The Property Disclosure Exemption Form After Valobra v. Nelson

Property Disclosure Exemption Form

Those in the real estate business will notice that the Louisiana Real Estate Commission has given a makeover to the Property Disclosure Exemption form (PDD) that a Seller must complete. These changes are in response to a case now on its way to the Louisiana Supreme court: Valobra v. Nelson[1].

The property at issue was a residence in Metairie sold for $1,400,000.00. In Valobra, the Plaintiffs/Buyers allege that because the Defendants/Sellers checked the box marked “no” on their PDD, instead of “no knowledge,” in response to questions regarding defects with the home, the Plaintiffs were fraudulently induced to purchase the home at issue.

The Plaintiffs in this case waived their “warranty of redhibition” in the act of sale for the property. Under La. Civil Code Article 2520, “redhibition” is an avenue for a buyer to sue the seller to return the property or get a refund of a portion of the purchase price after the sale, if the buyers discover a defect in the property that if the buyer had known about prior to the sale, he would not have bought the property.

The Defendants filed an Exception of No Cause of Action in response to Plaintiffs’ petition, stating that the Plaintiffs did not have a claim against the Defendants, because they did not allege the Defendants knew of any redhibitory defects and failed to disclose them. This motion was denied by the trial court. On appeal with the Fifth Circuit, this decision was reversed, finding that there was no fraudulent inducement by the Defendants. The appeals court specifically held:

“Plaintiffs (Buyers) argument failed to recognize that the Property Disclosure (Exemption form) does not provide a guaranty that no defects exist in the property, but rather requires disclosures of known defects to the best of the seller’s information, knowledge or belief. La. R.S. 9:3198(D) specifically states a property disclosure document is not a warranty and is not part of any contract between the buyer and the seller. In addition, buyers, such as plaintiffs, cannot rely on the property disclosure document as a substitution for inspections. Therefore, plaintiffs cannot use their alleged reliance on the Property Disclosure as an excuse for failing to obtain a comprehensive home inspection or failing to follow the advice of the inspectors to obtain more extensive inspections.”

While the Plaintiffs wait to see if the Louisiana Supreme Court will grant writs and hear their action, the Louisiana Real Estate Commission has already amended the PDD. If you compare the forms, you will see that the “N” option for “No” is no longer there. The only response choices are “Y” or “NK” for “no knowledge.”

More significant is the newly added section “Other Important Provisions of the Law:”

OTHER IMPORTANT PROVISIONS OF THE LAW:

  • A Property Disclosure Document shall NOT be considered a warranty by the SELLER.
  • A Property Disclosure Document is for disclosure purposes only; it is not intended to be part of any contract between the SELLER and the BUYER.
  • The Property Disclosure Document may not be used as a substitute for any inspections or warranties that the BUYERS or SELLER may obtain.
  • Nothing in this law precludes the rights or duties of a BUYER to inspect the physical condition of the property.
  • The SELLER shall not be liable for any error, inaccuracy, or omission, of any information required to be delivered to the BUYERS if the error, inaccuracy, or omission, was not a willful misrepresentation, according to the best of the SELLER’s information, knowledge and belief or was based on information provided by a public body or another person with a professional license or special knowledge, who provided a written or oral report or opinion that the SELLER reasonably believed to be correct and which was transmitted by the SELLER to the BUYER.

This last addition to the PDD seems to solve the Plaintiff’s arguments that arose in Valobra, regardless of what the Louisiana Supreme Court ultimately decides.  Make sure your clients are using the updated form.