller makes no representations or warranties as to the condition of the property other than those required by Seller pursuant to Tenn. Code. Ann. §§ 66-5-212 and 66-5-213. Tenn. Code. Ann. § 66-5-212 states that with a disclaimer, the seller is selling the property with no representations or warranties as to the condition of the property “except as otherwise provided in the real estate purchase contract.” Furthermore, many purchase and sale agreement forms used by real estate agents in Tennessee state that the seller must disclose the six aforementioned conditions related to the property. These disclosures are also appear on many Tennessee Residential Property Condition Exemption Forms used by Tennessee real estate agents.

Tenn. Code Ann. § 66-5-208 states as follows:

Remedies for misrepresentation or nondisclosure.

(a) The purchaser's remedies for an owner's misrepresentation on a residential property disclosure statement shall be either:

(1) An action for actual damages suffered as a result of defects existing in the property as of the date of execution of the real estate purchase contract; provided, that the owner has actually presented to a purchaser the disclosure statement required by this part, and of which the purchaser was not aware at the earlier of closing or occupancy by the purchaser, in the event of a sale, or occupancy in the event of a lease with the option to purchase. Any action brought under this subsection (a) shall be commenced within one (1) year from the date the purchaser received the disclosure statement or the date of closing, or occupancy if a lease situation, whichever occurs first;

(2) In the event of a misrepresentation in any residential property disclosure statement required by this part, termination of the contract prior to closing, subject to § 66-5-204; or

(3) Such other remedies at law or equity otherwise available against an owner in the event of an owner's intentional or willful misrepresentation of the condition of the subject property.

(b) No cause of action may be instituted against an owner of residential real property subject to this part for the owner's failure to provide the disclosure or disclaimer statement required by this part. However, such owner would be subject to any other cause of action available in law or equity against an owner for misrepresentation or failure to disclose material facts regarding the subject property that exists on July 1, 1994.

(c) No cause of action may be instituted against a closing agent or closing attorney for the failure of an owner to provide the disclaimer or disclosure required by this part or for any misrepresentations made by a seller on the disclosure form supplied to the purchaser pursuant to this part.

(d)

(1) No cause of action may be instituted against a real estate licensee for information contained in any reports or opinions prepared by an engineer, land surveyor, geologist, wood destroying inspection control expert, termite inspector, mortgage broker, home inspector, or other home inspection expert. A real estate licensee may not be the subject of any action and no action may be instituted against a real estate licensee for any information contained in the form prescribed by § 66-5-210, unless the real estate licensee is signatory to such.

(2) Nothing in this subsection (d) shall be construed to exempt or excuse a real estate licensee from making any of the disclosures required by § 62-13-403, § 62-13-405 or § 66-5-206, nor shall it be construed to remove, limit or otherwise affect any remedy provided by law for such a failure to disclose.

(e) The failure of an owner to provide a purchaser the disclosure or disclaimer required by this part shall not have any effect on title to property subject to this part and the presence or absence of such disclosure or disclaimer is not a cloud on title and has no effect on title to such property.

According to this statute, a cause of action may exist against the owner of the property for failure to disclose material facts regarding the subject property if the seller had knowledge of the existence of any of the six conditions when the form was signed. If there is evidence that the seller had knowledge of a sinkhole or the existence of a PUD and failed to disclose that information in the disclaimer form, remedies may include action damages suffered as a result of the defects. It is important to understand that if a  buyer and seller close on the home with the absence of the six disclaimer questions being answered as required by the Tennessee Code, the buyer might have a claim against the seller for lack of providing the required disclosures.