When you sell a real estate property in Maryland, you are required by law to make certain disclosures about its physical condition to the buyer. There are statutes in place which require you to disclose what are called ‘latent defects’ to the buyer. Failing to do so can open you up to lawsuits from the buyer later on.

Real Estate Disclosure Laws in Maryland

When it comes to selling a real estate property in Maryland, you generally have two choices:

1. You can choose to sell your property on an ‘as-is’ basis and file a disclaimer stating that you do not make any representations or warranties with respect to its condition.     
2. You can choose to disclose the defects in your property to the buyer by filling out a questionnaire.

Choosing the Disclaimer Option

The most important thing you need to know about the disclaimer option is that it does not allow you to sell a home without disclosing any details to the buyer. Section 10-702 of Maryland’s Real Property Article states that a seller must disclose the latent defects in their property to the buyer.

Latent defects, in this context, refer to the kind of defects that the buyer might not be able to spot during an inspection. For example, if there is a problem with your roof and if the contractor tells you that it needs extensive repairs or if it needs to be replaced altogether, you are required to disclose it to the buyer, even if you file a disclaimer. Failing to do so is not only a breach of your duty as the seller, it is also against the law.

Choosing the Disclosure Option

If you choose the disclosure option, you need to fill out a form which contains a variety of different questions about your property – structural defects, repairs done in the past, presence of hazardous materials, presence of pest infestations, zoning and building code violations, and many more. All you need to do is answer ‘yes’ or ‘no’.

The form has a pretty extensive list of questions, which is likely to cover all the possible defects in your property. If there are any defects in your property that are not covered under the questions, you can add your own comments as well.

Under What Circumstances Can the Buyer Sue You?

The buyer might be able to hold you liable for the defects in the property under the following circumstances:

• If you rate a particular feature in your property as being in a much better condition than it actually is, and if it breaks down soon after the buyer moves in
• If you fail to mention a latent defect, despite being aware of it
• If you deliberately misrepresent, withhold information, or outright lie about a material defect in your property

In the aforementioned scenarios, the buyer can accuse you of not disclosing the defects in your property, file a lawsuit against you, and seek damages to cover the cost of repairs and replacements.

It should be noted that you can be held liable only for defects that you knew of or should have known about at the time of selling the property. You are not expected to be aware of and disclose every minor or unknown defect in your property.

The buyer might be able to recover damages from you only if the defects you failed to disclose are serious and/or pose a threat to the health and wellbeing to the buyer and their family.

For example, if there is a major problem with your HVAC system and if it needs to be replaced entirely, you should definitely inform the buyer of the same – even if you file a disclaimer – since it is the kind of defect that can influence the buyer’s decision.

Upon being told about the defect, the buyer might ask you to fix it as part of the contingencies that need to be fulfilled before the closing or ask you to lower the price. So, failing to disclose such a defect might result in financial losses to the buyer, in which case they might be able to take legal action against you and seek damages.

What is a Material Defect in Maryland Real Estate?

When buying or selling a home, especially in a state like Maryland, understanding the concept of a “material defect” is crucial. It’s a term that often comes up during property disclosures and inspections, and it carries significant legal implications for both buyers and sellers. In essence, a material defect is a problem with a property that a reasonable person would consider important enough to affect their decision to purchase the home, or to significantly impact the property’s value or safety.

Defining a Material Defect

In Maryland, a material defect is generally understood as a latent (hidden) physical defect that:

1. Substantially impairs the value of the property: This means the defect significantly reduces what the property is worth.
2. Adversely affects the health or safety of an occupant: The defect poses a risk to anyone living in the home.
3. Is not readily observable by a careful inspection: The defect isn’t something a buyer could easily see during a walk-through or even a standard home inspection without special equipment or invasive procedures.

It’s important to differentiate a material defect from minor cosmetic issues or normal wear and tear. A leaky faucet, a scuff on the wall, or an aging appliance that still functions are typically not considered material defects. However, a persistent roof leak leading to structural damage, a faulty foundation, or a hazardous electrical system would certainly qualify.

Seller Disclosure Requirements in Maryland

Maryland law, specifically the Maryland Real Property Article, Section 10-702, mandates that sellers of residential property complete a “Residential Property Disclaimer Statement” or a “Residential Property Disclosure Statement.” This is where material defects become a central point of discussion.

• Disclaimer Statement: If a seller chooses to use a disclaimer statement, they are essentially selling the property “as is” and are not making any representations or warranties regarding the property’s condition. However, even with a disclaimer, a seller is still obligated to disclose any known latent material defects. This is a critical point: you cannot simply disclaim away knowledge of a serious, hidden problem.
• Disclosure Statement: If a seller chooses the disclosure statement, they must answer specific questions about the property’s condition, including its structural components, systems (HVAC, plumbing, electrical), environmental hazards (lead paint, radon), and water and sewer issues. This option requires the seller to actively disclose any known defects.

The purpose of these disclosure laws is to protect buyers by providing them with information about the property’s condition that might not be apparent. It also protects sellers by clearly outlining their responsibilities and limiting their liability for unknown defects.

Examples of Common Material Defects

Understanding what might constitute a material defect can be challenging, but here are some common examples:

• Structural Issues: Foundation cracks that compromise the stability of the house, significant bowing walls, or severe termite damage affecting load-bearing elements.
• Water Intrusion and Mold: Persistent leaks in the roof, basement, or plumbing that lead to significant water damage, rot, or widespread mold growth.
• HVAC System Problems: A heating or air conditioning system that is completely non-functional, improperly installed, or poses a carbon monoxide risk.
• Electrical System Hazards: Outdated or improperly wired electrical systems that create fire hazards, frequent power surges, or non-functional outlets due to faulty wiring.
• Plumbing Issues: Major pipe leaks, sewage backups, or a septic system failure that renders the property uninhabitable or causes significant damage.
• Environmental Hazards: Undisclosed lead-based paint (in homes built before 1978), high levels of radon gas, asbestos, or underground oil tanks that are leaking.
• Drainage Problems: Significant grading issues around the house that cause water to pool against the foundation, leading to water intrusion.
• Roofing Problems: A roof that is at the end of its lifespan and actively leaking, or has significant damage that requires immediate replacement.

It’s important to note that the “materiality” of a defect can sometimes be subjective and may depend on the specific circumstances and the severity of the issue.

The Role of Home Inspections

While sellers are required to disclose known material defects, buyers should always conduct their own thorough due diligence, which includes a comprehensive home inspection. A professional home inspector can often uncover latent defects that even the seller may not have been aware of.

If an inspection reveals a material defect, the buyer typically has several options, depending on the terms of the purchase agreement:

• Negotiate Repairs: Request that the seller repair the defect before closing.
• Negotiate a Credit: Ask for a credit at closing to cover the cost of repairs.
• Renegotiate Price: Seek a reduction in the purchase price.
• Terminate the Contract: If the defect is severe and the parties cannot reach an agreement, the buyer may have the right to terminate the contract.

The inspection contingency in the purchase agreement is designed to allow buyers to back out of the deal if significant issues are discovered.

What if a Seller Fails to Disclose?

If a seller knowingly conceals a latent material defect, or misrepresents the condition of the property, they can face legal consequences. Buyers who discover an undisclosed material defect after closing may have grounds to sue the seller for misrepresentation, fraud, or breach of contract. Proving that the seller knew about the defect and intentionally failed to disclose it can be challenging, but it is possible with sufficient evidence.

This is why accurate and honest disclosure is so vital for sellers. It protects them from potential litigation down the road.

In Maryland real estate, a material defect is more than just a minor flaw; it’s a significant issue that affects the property’s value, safety, or habitability and is not easily discoverable. Maryland law places a clear responsibility on sellers to disclose known latent material defects, whether through a disclosure or disclaimer statement. For buyers, understanding this concept and utilizing professional home inspections are crucial steps to protect their investment and ensure they are purchasing a safe and sound home. Both parties benefit from transparency and thorough due diligence throughout the real estate transaction process.

Real Estate Lawyers in Maryland

The real estate attorneys at the Law Offices of Matthew S. Evans III LLC are well versed with the federal, state, and local regulations regarding real estate transactions.

If you are planning to sell a property, we can tell you what you need to and need not disclose to the buyer, review all the documents related to the transaction, and oversee the whole process to make sure that your rights and interests as a seller are protected.

You can contact our real estate attorneys at (410) 626-6009 for a free consultation.