Revisions to Residential Property Seller's Disclosure Requirements in Oregon

Prior to January 1, 2004, sellers of residential property in Oregon had a fundamental choice between disclosing specific facts about the condition of the property being sold or disclaiming all representations and warranties about the condition of the property. Now that Senate Bill 515 has taken effect, the option to disclaim and sell "AS IS" is no longer available. This is perhaps the most dramatic of several substantive changes made to ORS 105.465 et seq. (the statutory section establishing the disclosure obligations of a seller of real property improved by one to four dwelling units) by the enactment and codification of S.B. 515.

No More Disclaimer

Effective January 1, 2004, residential property sellers no longer have the option to disclaim representations regarding the condition of the property. The only option remaining for the seller under ORS 105.465 is to complete the statutory Seller's Property Disclosure Statement. Removal of the disclaimer option from ORS 104.465 does not necessarily mean that one must be completed. The only recourse for a buyer who has not received a completed Disclosure Statement is for the buyer to revoke the buyer's offer at any time prior to the closing of the transaction.

Consequently, a seller who is determined not to make any disclosures could proceed without completing the Disclosure Statement, as long as the seller is willing to accept the financial risk associated with the buyer retaining the right to walk away from the deal at any point prior to closing. Although proceeding without the Disclosure Statement may not represent significant exposure for the seller in terms of the disclosure requirements of ORS 105.465, this course of action would not necessarily insulate the seller from liability for any underlying fraud or misrepresentation claims which could arise in connection with the condition of the property.

Changed Disclosure Statement

The Disclosure Statement has been revamped by S.B. 515. The previous version of the Disclosure Statement had only two choices for each question ("Yes" or "No"), and also included the phrase "To your knowledge" or "Are you aware of" before most of the individual questions. The revised Disclosure Statement has added an "Unknown" response option for all of the questions on the statement. Thus, a seller may represent a lack of knowledge with respect to any or all of the items on the list.

Additionally, both the old form and the new form contain an acknowledgment from the buyer that the seller's representations in the Disclosure Statement are "to seller's actual knowledge… at the time of disclosure." Although it may seem at first glance that the revised Disclosure Statement is seeking a higher standard of representation from the seller by removing the phrases "to your knowledge" and "are you aware of," the actual change effected by the revision is to restructure the format, not the content, of the Disclosure Statement with respect to the level of the seller's knowledge.

In addition to the revisions to the format of the Disclosure Statement, S.B. 515 has made a number of substantive additions to the scope of the Disclosure Statement. These additional matters may be summarized as follows:

1. Existence of claims which may affect the seller's title to the property;
2. Existence of a special tax assessment or tax treatment that may generate additional tax liability with respect to the property;
3. Whether the water source for household water requires a permit and, if so, whether a permit has been obtained;
4. If the source of water is from a well or spring, whether flow tests, bacteria tests, or chemical contents tests have been performed within the previous 12 months;
5. If the property includes an on-site septic system, whether the system was installed by permit, whether the system has been repaired or altered, whether the condition of the system has ever been evaluated, and whether the system has ever been pumped;
6. An expansion of the scope of the disclosure item regarding moisture problems in the dwelling structure to include disclosure of areas of water penetration, mildew odors, or other moisture conditions;
7. An expansion of the scope of the disclosure regarding the dwelling structure to reflect whether any materials used in the construction of the structure are or have been the subject of a recall, class action suit, or litigation;
8. An expansion of the scope of the representation regarding dwelling systems and fixtures (e.g., electrical, plumbing, appliances) to reflect seller's knowledge, if any, about materials or products used in the systems and fixtures of the property which have been the subject of a recall, class action, or other litigation;
9. The seller is required to disclose whether a homeowner's association is a party to pending litigation or is subject to an unsatisfied judgment; and
10. The seller is required to disclose whether the property is in violation of any recorded covenants, conditions, restrictions, bylaws or other governing rules.

Status of Disclosure Exceptions

The revised version of ORS 105.470 has eliminated the exemption from disclosure for sellers who have never occupied the property. Accordingly, residential investment property sellers are now required to complete a Disclosure Statement even if they have never lived in or otherwise occupied the property. Like its predecessor, the revised version of ORS 105.470 retains carve-outs so that the first sale of a dwelling not previously occupied does not require a Disclosure Statement. ORS 105.470 also has retained the exemptions from disclosure for sales by financial institutions that have acquired the property through foreclosure or deed in lieu of foreclosure, and for sales or transfers by governmental agencies.

The previous version of ORS 105.465 contained explicit carve-outs and limitations of the applicability of the seller's representations in the Disclosure Statement, such that financial institutions were expressly disassociated from those seller representations. The revised version of ORS 105.465 retains these exclusions for financial institutions, and additionally insulates real estate professionals.

Finally, it is worth noting that the revised version of ORS 105.465 has retained the exemption from Disclosure Statement requirements for sales in which the buyer intends to use the property for purposes other than a residence for the buyer or the buyer's immediate family. If the buyer is an investor who will not be living in the property and the buyer affirmatively declares this to the seller, then the seller is not required to complete a Disclosure Statement and the buyer will not have the right to revoke the buyer's offer based on not having received a Disclosure Statement.