New York is what is known as a "caveat emptor" State - "Buyer Beware!" In the Hamptons real estate market there are many often unknown or misunderstood issues with regard to the buyer's responsibility to exercise "due diligence" when purchasing real property.
In the normal course of events, the buyer's attorney will order a title search to determine if there are any liens or encumbrances against the property. The attorney will also order a survey to establish that no undeclared improvements have been made to the property and no tax issues exist.
The contract will require that the seller turn over the property to the buyer with insurable, marketable title, free of all liens and encumbrances, and require that all certificates of occupancy be furnished before closing.
The contract is also likely to include many other issues relevant to the sale of the property; these are only some of the more well known.
But what are some of the responsibilities of the seller? One is, to disclose to the buyer, any material facts concerning the property not easily discoverable by the buyer. If you buy a property next to a gas station, or backing up to railroad tracks, that would be considered easily discoverable. An underground fuel tank may not be.
New York has what is known as "The Seller Disclosure Law." It includes a forty-eight question questionnaire filled out by the owner and presented to the buyer before going to contract. If the seller does provide it, it does not relieve the buyer of the responsibility to perform its own due diligence. In the Hamptons, it is common practice for the seller to issue a $500 credit to the buyer at closing rather than fill out the form.
Under New York Law, if a property is located in an agricultural district, it is the duty of the seller to disclose this fact to the buyer. The buyer of a one or two-family house is also entitled to two years of utility bills if they request it.
What about the seller's obligation to disclose that a murder, suicide, or death by any cause other than communicable disease occurred on the site? Does that have to be disclosed? No. The buyer may ask the question but the seller is not required to answer. This is also true with regard to sex offenders. A New York Supreme Court ruled that a seller does not have to disclose that fact. According to another New York Supreme Court ruling, it does have to disclose that a house is haunted.
For residences constructed before 1978, for sale or rental, federal law requires the seller to disclose any knowledge they have of the presence of lead. Exceptions include rentals of fewer than one hundred days, housing designed exclusively for residents sixty two years of age or older, zero bed room apartments, studios, and loft buildings, and housing already certified to be "lead-free."
Another issue that is often misunderstood: When an appraiser appraises a property paid for by the borrower, and the property is overvalued due to an error in the calculation of the square
footage of the property by the appraiser, adversely affecting the ability to refinance the property or recapture the purchase price in a re-sale, does the borrower have recourse against the appraiser? Not according to a New York Supreme Court ruling. The court stated: "Plaintiff's reliance on the misrepresentation of the size of the apartment was not reasonable or justified. Plaintiff could have easily measured the apartment for himself. Because the plaintiff "failed to do his due diligence," he could not blame the bank or its appraiser. The decision was affirmed on appeal.
John is a St. John's University graduate, licensed Real Estate broker, DOS Certified Instructor, lecturer, teaches real estate license classes at Cook Maran Real Estate School, and is a well-respected consultant to the real estate industry. He previously taught at LIU and NYU. www.johnaviteritti.com