AIDS Brings Another Twist to Disclosure Rules

Twice last year, realtor Bob Linn, president of Bob Linn & Associates in Oklahoma City, confronted a thorny problem that is facing more and more brokers across the country: He was asked to sell properties for homeowners he suspected had AIDS.

“We had no guidance. How do you handle this situation?” Linn asked. “If we don’t disclose (the information) and sell the property, and later the buyer finds out, will he sue us? If we do disclose and can’t sell the property, will the seller sue us for slander?”

A Maryland realtor faced a similar problem in selling a property with a “history.”

A double murder and suicide had occurred there. He was advised by attorneys to show the house as usual and disclose the tragic occurrence sometime toward the end of the prospective buyer’s tour. But first he obtained written permission from the seller to disclose the information.

Disclosure issues--such as property defects or the use of hazardous materials--usually involve material facts and have become increasingly important in the real estate industry.

But the newest twist on the theme, that of psychological impacts, involves facts not associated with the property itself but with its owner or occupant.

California passed the first law governing disclosure of information relating to AIDS (acquired immune deficiency syndrome) in 1986.

The law was straightforward.

“If the realtor doesn’t make a disclosure, there is no legal recourse (for the buyer), based on the premise that AIDS is not a condition that affects the condition of the property,” said Alex Creel, vice president of governmental affairs for the California Assn. of Realtors.

California amended its disclosure legislation in 1987 to include deaths that had occurred on a property. If a death had occurred more than three years prior to the purchase offer, the broker and seller cannot be sued for failure to disclose it.

If the death had taken place within three years, the law is not as clear. If the property had been the site of a sensational murder or something similar that affects the value of the property, it must be disclosed. Short of that, a lawyer may or may not advise disclosure.

However, if the cause of death was AIDS or an AIDS-related illness, the seller has no obligation to disclose the information at any time under the law.

California’s law prompted the National Assn. of Realtors to write its own model legislation. At least a dozen other states had followed its example by late 1989, and as the new decade begins, dozens of other states are considering similar laws.

Such a law is necessary, Creel said, because without it, “the realtor was in the middle.” He could be sued by buyers for not disclosing and by sellers for disclosing.

“This (the disclosure issue) is a classic problem, one that we’ve had literally for years and years, although it didn’t become acute until the AIDS crisis,” said William North, NAR executive vice president.

“It’s what we call ‘disclosure of stigmatized property.’ It also might be a haunted house, or a house where a suicide or murder occurred. It could be a house of former ill repute or a house in which a prominent man flaunted a mistress to the general public in defiance of social conventions.”

Much of the concern about disclosure of psychological facts began in 1983 with a California court case, Reed vs. King, which involved the sale of a house that 10 years earlier had been the site of a multiple murder.

Both the seller and his agent told the purchaser, an elderly woman living alone, that the house was ideal for her. After moving in, neighbors told the purchaser that no one had wanted to buy the property because of the murders. The buyer sued, alleging that the property was worth less than she paid because of its stigma.

The trial court dismissed the case, but an appeals court decided that the seller has an obligation to disclose facts materially affecting the value of the property when the facts are known only to the seller and are not readily available to the buyer.

Reed vs. King was the first case to find cause for legal action against the seller for failure to disclose a stigma that adversely affected the value of a residential property.

Realtors feared that the same logic could be used to establish a legal responsibility for disclosure of other stigmas, such as the stigma that might result because a house had been inhabited by a person afflicted with AIDS.

“Historically there has been little case law on this issue of stigmatized property,” NAR’s North said. “But with AIDS, we have an advocacy bar addressing the issue. With a haunted house, its reputation is generally well known. At sometime during the purchasing process someone will make a comment, ‘Ha, ha, have you seen any ghosts yet?’ so that it is very difficult to prove damages. They are psychic damages at best.

“But with the case of AIDS, you have a major concern, a fear of the disease. Just like they used to burn homes and clothing of the victims of the Great Plague, there has been some inclination to shun areas where AIDS patients have resided. It has created considerable stress for the real estate broker community.

“The seller wouldn’t want this fact widely publicized, if the effect is to reduce the number of buyers or the price at which the property can be sold,” North said. “And both the seller and broker have a legal obligation to reveal all material facts that might influence the decision to purchase. Thus, is AIDS a material fact?”

That question was answered firmly in the negative by the federal government.

First, the report by the Presidential Commission on the Human Immuno-deficiency Virus Epidemic in June, 1988, addressed the issue of discrimination in housing and public accommodations, saying: “You cannot get AIDS from toilets, doorknobs, telephones, office machinery or household furniture.”

The next year, Congress passed an amendment to the Federal Fair Housing Act of 1968, adding the handicapped--including persons with AIDS--as a new protected class.

That meant that the real estate industry was prohibited from discriminating against those with AIDS in the sale or rental of property.

Although the legislation does not specifically address the issue of disclosure, “such a disclosure could be considered a discriminatory action which is clearly prohibited by the Federal Fair Housing Act,” according to a NAR discussion paper.

What does the real estate broker do when asked specifically by the buyer if the seller has AIDS?

“If you are asked by a potential purchaser, ‘Is there any peculiar history to this house?’ the new statutes do not authorize a broker to lie,” said Mike Finn, director of license law at NAR.

“But there are a number of options for the broker. He can say, ‘Gee, let me ask the seller and find out if there are any things he will tell you.’ But if the seller responds, ‘That’s none of your business,’ that is acceptable under the law too.”

Likewise in California, according to Creel, “the law doesn’t immunize a real estate broker and allow him to tell a lie or make an intentional misrepresentation. But that is very different from saying he must answer truthfully. He could beg off, but he couldn’t say absolutely ‘no.’ He could certainly say, ‘I am not prepared to answer that question.’ ”

The Florida Assn. of Realtors has cautioned its members to respond “honestly” if questioned specifically about the presence of an AIDS victim in a residence that is for sale.

On the other hand, Ron Dusek, public information officer for the Texas attorney general’s office responded, “How would they really know? They aren’t doctors, and without knowing the medical history, how can they make a determination?”