SELLER'S DUTY TO DISCLOSE PROPERTY CONDITION IS ONGOING UNDER TEXAS COURT RULING

Trey Wilson San Antonio Texas Real Estate Attorney, Trey Wilson Real Estate Lawyer in San Antonio wrote:

I have written many times about the obligation of a Seller of residential real estate in Texas to disclose, in writing, material facts about the condition of property being sold. This obligation has been codified at Section 5.008 of the Texas Property Code, which requires the disclosures to be written, signed by the Seller, and delivered to the Buyer at or prior to closing of a purchase/sale of real estate. 

Section 5.008(d) expressly requires the disclosure notice to be "completed to the best of the Seller's belief and knowledge as of the date the notice is completed by the Seller."

Under the plain language of Section 5.008, it may appear that, so long as the disclosures are true when completed by the Seller and delivered to the Buyer, the Seller has fully complied with his legal obligations.  A recent (2014) court decision from the 11th Court of Appeals of Texas warns that this is not the case, and that a Seller has an ongoing duty to disclose conditions that occur following the date that the disclosures are completed by the Seller, and which render the disclosures to be incomplete or untrue.

In that case, Domel v. Birdwell, the Eastland Court of Appeals considered damages caused by a hail storm and flooding that had occurred after the Seller's completion of the required disclosures, but before the time that the Seller delivered such disclosures to the Buyer. 

The Seller failed to update the disclosures, which denied flooding, roof damage and insurance claims -- none of which had occurred when the disclosures were completed the year before the sale.   However, by the time that the ultimate Buyer came along, these events had all occurred, and the Seller simply delivered the "old" disclosures without updating them to include the flood and roof damages.

Among many unsuccessful arguments made by the Seller  was a claim that the statutory duty of disclosure -- and Section 5.008 in particular -- contains no obligation to update information.  While technically true if one were to read Section 5.008(d) in a vacuum, this argument failed.

Instead,  the Court found that a common-law obligation to update information arises from the fact that the earlier representation -- even if true when made -- becomes untrue and only "partial" based upon the new development.  That is, when one makes a representation, he has a duty to disclose new information when he is aware the new information makes the earlier representation misleading or untrue.  Untrue and partial representations are actionable under Texas law.

Here's another informative excerpt from the case:

In addition, as the Prudential court and several other Texas courts have noted, a general duty to disclose information in an arm's-length business transaction may arise when a party makes a partial disclosure that, although true, conveys a false impression. Prudential Ins., 896 S.W.2d at 162; see, e.g., Bradford,48 S.W.3d at 755-56; Hoggett v. Brown, 971 S.W.2d 472, 487 (Tex. App.-Houston [14th Dist.] 1997, pet. denied); Ralston Purina, 850 S.W.2d at 636. 

A corollary principle is that, when there is a duty to speak, silence may be as misleading as a positive misrepresentation of existing facts. Smith, 585 S.W.2d at 658 (citing Rowntree v. Rice, 426 S.W.2d 890 (Tex. Civ. App.-San Antonio 1968, writ ref'd n.r.e.)). Silence, therefore, can be equivalent to a false representation when there is a duty to speak and the party deliberately remains silent. Bradford, 48 S.W.3d at 755; SmithKline Beecham Corp. v. Doe, 903 S.W.2d 347, 353 (Tex. 1995); Smith, 585 S.W.2d at 658.

Since the Texas Supreme Court has declined to review the Birdwell case, the Eastland Court's holding will not be disturbed, and Sellers and their agents should be aware of the duty to update disclosures based on changed conditions.